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Update: Severe Weather Analysis: U.S. Hurricane Season, Harvey and Irma Designated Disaster Areas

quantifying_impact

Analyzing the data for the unsecured consumer loans in designated hurricane disaster areas, the loan populations performed surprisingly well. The hurricane population experienced a high level of stress and deterioration in loan performance initially but quickly recovered within 2 to 3 months after the disaster event.

As a follow up to the severe weather analysis I conducted in November covering the effects of hurricanes Harvey and Irma on unsecured consumer loans, I decided to take another look at the U.S. Unsecured Consumer Lending Industry data using the most recent data from Orchard’s data partners.

 

TexasFlorida

Harvey-affected areas include metropolitan Houston, southern Texas, and Louisiana, while Irma affected southern Georgia and Florida. Approximately 91% of outstanding loans in Florida were in designated FEMA disaster areas including metropolitan areas Tampa, Orlando, Miami, and Jacksonville.

 

Pct_Total_Originations

The table above shows the percentage of loans originated within the most affected states, Florida and Texas. The two states represent ~15-17% of loans originated from January 2016 to August 2017. After the disaster events in late August and early September, we notice a significant drop in the percentage of loans originated within those two states with the aggregated percentage falling below 15%, with Florida and Texas experiencing an average 150 and 200 bps drop, respectively.

 

Delinquent_Balances

Overall, the Harvey-affected loans experienced significantly more stress and deteriorating performance compared to the loans in the Irma-affected areas. The charts above for the two designated areas show how the percentage of delinquent balances spiked above 7.5% for Harvey-affected loans during the months of September and October—first in the 30-59 DPD bucket in September and then rolling to 60-89 DPD the following month. By November, the loans had largely recovered as the delinquent loans failed to roll into later delinquency status buckets or charge off. We see a similar trend with Irma-affected loans, although to a much lesser degree.

 

As shown in the below chart, loans in Harvey- and Irma-designated areas have not exhibited any increase in charged-off loans since the disaster events.

 

CDR_Hurricane_Affected Loans

Current to 30-50 DPD

The population of loans in the areas affected by Harvey experienced a 3.8x Current to 30-59 Days Past Due roll rate from July 2017 to September 2017, higher than our initial analysis. All consumer unsecured loans in Texas experienced a 100 bps increase in Current to 30 Roll Rate over the same period. Irma made landfall on September 10th, but the Florida and Irma-designated areas within Florida and Southern Georgia showed signs of distress during September. The distress period continued until October with roll rates in Florida and Irma-designated areas at 1.9% and 2.2%, respectively. The Current to 30 Roll Rate normalized in November, approximately 2-3 months since the loans started experiencing stress from the weather disaster.

Non-performing Rate

 

The percentage of loans categorized as non-performing has increased for the geographical areas affected by both hurricanes. As of October 2017, we showed the highest percentage delinquency with 9.1% of outstanding balances in the Harvey-affected areas delinquent. Irma-affected areas experience their highest delinquency in the same month with 7.1% of outstanding balances in delinquency. Compared to the Current to 30 Roll Rate, the percentage of non-performing loans started to normalize around December 2017.

 

Current to 30-59 DPD by FICO

In the chart above, we separated the Current to 30 Roll Rate for the affected regions into different origination FICO cohorts. Our cohort of 300-680 and 680-720 FICOs experienced a similar Current to 30 Roll Rate for the month of September while the 720-850 cohort was approximately 150 bps less.

 

Current to 30-59 DPD by Rates

Similar to the Origination FICO cohort chart, we separated the Current to 30 Roll Rate for the affected regions into 4 different interest rate cohorts. Surprisingly, there is an unexpected inverse relationship during the stress period between 20+% cohort and the 10-15% & 15-20% cohorts for loans in the Harvey population. The 10-15% and 15-20% cohorts experience higher Current to 30 Roll Rates compared to the 20%+ cohort after the disaster event which would not have been expected when analyzing historical Current to 30 Roll Rates.

 

Non-performing 30-89 to Current Roll Rate

This chart is helpful in showing how the borrowers reacted after being delinquent since the disaster events. As mentioned earlier in the post about the minimal to no uptick in loan delinquencies past 90 days, we can explain this performance behavior by the increase to the percentage of loans rolling from delinquency statuses 30-59 and 60-89 DPD to current status. The larger flow of delinquent loans back to current status happen two to three months after each disaster event.

 

Analyzing the data for the unsecured consumer loans in designated hurricane disaster areas, the loan populations performed surprisingly well. The hurricane population experienced a high level of stress and deterioration in loan performance initially but quickly recovered within 2 to 3 months after the disaster event.

 

If you have any other questions about the Severe Weather Analysis, please feel free to reach out.