Mortgage Daily Logo

Katrina’s Impact on Mortgage Industry

Mortgage News


Katrina’s Impact on Mortgage IndustryRatings agencies see limited impact from hurricane

September 19, 2005


Analysts pouring through loan transactions backed by properties in areas affected by Hurricane Katrina see little impact to the mortgage industry from what may be one of the country’s worst natural disasters.

Standard & Poor’s Ratings Services recently announced its preliminary evaluation of 3,629 outstanding transactions that were issued between January 2000 and September 2005 with original exposure to the four states hardest hit by Katrina.

The ratings agency expects the hurricane’s impact on U.S. residential mortgage-backed securities to be relatively limited.

“Our primary rating criteria requires issuers and sellers to have the proper representations and warranties in place for all loans in a trust at closing,” said credit analyst Terry Osterweil, an S&P director of the RMBS Ratings group, in the announcement. “These reps and warranties must state that the homes are in good repair, flood insurance is in effect when necessary, and that hazard insurance is in place.”

The law reportedly requires that federally regulated mortgage lenders ensure that houses in a designated flood zone have and regularly renew flood insurance for the lesser of $250,000 or the outstanding principal balance of the loan less the land value.

Apart from built-in, risk-insulating features on loans, S&P said mortgage-servicing policies will also assist in issues that will arise from the hurricane, such as “handling delinquency advances, property inspections, forbearance plans, and filing of insurance claims,” as well as in administering “any federal aid that is distributed for properties in the affected areas.”

The combination of such risk-mitigating factors will either eliminate or reduce potential losses for a majority of the deals that include affected mortgages, S&P reported.

The overall impact on U.S. RMBS is also expected to be relatively nominal due to the limited concentration of loans in those areas, according S&P credit analyst Robert Pollsen.

“Upon examination, we found that hundreds of these had no loans in Alabama, Louisiana, and Mississippi,” Pollsen said in the announcement. “It’s also been widely reported that there were no areas in Florida that were categorized by FEMA as federal disaster areas.”

In line with S&P, Mark DiRienz, managing director of Moody’s RMBS group, recently told, that while Moody’s is still in an information-gathering phase, it also does not expect Katrina to have a significant impact on existing or future RMBS transactions.

DiRienz explained that loans from affected areas “simply just don’t represent a significant percentage of any [existing] transaction,” and he also pointed to the representations and warranties new deals coming to the market generally have. Additionally, issuers that are concerned about investors are voluntarily excluding loans of the affected areas from securitizations at this time, he added.

Fitch Ratings appears to be on the same train of thought as it recently said in an announcement that on certain insured structured finance exposures, such as residential mortgage-backed securities and manufactured housing loans, it “does not envision material credit deterioration or incurred losses with respect to structured finance exposures, due primarily to the diverse nature of the majority of the underlying collateral.”

The recent hurricane, however, will cause an increase in delinquencies, given the high level of personal tragedy, the general destruction of local infrastructure, and the loss of employment, S&P said.

The Mortgage Bankers Association, which posts information on its mortgage lender resource center about what HUD, Ginnie Mae, Fannie Mae, Freddie Mac and other prominent industry organizations are doing and advising in respect to the hurricane, recently reported that national mortgage delinquency begun its expected ascent in the second quarter and that it will gain momentum due in part to Katrina.

MBA chief economist Doug Duncan said in a conference call Thursday an estimated 360,000 loans valued up to $48 billion could be directly or indirectly impacted. However, he described the effect would be an “uptick in delinquency rates over the next few quarters in the states impacted by Hurricane Katrina, especially Louisiana and Mississippi.”

Angelo Mozilo, chief executive of the nation’s largest mortgage originator Countrywide Financial Corp., recently commented that the company expects financial losses to exceed those caused last year.

“The Company’s hurricane losses in 2004 were approximately $70 million, and expectations are that the financial impact of Hurricane Katrina will exceed that amount,” Mozilo said in a press release. “We are continuing to focus on assisting our customers and employees as they deal with the hurricane’s aftermath.”

But, Insurance Information Institute Vice President Loretta Worters told mortgage companies should not be significantly affected by the housing losses caused by Katrina. For example, about 40 percent of the homes in the city known as the Big Easy, which lies below sea level, have flood insurance.

“Most of the damage in the New Orleans area will be from flooding,” Worters said. “If part of the damage is sustained from (hurricane) winds and partly from flood both homeowners insurance and the [National Flood Insurance Program] would pay for it.”

Coco Salazar is an assistant editor and staff writer for

Related Posts

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

There is No Such Thing as a Free House …

Over the past several years, those who service loans in the State of Washington(1) have seen a dramatic rise in the number of lawsuits in which delinquent borrowers seek to quiet title to their homes on the grounds that lenders are barred from foreclosing based on...

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

The Mortgage Graveyard 2018 Archives

The Mortgage Graveyard 2018 Archives Failed, Struggling and Acquired Mortgage-Related Companies Non-Bank Closures 3 Bank Failures (FDIC) 0 Credit Union Failures 0 Total Mortgage-Related Failures 3  

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

MBS Statistics

MBS Statistics Non-Agency Issuance 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Private Label RMBS Issuance (S&P) $80 billion to $100 billion (est) $70 billion $34...

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

Sample E-Mail

Sample E-Mail   Covering the Real Estate Finance Since 1999  Mortgage Industry News free news content | view headlines online  Advertorial Text Ad This ad includes a linked bold headline of up to 50 characters and up to 100 words of text. The ad can be...

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming home closing documents have been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners. After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage...


Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI