Fitch Ratings: Natural Disasters Have Minimal Impact on Mortgage Insurer Credit Ratings

Fitch Ratings assures that recent natural disasters won't significantly impact mortgage insurer credit ratings, despite a slight uptick in delinquencies.

Fitch Ratings recently assessed the repercussions of natural disasters, such as the wildfires in Southern California and hurricanes Milton and Helene, which have ravaged homes and businesses across multiple regions.

Their conclusion? The impact on mortgage insurers’ credit ratings and claims experience will likely remain minimal.

Minimal Impact on Credit Ratings

Concerns have arisen regarding how borrowers might manage rebuilding after such devastating events, but Fitch projects only a slight uptick in mortgage delinquencies.

Overall, the financial health of mortgage insurance companies should not take a significant hit.

Role of Property Insurance

Fitch emphasized that homeowners primarily rely on property insurance to shield them in such situations.

However, they’ve noted that coverage might not fully encompass the rebuilding expenses.

For instance, the estimated damages from the recent Palisades and Eaton wildfires in Los Angeles could soar as high as $45 billion.

Similarly, Hurricane Helene could result in losses of about $47.5 billion, while Hurricane Milton may lead to an estimated $28 billion in damages along the Southeastern coast.

Defaults and Recovery Rates

It’s crucial to clarify that mortgage insurance does not extend to damages caused by natural disasters—such as floods or wildfires.

Instead, its main purpose is to protect against the risk of borrower defaults.

There are specific conditions outlined in mortgage insurers’ master policies that may prevent claims from being honored, particularly when properties become uninhabitable or cannot be restored to their original condition.

Interestingly, Fitch pointed out that defaults due to natural calamities typically resolve at rates higher than those triggered by job losses or reduced income.

This favorable outcome can often be attributed to various loss mitigation strategies implemented by federal programs and mortgage servicers.

While recent trends show an uptick in delinquencies, marking the highest rate of overdue loans in three years, Fitch remains optimistic.

They believe that any temporary shortfalls in interest payments to bondholders due to these delinquencies will likely be offset in future periods due to the robust structures inherent in residential mortgage-backed securities.

Source: Housingwire