Risk of Default for New Loans Slightly Higher in Q3: UFA

The risk of default for loans originated in the third quarter of this year is slightly higher compared to the previous quarter, according to the ""University Financial Associates (UFA) Default Risk Index"":http://www.ufanet.com/research1.asp.

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With 100 as the average, the risk index rose to 113 from the previous quarter's revised 111. This means UFA estimates the risk of default on newly originated mortgages (both prime and nonprime) will be 13 percent higher than the average of the 1990s.

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Still, the risk of default is much lower than the worst vintages from 2006-2008. During certain time periods in 2007, the index rose above 200.

While the risk of default increased slightly and the economy has slowed, the housing market is growing overall.

""UFA's nominal, five-year house price forecasts are solidly positive at both the state and metro area levels,"" said Dennis Capozza, the Dale Dykema Professor of Business Administration in the Ross School of Business at the University of Michigan, and a founding principal of UFA. ""With the risk of falling house prices greatly diminished, default risks on new mortgage loans are also reduced.""

Each quarter, UFA assesses economic conditions and their impact on future defaults each quarter. UFA was founded in 1990 by two professors, who bring over fifty years of experience in mathematical modeling and data analysis to financial problem solving.