Foreclosures Started Will Decline in 2010, Predicts UFA

After rising over 30% a year for the last four years, foreclosures started will finally begin to decline nationally next year according to UFA LLC, a risk management firm that forecasts mortgage and consumer loan performance by zip code. A combination of factors including a slowing of house price depreciation, a reviving economy, tighter underwriting of recent loan vintages, and burnout of the worst vintages from three — five years ago will make the improvement possible, said Dennis Capozza, professor of finance with the Ross School of Business at the University of Michigan and a founding principal of UFA in Ann Arbor, Mich., which conducted the research. "Working against the welcome decline in foreclosures is the steep increase in unemployment, which will interact with the large numbers of homeowners who are underwater to prevent even greater declines in foreclosures that could have been expected without high unemployment," said Mr. Capozza. Each quarter UFA analyzes representative mortgage loans in the serviced portfolio of all mortgages outstanding and estimates the probability of default and prepayment at each month in the future life of each loan. Inputs to the assessment include underwriting variables like loan-to-value ratios and credit scores as well as UFA's own zip code level economic scores, ForeScore Zip.