As expected, the curve on home loans at risk of default in the gathering storm toward the now infamous housing meltdown was literally shooting through the roof. The rise was nearly as steep as that of a fireworks projectile zooming to the sky during a July 4th mayhem. Mortgage lenders those days issued loans on soft underwriting guidelines to begin with and when the incredible run-up of real estate values abruptly reversed course some time later, the stage was set for something many still cannot comprehend nor endure.
University Financial Associates – UFA – is a research boutique that generates a quarterly Default Risk Index on new mortgage loans. It uses 100 as the average. In its 2007 reports the index breached the 200 mark as it roared on up, indicating serious home loan risk velocity. That was of course what it was, the housing market on an accelerating slide down to the eventual crash.
To put more perspective to the index of those days, in the third quarter of 2012 the UFA index is settling in at 113. It is a slight uptick from the revised 111 calculated for the quarter before it. Basically, it has by now come down about a half from the red-hot days of that anything-goes mortgage and real estate environment not so long ago. A marked recovery.
Today the housing market is displaying promising signs across the vast continent that things are improving. Prices are stabilizing and in many areas they are actually going up, distinctly diminishing the risk of default and foreclosure of newly issued home loans. Mortgage underwriting guidelines are quite strict to keep the curve inching down, or at least in check. And then there is the economy. It’s okay but still has to navigate some dicey shoals to find its rightful channel that would make the consumer more confident and truly and without much worry embrace the idea of purchasing a home. The Fed’s new edition of the Qs, now aptly called Q3, is also going to lend a helping hand to the real estate market’s prospects.
All in all, in the coming months the Default Risk Index will likely remain stable, and therefore acceptable, although predictably bump along within a reasonable band.