Fitch: Sandy's Impact On U.S. RMBS Likely To Be Modest
The widespread storm damage along the Mid-Atlantic and Northeast coast is unlikely to result in any lasting effect on U.S. RMBS performance, although a modest and temporary increase in mortgage delinquency could occur, according to Fitch Ratings.
The storm resulting from Hurricane Sandy has left millions without power, has caused extensive flooding and has resulted in at least 50 deaths. Although total damage figures will not be known for some time, several preliminary estimates have projected the total economic losses could be over $20 billion.
To assess the storm's impact on RMBS performance, Fitch looked to the experience of Hurricane Katrina, which struck the Gulf Coast in August of 2005. Katrina resulted in over 1,800 deaths and caused total economic losses close to $100 billion in a region smaller than that affected by Sandy.
In the months immediately following Katrina, mortgage delinquency rose dramatically in the areas directly affected, almost tripling from 17% to 45% of all loans outstanding. But within a year, as people temporarily displaced returned home, insurance proceeds were received and as businesses returned to normal, delinquency quickly improved to 25% in the areas affected -- roughly a 1.4x increase to the level of delinquency prior to the storm.
Although the disruption caused by Sandy will likely prove to be significantly less than that caused by Katrina, a similar 1.4x delinquency increase in the areas most affected by Sandy would generally have a modest overall impact on RMBS pools since the states of New York, New Jersey and Pennsylvania only account for roughly 12% of outstanding RMBS mortgage loans. Second-homes will likely be disproportionately affected along the coast, but second-homes within the states most-affected by the storm only account for roughly 1% of the total mortgage pools on average.
Additionally, Fitch believes servicers are better equipped to handle short-term hardships today than they were in 2005 due to the significant investments in mitigation and modification programs over the last several years. Consequently, long-term payment problems due to a short-term disruption are less likely with Sandy than with Katrina.
Fitch does not currently anticipate placing any RMBS classes on Rating Watch as a result of the storm. However, damage assessments are still preliminary and related developments will continue to be monitored closely.
Additional information is available at 'www.fitchratings.com'.