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Report: Hurricane Florence stings VA loans

Hurricane Florence wreaked massive destruction on homes in the Carolinas in September. That devastation will likely mean thousands of mortgages will fall into delinquency over the next several months, including an unusually high number of home loans held by veterans and active military, according to Black Knight.

hurricaneflorence(1)“Although the situation in the Carolinas continues to evolve as we speak, we are beginning to get a sense of the potential scope of the storm’s impact from a mortgage-performance aspect,” said Ben Graboske, an executive vice president with Black Knight. “As those affected by the storm begin recovery efforts, recent history suggests many will have some difficulty remaining current on their mortgages.”

About 474,000 of the 1.2 million properties located in the disaster area were mortgaged, Black Knight reported. A much higher-than-usual concentration of the at-risk loans are held by veterans and active military.

Florence tore a path through 34 counties in the Carolinas that have been declared disaster areas by the Federal Emergency Management Agency, or FEMA. North Carolina, which bore the brunt of the storm, is home to Fort Bragg and Camp Lejeune. The overall impacted area includes South Carolina and Virginia. 

Black Knight said that VA loans represent about 20 percent all the loans in the counties affected  by Hurricane Florence, but four North Carolina counties had concentrations as high as 40 percent. On a nationwide basis, VA loans only comprise about 5 percent of all loans, according to Black Knight.  

VA loan impact

VA loans tend to contain more leverage than other loan products as the borrower can finance up to 100 percent of the home. The average loan-to-value (LTV) ratio in the affected areas was 63 percent, whereas on a nationwide basis the average LTV ratio is 51 percent. This likely reflects the higher concentrations of VA loans.  

Black Knight said VA loans were more vulnerable to delinquencies after last year’s massive storms in Texas and the Gulf region.

“In the wake of Hurricanes Harvey and Irma last year, the data showed the increase in the VA delinquency rate in affected areas was 40 percent higher than among conventional mortgages,” Graboske said. “If the per capita impact of Florence matches last year’s storms, more than 5,400 veteran homeowners with VA loans would be among the nearly 25,000 borrowers who could become past due over the next three months.”

Black Knight also noted that this affected area had a mortgage-delinquency rate (loans 30 days past due) of 4.4 percent prior to the storm, which was higher than the national average of 3.5 percent. Home prices in these counties run about $100,000 less than the national average, however.   

Overall, Black Knight projected that the delinquencies would peak in November at around 24,600. Serious delinquencies, or properties at least 90 days past due, would top out at around 14,000 in December and January, but there could be as many as 3,100 seriously delinquent properties still on the books through August of 2019, Black Knight forecasts.

Last month, CoreLogic estimated that the storm caused as much as $20 billion to $30 billion in damage to homes and commercial buildings. Of that amount, as much as $18.5 billion could be uninsured flood losses. CoreLogic estimated 624,000 homes were damaged in the Carolinas and Virginia.


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