Default rates still high nationally.

Posted on September 2nd, 2009 in All Articles.

NACA, a non-profit loan program I went to workshops for this month and we have been referring to have a default rate of only .5 percent or so. When you read articles like this, you have to wonder… if some of the banks had offerred the counseling that NACA does and gotten their focus different toward what someone can afford versus what they could make profit lending on … these numbers would be different.

The risk of default on mortgages remains high as rising unemployment offsets the positive impact of lower or stable housing prices, University Financial Associates (UFA) said in its latest quarterly Mortgage Report.

The UFA Default Risk Index for the third quarter of 2009 rose to 237 from the previous quarter’s revised 230, but remains below the 2008 fourth-quarter peak.

This means defaults on loans being originated today could be 137 percent higher than the average of the 1990s, which represents the base 100 of the index.

“Plummeting house prices from overvalued levels interacting with questionable underwriting practices

have been the primary driver of defaults to date in this credit cycle,” said Dennis Capozza, a University of Michigan professor and a founding principal of UFA. “As house prices return to more sustainable levels, we are transitioning to a phase where high unemployment rates will exacerbate the level and extend the period of elevated foreclosures.”

UFA evaluates economic conditions each quarter to assess how they will impact expected future defaults, prepayments, loss recoveries, and loan values for nonprime loans. Worsening economic conditions have a significant impact when loan, borrower, and collateral characteristics are held constant over time.

A recession leads to an erosion of both borrower and collateral performance, UFA said. Borrowers are more likely to be subjected to a financial shock such as unemployment, and if shocked, will be less able to withstand the tremors.

Analysis from the company’s quarterly UFA Mortgage Report successfully predicted such developments as the increased defaults in Southern California in the mid-90s and the current increases in defaults nationwid