S&P: Katrina's Effect on RMBS Likely Minimal

Despite the widespread destruction caused by Hurricane Katrina in several Gulf Coast states, the impact on U.S. residential mortgage-backed securities rated by Standard & Poor's is expected to be minimal, according to the rating agency.In addition, S&P said deals backed by manufactured housing loans are likely to see some decline in collateral performance, but that most servicers say the majority of damage will likely be covered by hazard and flood insurance. S&P said it expects effective RMBS loan servicing policies to assist with issues such as delinquency advances, property inspections, forbearance plans, and the filing and settling of insurance claims. "We also expect these measures to eliminate, or at least reduce, potential losses for a majority of the existing transactions," the agency said. Sellers of transactions rated by S&P are required to honor representations and warranties, including those that the home is in good repair, that flood insurance is in effect for properties in a flood zone, and that hazard insurance is in place. If any of the reps and warranties is breached, the issuer is required to repurchase the mortgage loan. If a loan becomes delinquent, the servicer must advance for it as long as the advance is deemed recoverable. S&P can be found online at http://www.standardandpoors.com.