Sandy's Impact on Mortgage Exposure Less Than Originally Feared

A handful of bonds could suffer from Superstorm Sandy, but overall impact on mortgage exposure is likely less than originally estimated.

Dec 14, 2012, 09:00 ET from Opera Solutions

NEW YORK, Dec. 14, 2012 /PRNewswire/ -- A research report published today by Opera Solutions suggests that the damage caused by Hurricane Sandy will not systematically affect the non-agency (NA) RMBS marketplace, although some bonds have a higher likelihood of sustaining losses. A neighborhood-level view of flooding taken by the Big Data science company estimates that the total NA RMBS mortgage balance exposure is $6 Billion, a substantially smaller figure than previous public estimates.

"By taking a neighborhood-level view of flood damage, we can improve upon prior studies, which were based on the entire population of properties in ZIP codes or counties that experienced storm-related flooding," said Bill Hunt, Head of Research at Opera Solutions and co-author of Mobiuss Market View. "Based on a detailed analysis of each portion of affected ZIP codes, the ultimate exposure is much lower than originally estimated."

In terms of bond valuations, the study used empirical evidence from mortgages and properties previously impacted by Hurricane Katrina to forecast the potential effect on future cash flows. For most bonds in the non-agency universe, the impact will be negligible as insurance and government assistance programs will mitigate much of the potential for losses. The broad distribution of highly localized damage means the vast majority of deals are diversified enough to not be materially impacted. However, the study did highlight a very small number of bonds that have a higher likelihood of losing value as a result of Sandy.

"Our stress-test valuation uncovered a very small number of bonds that have the unfortunate combination of comparatively high concentration of deal collateral in heavily impacted neighborhoods and a high sensitivity to negative cash flow shocks given their positions in the capital structures," added Hunt. "Our maximum stress scenario shows that some bonds could see as high as 500bps in lost value. We'll be monitoring performance going forward to see whether the Katrina stress scenarios are indeed playing out in areas affected by Sandy."

Mobiuss Market View is a monthly market commentary based on the data, analytics, and tools embedded within Opera Solutions' Mobiuss® platform for analyzing the risks and values of mortgages and mortgage-backed securities. The report and other insightful research on the mortgage market can be accessed at

About Opera Solutions, LLC

Opera Solutions ( is a global leader in machine learning. With 230+ machine-learning scientists among its 700 employees, it combines science, technology, and domain expertise to transform Signals — the valuable predictive information in Big Data flows — into machine-generated Best Actions that drive profit and productivity gains. Its Signal Hub™ technologies provide an enterprise-wide capability to continually extract and use newly available predictive information from inside and outside the enterprise. Opera Solutions serves financial services, healthcare, government, supply chain, marketing, and other sectors, with offices in North America, Europe, India, and China. For more information, contact, or call 1-855-OPERA-22.

SOURCE Opera Solutions