"Our research demonstrates that borrowers, after controlling for their propensity to default based on traditional mortgage credit characteristics, default at a higher rate the higher the propensity of natural disaster is at the property level," CoreLogic economists Katie Dobbyn and Mark Fleming wrote in their article, The Nature of Risk.
"One risk that we have historically presumed is covered by requiring insurance is the risk of mortgage default due to natural disaster," the CoreLogic report said. "Our research demonstrates that borrowers, after controlling for their propensity to default based on traditional mortgage credit characteristics, default at a higher rate the higher the propensity of natural disaster is at the property level."
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But the propensity to pay off mortgages — and not rebuild — was. modest increases: The worst-flooded residents had 90-day delinquency rates. household finance after a Natural Disaster: The Case of Hurricane Katrina.
When discussing the impact of natural catastrophes, the amount of. saw a significant increase in 90+ day delinquency when compared to.
mortgage contract to -nd a -xed point. Thus our model is not only a model of mortgage default, but also a micro-founded model of the determination of mortgage premia. The literature on mortgage default has emphasized the role of house prices and home equity accumulation for the default decision. Deng, Quigley, and Van Order (2000) estimate.
With the help of a new, illustrative mortgage default model framework, it is actually possible to estimate the propensity of mortgage default measured by property-level natural hazard risk assessments, and loss given default (LGD) using actual cost value (ACV) data that breaks out land and structure components to determine the maximum potential.
Miami, Florida ranked as the riskiest market for natural hazards. A majority-16-of the top 20 riskiest markets for natural hazard, according to CoreLogic, are located in Florida or California. New Orleans, Louisiana; Charleston, South Carolina; Reno, Nevada; and Houston, Texas, also made the list.
The prediction resulting from the model is something like: loan #1 has 2% probability of default; loan #2 has 1% probability of default, and so on. It is not like: default rate of the portfolio is 3%.
Miami has the greatest exposure to mortgage default risk due to natural hazards. In the report, CoreLogic officials assert that in the past, there really has been no way to systematically measure risk from natural disasters to lenders and investors.