Mortgage Performance and Home Sales for Damaged Homes Following Hurricane Harvey

We analyze loan performance and property transactions following Hurricane Harvey using a novel dataset with property-specific flood insurance and claim information. Using insurance claims to proxy for damages we find that both short-term delinquency and forbearance take-up are positively associated with damages. Loan modification is positively correlated with damages of up to 50 percent of property value and negatively correlated thereafter, suggesting that, for severely damaged homes with flood insurance, loan modifications are not an attractive remedy for delinquency concerns. By contrast, the likelihood of loan prepayment is strongly associated with large damage levels. This indicates such homeowners are likely selling their home unrepaired, making up for any shortfall between loan balance and sale price with insurance proceeds. Property transactions analysis reveals that damaged homes are less likely to sell immediately following Harvey when compared to undamaged homes. If they do sell, compared to undamaged homes, they do so at a steep price discount, sell faster and are in worse condition when sold. A pattern consistent with the homeowner behavior described above and with investors purchasing damaged homes looking to “fix and flip” the properties. We find the negative impact of large damages on sale price lingers, though at a subdued discount, at least up to two years out.

Mortgage Performance and Home Sales for Damaged Homes Following Hurricane Harvey