Online Success: Fact or Fiction?

Online Success: Fact or Fiction?

November 18, 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
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.
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