$700 Billion Unpaid Mortgage Balances In Hurricane Harvey And Irma Disaster Areas

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Even as the damage from Hurricanes Harvey and Irma is still being tallied, a preliminary assessment released last week by Black Knight Financial Services estimated that as many as 300,000 borrowers in the vicinity of Houston could become delinquent on their loans and 160,000 could become seriously delinquent, or more than 90 days past due.

That number is roughly four times the original prediction because new disaster zones were designated and more homes flooded when officials released water from reservoirs to protect dams, according to CNBC’s Diana Olick. In total, the number of mortgaged properties in Texas disaster zones is 1.18 million, with Black Knight adding that Houston disaster zones contain twice as many mortgaged properties than Katrina zones, with four times the unpaid principal balance.

Putting the Harvey damange in context, after Hurricane Katrina mortgage delinquencies in Louisiana and Mississippi disaster areas spiked by 25%. The same could happen in Houston, as borrowers without flood insurance weigh their options and decide to walk away from the property. While they will get some federal relief, if rebuilding would cost more than the principal in their homes, they could decide to walk away according to Olick.

What about Irma?

According to a preliminary analysis by Black Knight released today, Florida FEMA-designated disaster areas related to Hurricane Irma include a whopping 3.1 million mortgaged properties. As Black Knight’s EVP Ben Graboske explained, both the number of mortgages and the unpaid principal balances of those mortgages in FEMA-designated Irma disaster areas are significantly larger than in the areas impacted recently by Hurricane Harvey.

Quantifying the damage, Black Knight calculates that Irma-related disaster areas contain nearly three times as many mortgaged properties as those connected to Hurricane Harvey, and nearly seven times as many as those connected to Hurricane Katrina in 2005. In dollar terms, this means that there is some $517 billion in unpaid principal balances in Irma-related disaster areas, nearly three times the amount as in those related to Harvey and more than 11 times of those connected to Katrina.

“While the total extent of the damage from Hurricane Irma is still being determined, it is clear that the size and scope of the disaster is immense,” said Graboske.

“Indeed, in terms of the number of mortgaged properties and their associated unpaid principal balances, Irma significantly outpaces even the number of borrowers impacted by Hurricane Harvey. With FEMA expanding the number of Irma-related designated disaster areas late Wednesday, Sept. 13, to a total of 37 Florida counties, more than 90 percent of all mortgaged properties in the state now fall into such areas. More than 3.1 million properties are now included in FEMA-designated Irma disaster areas, representing approximately $517 billion in unpaid principal balances. In comparison, Harvey-related disaster areas held 1.18 million properties – more than twice as many as with Hurricane Katrina in 2005 – with a combined unpaid principal balance of $179 billion. Irma-related disaster areas now contain nearly seven times as many mortgaged properties as those connected to Katrina, with more than 11 times the principal balances.

Combining the preliminary estimates for both Harvey and Irma suggests that over 3.3 million total mortgaged properties are located in Irma and Harvey-related FEMA Disaster zones, while the dollar amount of total unpaid mortgage balances in these two zones is massive: between Irma’s $517 billion and Harvey’s $179 billion, the total potential damage could impact as much as a $696 billion in notional mortgage values, which banks could be on the hook for if current occupiers decide to simply walk away.

Based on back of the envelope analyses by Black Knight, an extrapolation of the Katrina damage would suggest that Florida could suffer as much as 750,000 mortgage delinquencies as a result of Hurricane Irma.

To be sure, there are mitigating circumstances: Florida borrowers likely have more insurance and less exposure to loss, but for those homes with the most damage, homeowners will be making the same calculation as those that suffered devastating flooding after Harvey. Another issue in Florida according to Olick is that even a decade later, the housing market is still recovering from the foreclosure crisis. Five percent of Florida borrowers still owe more on their mortgages than their homes are worth, and an additional 5 percent have very little equity in their homes. Home prices in Fort Myers, which saw considerable flooding from Irma, are still 29 percent below what they were during the housing boom.

Still, in order to avoid a surge in foreclosures, lenders are more likely to offer borrowers, even seriously delinquent borrowers, options to catch up, although the biggest risk to lenders will be in Houston, where some homeowners may see no good reason to stay.

