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Risk of Delinquency Eases Again

Q2 Credit Risk Index 127.66

Sept. 9, 2010

By MortgageDaily.com staff


The risk of default improved for the second quarter in a row, according to a new report that also found lower risk in towns with universities.

Credit risk declined 0.9 percent in the second quarter.

The finding was reported this week by TransUnion.

It was the second consecutive quarter that risk declined.

TransUnion's Credit Risk Index came in at 127.66 for the second quarter, down from 128.83 in the prior period. Compared to a year earlier, the index was 5 percent lower.

The index is an "indicator of consumer credit risk and is much more highly correlated to consumer delinquency rates than the average credit score or the average credit score of a business' customer base," TransUnion said. It represents the weighted average probability of 90-day or more delinquency for consumers in a given region relative to the entire country. An index above 100 indicates a higher level of relative risk.

TransUnion said the index was determined using a database of 27 million randomly sampled and anonymous consumer records. Each record includes 200 variables.

Nevada's 166.22 Credit Risk Index was higher than any state, followed by 162.88 in Mississippi and 161.51 in Texas. On the other end of the spectrum, North Dakota's index was only 80.47, while the Upper Midwest fared well as a region.

"At the end of the second quarter in 2010, 46 states and the District of Columbia experienced declines in their respective credit risk indices, signaling that a broad improvement in consumer credit conditions is finally taking root," the report said. "Only Alaska, Hawaii, Idaho and North Carolina experienced increases in their credit risk indices; however, it is important to note that all four states have a credit risk index below the national index."

TransUnion predicts that small declines in the national index will continue, while delinquency will also see improvement as employment conditions improve.

A positive trend noted in the report was a debt reduction by consumers, which TransUnion Global Chief Scientist Chet Wiermanski called "a fundamental paradigm shift in consumer behavior."

TransUnion also analyzed how university cities compare to the largest city in the state of the university and found that the average index was just 116.13 for university towns compared to 144.65 for the largest cities in the same state.

Mortgage delinquency of at least 90 days was just 5.0 percent in university cities. But in the largest cities, the average rate was 8.9 percent.

Wiermanski said stable employment and a captive consumer base with disposable income helped keep the index low in university towns. In addition, established and retired adults tend to migrate to university areas because of cultural and literary offerings.

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