The UFA Default Risk Index for the fourth quarter of 2011 edged lower from last quarter, which suggests that residential mortgage default and prepayment risks are continuing their return to normalcy.
According to the latest UFA Mortgage Report by University Financial Associates, the stage is set for a recovery in the housing market. Under current economic conditions, investors and lenders should expect defaults on loans currently being originated to be only 31 percent higher than the average of loans originated last century, due solely to the local and national economic environment.
Despite continuing high unemployment, our Default Risk Index has improved; which is a great sign for the housing market and the economy as a whole. Consumer balance sheets have improved and mortgage rates are at record lows, it seems as though the setting is set for a recovery in the housing market.
UFA’s analysis is based on a loan with the same borrower, loan and collateral characteristics. The index reflects only the changes in current and expected future economic conditions, which are less favorable currently than in prior years.
A recession causes an erosion of both borrower and collateral performance. Borrowers are more likely to be subjected to a financial shock such as unemployment and, if shocked, will be less able to withstand the shock. Fed easing of interest rates has the opposite effect.
So what is your take? Have you seen improvement in your local market to either confirm or deny some of what you see hear?