There was some silver lining: “As Irma forged its path of destruction through the Caribbean, one relatively positive development was that Puerto Rico escaped the direct hit many had predicted. From a mortgage performance perspective, this was particularly good news, as delinquencies there were already quite high leading up to the storm. At more than 10 percent, Puerto Rico’s delinquency rate is nearly three times that of the U.S. average, as is its 5.8 percent serious delinquency rate. In contrast, the disaster areas declared in Florida have starting delinquency rates below the national average, providing more than a glimmer of optimism as we move forward.”

Unfortunately, Hurricane Maria, now a Category 3, is expected to hit Puerto Rico some time on Wednesday, adding to the damage already suffered from Irma, and potentially sending the already bankrupt territory reeling even deeper into the financial hole.

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  • Uncle Hormone

    The Great Depression did not actually begin in October of 1929; it began on 18 September 1926 from the Great Miami Hurricane.
    Many property investors, as well as new Florida residents at that time, had no idea how destructive such storms were. They built homes that were non-wind-coded, and invested heavily using mortgage money from ‘Up North’…
    After the ’26 Miami Hurricane, many began selling off their housing stock and lots. Development slowed considerably. Those who’s homes were totalled simply walked away from their mortgages, and left the Banks holding the bag.
    Then, on 16 September 1928, the killer Okeechobee Hurricane (aka San Felipe Hurricane) arrived over south Florida, killing 2500 people in one terrifying hour.
    It laid waste to Palm Beach County, as well as all of the counties to the south, north and west.
    At that point, the exodus out of south Florida became massive, with the Banks once again holding delinquent and overdue mortgages. Many property owners and holders felt deceived and betrayed over the selling tactic that real estate agents promoted.
    The Banks then shifted their losses over to the Stock Market hoping to erase the deficits in order to artificially hedge against the mortgage losses resulting from both the ’26 & ’28 hurricanes.
    This led to a massive over-valuation of the stock market, and when the call to cash-in via dividend pay-outs arrived in October of 1929, there was nothing tangible hedging the mortgage losses except Stock Certificates, which were technically only a promissory note.
    The speculation collapsed, taking any and all money that was invested in the markets.
    Hurricane Andrew in 1992 saw a similar pattern, but the FDIC, plus CBS homes and A-1 insurance policies with wind riders offset much of the losses to the banks, while the insurance companies began a long decline due to weather events.
    Hurricane Andrew led to investigations of shoddy building techniques and practices, and led Dade County to re-vamp the building codes to a higher standard for wind resistance.
    Hurricane Jeanne, Wilma and Francis were bad enough, but until Irma and Harvey, Andrew was the modern-day standard by which hurricane damage was gauged.
    That has now changed, with Katrina, Harvey and Irma, the latter actually being a Cat 6 if one were to graduate the scale exponentially (as it should have been).
    IF you are remaining in Florida, and have a damaged home that is a red-stickered write-off, then get in some fill dirt to raise your lot above flood level, compact the earth, (preferrably of a water clay make-up) and then re-build, using steel reinforced Concrete Block, with the blocks turned 90 degrees, so that the extra thickness in wall structure engages double re-bar, with the block cavities filled with poly-styrocrete for flexibility and insulation.
    Put a hip roof on with a shallow pitch. & don’t forget to brace all corners with 45 degree angled supports.
    Even IF you have hurricane windows, still invest in some shutters, and think about installing a water cistern in the event the main supply gets contaminated for weeks on end.
    If you have solar panels, re-install them, and have a back-up generator and 3 months of food and water.

    • It actually began in 1913 with the creation of the Federal Reserve Board, which caused it in the same way it has caused every major correction since, and will cause the Greater Depression shortly. A single hurricane cannot collapse the economy of a global power by itself.

      • BarbaraAWilmoth


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  • There are several companies in Florida that do nothing but build hurricane-proof buildings, but most middle class can’t afford them.

  • Fuck the banks. I have no sympathy for them when people decide to walk away from their mortgages. The banks don’t give 2 shits about the people who lost everything, just greedy bastards who want their money no matter what. Why not offer extensions on loans? Give them 3 or 6 month extensions to let them rebuild. But no, these fuckers would NEVER do that! Banks are thieves disguised as businesses.

    • Public_Citizen

      Banksters =
      Mafioso ~without~ a Code of Honor.

  • Public_Citizen

    Have we witnessed the egg that will hatch the Black Swan Event being laid by this hurricane season?