Defaults May Stay Above Pre-Bubble Level for Many Years
You're probably seeing mortgage defaults drop, but it could be another five years before they return to the level of the 1990s.
That's the forecast from Dennis Capozza, professor of business administration at the University of Michigan. Capozza is a founding principal of University Financial Associates, which publishes the UFA Default Index.
Capozza: Default rates are improving partly because the worst vintages are "burning out." Lenders should remain cautious since default risks remain elevated. At the same time, mortgage rates are low in response to regulatory policies so that the returns on lending on housing collateral are unfavorable. Profitability can improve if mortgage rates rise or default risks fall-that is, when appreciation rates turn positive.
CU Times: Suppose you were the CEO or a board member of a credit union. What would all this mean to you? What should the credit union do?