The earthquake that struck Napa County, CA will not have any material impact on the ratings of RMBS 2.0 transactions, according to Fitch Ratings.
The impact was limited to a few cities in Napa County, nearby Solano and Contra Costa Counties, and no damage has been recorded in the San Francisco/Bay Area, which is just 40-50 miles away and has greater exposure in RMBS deals.
Napa County residential mortgage loans represent only 0.36% of post crisis new issue prime jumbo RMBS. Fitch-rated RMBS exposure ranges from a maximum of 1.67% for one 2014 transaction to eight transactions having no exposure to the area at all.
“These levels are lower than in recent disasters such as the storm surge following Hurricane Sandy, which affected 10-20% of properties in many deals,” Barclays analysts stated in a separate report today.
Deals that have exposure are well positioned to withstand any losses that may result from the quake since they have an average credit enhancement of approximately 1.1% for the most subordinate rated tranches ('BB').
In the event that property losses do arise, hazard insurance is unlikely to provide any relief, as most deals do not require any earthquake/hazard insurance from the borrowers, according to Barclays.
Earthquake damage is not covered under general homeowners insurance and most borrowers do not obtain additional coverage, Fitch noted. In a statement released Aug. 24, the California Earthquake Authority estimates that just 10% of state residents have earthquake insurance policies. In Napa the average is 6%.
“While the total cost of the damage is still being assessed, initial estimates from catastrophe experts, such as EQECAT, Inc. put losses in the range of $500 million to $1 billion, sated Fitch in the report. “EQECAT expects roughly 25% to 50% of the losses to be attributable to residential property damage, but most of the impact is expected to be felt in the commercial sector by the region's wine industry.”