The risk of defaults relating to newly originated nonprime mortgages is holding steady despite negative economic conditions, according to the most recent Nonprime Mortgage Report (NMR) Default Risk Index for Winter 2002.
This quaterly study, which is conducted by the University Financial Associates of Ann Arbor, Michigan, is an index that tells lenders what the risk of a loan originated today is relative to loans originated over the last ten years.
By studying data on mortgage loans and economic factors both nationally and by region, analysts are able to determine the relationship between economic conditions and loan performance.
In the most recent study, the index rose to 98 from the revised reading of 97 for the previous quarter. In a company press release, the firm said, "Nonprime lenders should expect defaults on loans currently being originated to be higher than the average of loans originated in 1998 and 1999 but 2% lower than the average rate on mortgages originated in the 1990s." The average rate in the 1990s is 100.
The findings of the study go against the fact that the economy is currently in a recession.
"Ordinarily you would expect the fact that the economy is not doing well to be pretty negative for mortgage lenders," said Dennis Capozza, a professor of finance at the Univ. of Mich. "But the lower interest rates are offsetting this, that's why delinquency rates are holding steady."
Capozza said that they will soon be releasing a study that focuses on the best places to lend. This report also comes out on a quarterly basis.