Regional Lending Risks


What are Regional Lending Risks?

Many defaults are caused by adverse movements in local market conditions and to date, even the most astute underwriting of the borrower and the property was insufficient to avoid these defaults. The UFA method of loan analysis is designed to incorporate these local market risks into the underwriting decision and link underwriting directly to profitability.

The analysis recognizes that default is a financial option that can be accessed by the borrower at any time. Modern, well accepted techniques for the analysis of financial claims are used to obtain:

  • A profile of default probabilities both by loan age and cumulatively over the life of the loan.
  • An estimate of how long before a decline in collateral value will trigger the borrower to default.
  • Most importantly, an estimate of the profitability of the loan that reflects all the significant market and loan contract factors.