Ser­vic­ing

Ap­prox­i­mately 300,000 mort­gage bor­row­ers will miss at least one pay­ment on their loan be­cause of the storm, with 160,000 not mak­ing three or more pay­ments.

National Mortgage News - - Front Page - BY BRAD FINKEL­STEIN

OVER ONE-QUAR­TER OF ALL MORT gages in the ar­eas af­fected by Hur­ri­cane Har­vey are likely to be­come delin­quent within four months be­cause of the storm, ac­cord­ing to an anal­y­sis from Black Knight.

Ap­prox­i­mately 300,000 mort­gage bor­row­ers will miss at least one pay­ment on their loan be­cause of the storm, with 160,000 not mak­ing three or more pay­ments.

Black Knight mod­eled this es­ti­mate based on changes in the delin­quency rate in Louisiana and Mis­sis­sippi fol­low­ing Hur­ri­cane Ka­t­rina in 2005, said EVP Ben Gra­boske in a press re­lease.

Mort­gage delin­quen­cies in af­fected ar­eas in Louisiana and Mis­sis­sippi peaked at 34%, with the rate of se­ri­ously delin­quent loans peak­ing at 16%. But there were far fewer mort­gage prop­er­ties af­fected by Ka­t­rina than for Har­vey, only 456,000 loans with an un­paid prin­ci­pal bal­ance of $46 bil­lion.

“There are 1.18 mil­lion mort­gaged prop­er­ties in Har­vey-re­lated disas­ter ar­eas, more than twice as many as were hit by Hur­ri­cane Ka­t­rina, with nearly four times the un­paid prin­ci­pal bal­ance (of $179 bil­lion),” said Gra­boske.

“This will be a long- term re­cov­ery. If the Har­vey- re­lated disas­ter ar­eas fol­low the same tra­jec­tory as those hit by Ka­t­rina, within four months we could be look­ing at as many as 160,000 bor­row­ers fall­ing 90 or more days past due on their mort­gages.”

Through July, the Houston-area had a 5.1% delin­quency rate with se­ri­ously delin­quent loans at 1.8%, Black Knight said.

There are mora­to­ri­ums on fore­clo­sures and pay­ment for­bear­ance plans in place for loans sold to Fan­nie Mae and Fred­die Mac or in­sured by the Fed­eral Hous­ing Ad­min­is­tra­tion. High loan-to-value ra­tio mort- gages sold to Fan­nie Mae and Fred­die Mac nor­mally would be cov­ered by pri­vate mort­gage in­sur­ance in case of de­fault.

But the mas­ter pol­icy that gov­erns the re­la­tion­ship be­tween the MIs and mort­gage lenders specif­i­cally states that if phys­i­cal dam­age was the prin­ci­pal cause of the de­fault, it can deny a lender’s claim made fol­low­ing the loan go­ing into fore­clo­sure.

The MIs are mak­ing an ef­fort to work with lenders and bor­row­ers in the af­fected area.

“Ra­dian is com­mit­ted to work­ing with our cus­tomers to pro­vide mort­gage re­lief to home­own­ers who have been im­pacted by Hur­ri­cane Har­vey; we’re aligned with all of the GSE disas­ter as­sis­tance poli­cies,” Emily Ri­ley, a com­pany spokes­woman, said in a state­ment.

His­tor­i­cally MGIC has not seen any ma­te­rial im­pact as a re­sult of nat­u­ral dis­as­ters even though ser­vicers may re­port higher delin­quen­cies like in the case of Ka­t­rina, said spokesman Mike Zim­mer­man.

Two credit rat­ings agen­cies, Morn­ingstar Credit Rat­ings and S&P Global Rat­ings, have nev­er­the­less re­leased some pre­lim­i­nary es­ti­mates for Irma’s im­pact.

Morn­ingstar projects that $38.94 bil­lion of CMBS loans in Florida could be im­pacted; it sees another $19.38 bil­lion of ex­po­sure in Ge­or­gia, $5.16 bil­lion in Alabama, and $5.03 bil­lion in South Carolina.

S&P-rated col­lat­eral ex­po­sure to Hur­ri­cane Irma in Florida is much smaller, at $11.2 bil­lion; the rat­ing agen­cies did not pub­lish es­ti­mates for other states in the storm’s path.

Es­ti­mates for the im­pact of Hur­ri­cane Har­vey also vary widely. Morn­ingstar be­lieves that 1,529 prop­er­ties back­ing $19.40 bil­lion of se­cu­ri­tized loans may be at “el­e­vated risk” be­cause of flood­ing.

Fitch thinks that dam­age from Hur­ri­cane Har­vey po­ten­tially af­fects some $10.4 bil­lion of loans in CMBS that it rates.

S&P iden­ti­fied 288 loans to­tal­ing $5.2 bil­lion back­ing deals it rates. No­tably, two of the loans, one on the Green­way Plaza and the other on the Houston Gal­le­ria, serve as sole col­lat­eral for sin­gle-bor­rower deals.

That doesn’t mean there will be tens of bil­lions of dol­lars of losses, how­ever. Not all of the prop­er­ties in the hur­ri­cane’s paths will be dam­aged, and much of the dam­age will be cov­ered by in­sur­ance.

Busi­ness in­ter­rup­tion in­sur­ance should also al­low bor­row­ers to make pay­ments on prop­er­ties that are tem­po­rar­ily is un­in­hab­it­able or un­us­able.

“You don’t nec­es­sar­ily see waves of de­fault be­cause prop­er­ties are not in ser­vice,” said Ed­ward Dittmer, se­nior vice pres­i­dent, CMBS an­a­lyt­ics, at Morn­ingstar.

Nev­er­the­less, there could be a short-term rise in de- lin­quen­cies, par­tic­u­larly for prop­er­ties that are ap­proach­ing ma­tu­rity and must be re­fi­nanced. (CMBS loans gen­eral- ly have terms of 10 years and amor­tize very lit­tle; the bulk of the prin­ci­pal is due in a fi­nal “bal­loon” pay­ment.)

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