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Online Success: Fact or Fiction?

National Mortgage Professional
Nov 19, 2001

Oil rich states top best places to lendmortgagepress.comlocal economy, future defaults, prepayments, loss recoveries, loan values, non-prime loans Oil-producing states continue to dominate the "Non-Prime Mortgage Report Best Places to Lend," published each quarter by University Financial Associates. For the fall of 2004, the list includes Louisiana, Texas, Mississippi, North Dakota, Alaska and West Virginia. "Best" places have expected loan values (profitability) for a "constant-quality" borrower that are higher than in other states. The report's predictions are based on an extensive analysis of local economic conditions in each state and the relationship of those conditions to loan profitability. The historical record of millions of mortgage loans is studied each quarter to assess the vulnerability of each state to loan losses and prepayments. "Both borrowers and the underlying housing collateral in these areas are situated more favorably to withstand the consequences of an uncertain economy," says Dr. Dennis Capozza, professor of finance at the University of Michigan Business School and a principal in University Financial Associates. "Expected defaults in the best places can be as little as half the level of some of the less promising states. Losses can vary even more, since recoveries are also enhanced when economic conditions are favorable for lenders." Each quarter, University Financial Associates evaluates economic conditions in the United States and assesses how these conditions will impact expected future defaults, prepayments, loss recoveries and loan values for non-prime loans. A number of factors affect the expected defaults on a constant-quality loan. Most important are worsening economic conditions. A recession causes an erosion of both borrower and collateral performance. Borrowers are more likely to be subjected to a financial shock such as unemployment and less able to withstand the shock. The Federal Reserve's easing of interest rates has the opposite effect. For more information, visit www.ufanet.com.
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