Earthquake Will Not Harm California's RMBS: Fitch

The earthquake in Napa County, Calif., will not impact the rating of securities backed by residential mortgage loans on Californian properties, according to Fitch Ratings.

The ratings agency said in a press release Tuesday that while loans on California's residences represent roughly 45% of new issuance, prime jumbo, residential mortgage-backed securities, only 0.36% of such loans are secured by residential properties in Napa County.

The earthquake will not affect the ratings of RMBS 2.0 transactions whose comparable exposure is approximately 0.45% as eight transactions have no exposure to the area, according to the report. Since the average credit enhancement on these deals is roughly 1.1%, Fitch explained, these transactions are "well positioned to withstand any losses that may result from the quake."

The report notes, however, that as a rule earthquake-related property damages are not covered by general homeowners insurance and according to the California Earthquake Authority estimates just 10% of state residents, and merely 6% in Napa, have earthquake insurance policies.

Preliminary assessments from EQECAT estimate losses at anywhere from $500 million to $1 billion, of which roughly 25% to 50% are attributable to residential property damage as most of the impact is expected to affect the commercial sector, especially the wine industry.

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