Defaults Expected to be 20% Higher Than Similar Loans Originated in the 90s

According to the latest UFA Mortgage Report by University Financial Associates (UFA) of Ann Arbor, Michigan, under current economic conditions, investors and lenders should expect defaults on loans currently being originated to be 20 percent higher than the average of similar loans originated in the 1990s, due solely to the local and national economic environment. “The worst is clearly over so that mortgage lenders can comfortably loosen credit for newly originated loans,” said Dennis Capozza, who is the Dale Dykema Professor of Business Administration in the Ross School of Business at the University of Michigan, and a founding principal of UFA. “Important factors in the more favorable outlook include low mortgage rates, the Federal Reserve’s loose monetary policy, and lower house prices now at or below fundamental values in many locations.” 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.