Nonprime Default Risk Called 'Steady'

The risk of default on newly originated nonprime mortgage loans remains steady, but the risk level has increased by 25% since 2003, according to University Financial Associates.The UFA's default risk index for the winter of 2005 registered 96 this quarter, up one point from the previous quarter. A reading of 100 means that the risk of default is equal to the average for the decade of the 1990s, and lower readings indicate a lower level of risk. "House price appreciation remains well above trend, but the prospects for future increases are eroding," said Dennis Capozza, professor of finance at the University of Michigan and a principal in UFA. The "constant quality" index measures the impact of the economy on the default prospects for new loans with the same borrower, loan, and collateral characteristics from quarter to quarter.