Natural disasters are growing risk for home loan sector: Moody's

Natural disasters are growing risk for home loan sector: Moody's
Natural disasters are growing risk for home loan sector: Moody's

The risks associated with natural disasters for home loans and house prices in Australia are increasing due to the growing frequency of such events, according to the latest report from Moody's Investor Service.

In their report they found this development is credit negative for Australian residential mortgage-backed securities (RMBS) because it can lead to higher delinquencies and losses in the mortgages backing the deals.

However, the extent of mortgage delinquencies and losses caused by each individual natural disaster is likely to be moderate, given the geographic diversity of RMBS mortgage pools, insurance payouts and financial relief offered by lenders and governments.

Frequency of natural disasters is rising, increasing risks for home loans and RMBS.

Natural disasters can disrupt economic activity and therefore reduce borrowers' incomes, which can in turn lead to mortgage delinquencies and losses.

They can also result in significantly lower property values in affected areas.

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Natural disasters are growing risk for home loan sector: Moody's

Natural disasters hurt the home loan sector, but the impact is moderate and temporary. After recent natural disasters, mortgage delinquencies increased by only moderate amounts.

One example they cited was that shortly after cyclone Debbie, which hit Queensland in late March and early April 2017, the 30+ day delinquency rate for home loans that were in disaster-hit areas and part of the mortgage pools of RMBS  rate increased to 2.3% after the disaster from 2.0% before the event, and dropped to 1.9% eight months afterwards.

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Natural disasters are growing risk for home loan sector: Moody's

There are mitigating factors however which help keep home loan delinquencies moderate.

These mitigating factors include the geographic diversity of RMBS mortgage pools, the presence of insurance and the financial relief provided by lenders and government, Moody's Investor Service found.

Tags: 
Home Loans Natural Disaster

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