RMBS exposure to Irma could be high for a single storm

Register now

Private-label residential mortgage-backed securities could have more potential exposure to Hurricane Irma than any recent storm, and the hurricane also could have implications for agency and government markets.

A little less than 7% of the $653 billion in collateral backing RMBS that Kroll Bond Rating Agency rates have exposure to Irma. Slightly less than 6% of RMBS collateral had exposure to Hurricane Matthew and less than 3% of collateral is exposed to Hurricane Harvey.

Hurricane Irma "could be the most impactful storm yet," KBRA Managing Director Jack Kahan, Associate Director Ryon Aguirre and Director Ashish Sharda said in a report.

In the Ginnie Mae market, the impact of the hurricanes also is likely to become more far-reaching and "could be more problematic in terms of how it affects the pools and of the number of entities involved," said former Ginnie President Joseph Murin.

Ginnie, which provides aid to issuers with portfolios that have a certain amount of exposure to storm damage if they need it, may need to take a look at whether its disaster-related policies meet the needs of its current issuer base as a result, he said.

"The game changer today is they have a lot more nonbanks as issuers," Murin noted. "Banks had deep pockets and could take care of themselves, but the landscape has changed. You might have more people who need support."

Ginnie Mae "has no planned changes at this time," according to Michael Huff, a spokesperson for the agency. However, "as with all major events, evaluation of our policies and programs will be part of the discussion," he said in an email.

"We will continue to work with our partners in both government and industry to get through this difficult event," said Huff.

There also has been pressure on prices in the market for government-sponsored enterprises' credit risk transfer securities that could stem from the hurricanes.

"The market has had pretty fantastic performance year-to-date, but now it's off," said Sam Dunlap, managing director and senior portfolio manager at Angel Oak Capital Advisors, in an interview at the close of the trading day Sept. 8.

While CRT prices have gotten a little lower, the securities are still trading with the range they've been in for the past year, and there's little danger of illiquidity as bargain hunters are active, he said.

"We view any weakness from the hurricanes as a potential buying opportunity," said Dunlap.

While there has been a little pressure on the CRT market from the storms, it's not as bad as it could have been and may be short term, according to Lisa Gagnon, a spokeswoman for Freddie Mac.

“The destruction from Hurricanes Harvey and Irma created uncertainty in the CRT markets. Although the impact of Irma is significant, it did not live up to investors’ worst fears. CRT, along with other financial markets, have rebounded positively today," she said in an email.

For reprint and licensing requests for this article, click here.
Hurricane Irma RMBS Securitization Private-label Hurricane Harvey Risk management Kroll Bond Rating Agency Ginnie Mae Florida Texas