August 2020

Hurricanes and Residential Mortgage Loan Performance

This publication is a part of:

Collection: OCC Working Papers – Banking Performance and Reg

Abstract

We study the heterogenous impacts of Hurricanes Harvey and Maria on residential mortgage defaults and net severity. While Harvey causes the first 180-day delinquency rate to increase by about 20 basis points (bps) per quarter for a five-quarter period during and after the hurricane, Maria's impact is around 50 bps per quarter. The increases in mortgage defaults are consistent with the double-trigger perspective. In the case of Maria, damage-adjusted LTV, the annual increase in initial claims, and their interaction explain about 65% of the increase in the first 180-day delinquency rate. We also find that the cure rate for defaulted loans associated with Maria is about 12% lower than that associated with Harvey. More defaults and lower cure rates result in higher default rates for Maria. Furthermore, we find that while Harvey does not impact net severity significantly, Maria pushes net severity up by around 17%. Our paper highlights the importance of initial financial conditions and access to federal assistance.

Authors

Ding Du and Xianbing Zhao