Mortgage Impairment Risk

Homeowners impacted by the negative economic effects of a natural catastrophe may be forced to default on their mortgage loans due to extensive damage to their property, insurance shortfalls or repair costs exceeding their home’s equity or market value. Mortgage impairment risk, when aggregated over concentrations of risk in an affected area, can translate into catastrophic losses to mortgage lenders. Managing the risk of massive mortgage default resulting from natural catastrophes begins with quantifying the likelihood and the amount of exposure and loss.

Discover the impact of natural catastrophe losses on the mortgages you are carrying with a Mortgage Impairment Risk Analysis.

Mortgage Impairment Risk Analysis

EQECAT's Consulting Services Group provides Mortgage Impairment Risk Analysis services for residential mortgage lenders. Analyses are conducted using our latest catastrophe risk modeling platform, RQE™ (Risk Quantification & Engineering). Catastrophe models are based upon innovative applications of the latest science, engineering expertise, claims and exposure data and advanced applied mathematics.

Techniques employed in EQECAT's Mortgage Impairment Risk Analyses fully leverage EQECAT's modeled representation of uncertainty and correlation, offering significantly improved recognition of the non-linearities inherent in mortgage impairment losses over more simplistic spreadsheet-based methods that rely on mean outcomes.

Northridge Earthquake Residential Damage Capable of Causing Mortgage ImpairmentHomeowner Losses from Northridge Earthquake Residential Damage

EQECAT has performed mortgage risk analyses for clients of all sizes for multiple perils and for risks located throughout the United States. Our proprietary Mortgage Impairment Risk Analysis uses configurable parameters to reflect the key aspects of mortgage default risk applicable to you. EQECAT will work closely with you to confirm that mortgage loss calculation parameters are in line with your internal models of mortgage loss, given different property damage states and market conditions.

Mortgage Impairment Risk Analysis Country/Perils Available

EQECAT provides mortgage impairment risk analysis for the following country/perils:

Mortgage Impairment Risk Analysis Report

You'll receive a full written report including methodology and assumptions used during the analysis. Upon request, we can conduct an on-site meeting to discuss the technical underpinnings of our natural catastrophe models and the specifics of the Mortgage Impairment Risk Analysis.

The following loss metrics are included in a Mortgage Impairment Analysis report:

  • Expected Annual Loss (EAL): This is the ‘pure premium’ or loss cost which provides a measure of the long-term annual cost from earthquake and/ or hurricane mortgage impairment losses.
  • Loss Exceedance Curve (LEC): This is a probabilistic loss distribution, which provides loss estimates with the corresponding probability that they will be exceeded.

EQECAT works with clients of all types to determine the appropriate aggregation level of output required (overall, regional, business unit, geographical, site by site, etc.). The Mortgage Risk Analysis module included in RQE is uniquely designed to produce consistent output at multiple levels of refinement and aggregation. Expected annual loss (EAL) and loss exceedance curve (LEC) outputs can be further subdivided by loan-to-value (LTV) ratios and by booked year bands, if required.

A Mortgage Impairment Risk Analysis report can include scenario output representing both historical and hypothetical events, in addition to portfolio level risk metrics and metrics at various types of portfolio aggregations.

Contact the Consulting Services group to discuss how to reduce your potential mortgage exposure from natural catastrophe losses.