Risk Edges Up For Nonprime Home Loans.(Brief Article)

Ann Arbor, MI -- The risk that newly originated, nonprime credit-quality mortgage loans will end up in default is pretty much steady for the winter of 2005, according to a risk index published by University Financial Associates here.

But the index has risen by 25% since 2003, and more increases in default risk may be seen in future quarters as home price appreciation slows down and interest rates rise, as many economists are predicting.

For the winter quarter of 2005, the index stood at 96, up just one point from the 95 reading for the fall of 2004. A reading of 100 indicates that the risk of default on a newly originated, constant-quality loan would be average for the decade of the 1990s. Higher scores indicate a higher level of risk, while lower scores indicate a lower risk level.

Dennis Capozza, professor of finance at the University of Michigan and a principal in UFA, said that while house price appreciation remains above trend, the prospects of future increases are slowing.

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