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Earthquake Will Not Harm California's RMBS: Fitch

AUG 27, 2014 6:20pm ET
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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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