UFA: Nonprime Default Risk Inches Up

The Default Risk Index issued by the Nonprime Mortgage Report rose slightly to 103 this quarter from a revised level of 102 in the last quarter, according to University Financial Associates of Ann Arbor, Mich.The index measures the risk of default on newly originated nonprime mortgage loans, UFA said. "The index has been flat for over a year because falling interest rates, which reduce payment burdens for borrowers, are offsetting the eroding prospects for the underlying housing collateral," said Dennis Capozza, professor of finance at the University of Michigan and a principal in UFA. A reading of 103 means that the risk of default on new loans is only 3% higher than the average risk on nonprime loans originated during the 1990s. The analysis is based on a "constant quality" loan, defined as a loan with the same borrower, loan, and collateral characteristics, the company said. UFA can be found online at http://www.ufanet.com.