The risk of borrowers defaulting on their mortgages today is much less than in 2006 to 2008, but it will take at least five years for risk to return to pre-bubble levels, a leading expert on default risk told Real Estate Economy Watch. 
                                   

    "We expect continuing improvement. Risk levels should be lower on newly originated mortgages next year barring a double dip recession," said Dennis Capozza, a founding principal of University Financial Associates, which created and publishes the UFA Default Index. 
 
   Local economic conditions that have been building for a decade, not underwriting or moral hazard, are the primary driver or defaults.  The UFA Default Risk dropped to 182 in the second quarter, half the peak level of 362 set in 2007. The Index illustrates the important role that local economic conditions have played in this credit cycle, since loan, borrower and collateral characteristics are held constant over time in the Index.
 
     If, as some observers expect, inflation spikes due to excessive monetary ease, nominal house prices will be higher and defaults will be lower.

 

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