UFA: Nonprime Default Risk Up Slightly

The Nonprime Mortgage Report default risk index rose slightly to 103 this quarter, according to University Financial Associates of Ann Arbor, Mich.The index measures the risk of default on newly originated nonprime credit quality 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, measuring the impact of economic conditions at the time of loan origination.