Skip to main content

UFA Default Risk Index: Mortgage risks still elevated, but returning to normalcy

NationalMortgageProfessional.com
Mar 04, 2010

The UFA Default Risk Index for the first quarter of 2010 (see Figure 1 below) has fallen by more than half from the peak level of 330 set in 2007, falling to 158 from last quarter’s 164. The Index illustrates the important role that local economic conditions have played in this credit cycle, since loan, borrower and collateral characteristics are held constant over time in the Index. The Index this quarter introduces a new model and incorporates both prime and non-prime loan data. UFA’s baseline scenario for the economy this quarter now has GDP growing 2.5 percent and 2.7 percent over the next two years, just below trend levels (three percent). The baseline scenario uses the consensus inflation rate of 1.7 percent. If inflation rates spike, as some observers expect, nominal house prices will be higher and defaults will be lower. Under current economic conditions, non-prime investors and lenders should expect defaults on loans currently being originated to be 58 percent higher than the average of loans originated in the 1990s. That’s a key finding of the latest UFA Mortgage Report by University Financial Associates of Ann Arbor, Mich. Figure 1: The UFA Default Risk Index stands at 158, estimating the risk of default on newly originated mortgages (both prime and non-prime) at 58 percent higher than the average of the 1990s. “Although UFA forecasts that house prices will continue to decline, the rate of decline has decelerated. The hardest-hit areas have begun to return to sustainable levels,” said Dennis Capozza, who is the Dykema Professor of Business Administration in the Ross School of Business at the University of Michigan, and a founding principal of UFA. “Slower house price depreciation will mitigate risk levels for mortgage lenders.” The UFA Default Risk Index measures the risk of default on newly originated prime and non-prime mortgages. UFA’s analysis is based on a “constant-quality” loan, that is, a loan with the same borrower, loan and collateral characteristics. The Index reflects only the changes in current and expected future economic conditions, which are much less favorable currently than in prior years. For more information, visit www.ufanet.com/nmr.htm. 
Published
Mar 04, 2010
Federal Regulators Race To Address Cryptocurrency Risks

Cryptocurrency is quickly morphing into a volatile but widely embraced innovation, and federal regulators are racing to address the potential risks to consumers and the market. 

Industry News
Sep 24, 2021
MBA Initiative Seeks To Close Racial Homeownership Gap

Says its advocacy, partnerships & connections will help increase opportunities for minority borrowers

Industry News
Sep 24, 2021
Guaranteed Rate Opens New Branch In Southwestern Michigan

Guaranteed Rate expanded its presence in Southwester Michigan, after opening a new branch in St. Joseph

Industry News
Sep 22, 2021
Chinese Property Giant Evergrande Falters, Threatening U.S. Investors

On Monday, investors across three continents dumped their stocks, mainly out of fear that the world’s two largest governments — the United States and China — would undercut the beginnings of a global economic recovery. 

Industry News
Sep 22, 2021
Compass Mortgage Expands In Four Additional States

Compass Mortgage is now licensed in Virginia, Washington, North Carolina and South Carolina.

Industry News
Sep 22, 2021
Enact Holdings Completes IPO

Genworth Financial Inc. announced the completion of the initial public offering for its subsidiary Enact Holdings Inc.

Industry News
Sep 21, 2021