The UFA National Default Risk Index (NDRI) ticked up sharplyin the second quarter of 2026, rising to 131..
UFA National Default Risk Index
A Nation of Many Housing Markets: Rising Default RiskAmid Sharp Regional Divergence
The UFA National Default Risk Index (NDRI) ticked up sharplyin the second quarter of 2026, rising to 131, a twelve-point increase from therevised first quarter reading of 119. In practical terms, today’s economicclimate implies that a newly originated mortgage carries a 31 percenthigher probability of default than an equivalent loan made in the1990s—an estimate derived solely from shifts in local and national economicfundamentals. That is the central finding of the latest analysis fromUniversity Financial Associates of Ann Arbor.
While an index level of 131 remains far below the GreatFinancial Crisis (GFC) peaks above 200, national aggregates can be deceptive.Housing markets are not a single organism but a patchwork of local ecologies,each responding to its own supply constraints, migration flows, and economicshocks. The national number, in other words, is the average of a boom and abust.
This quarter’s map makes the point vividly.Across the South and Mountain West, inventories of existing homes have climbedabove historically neutral levels—a classic early warning sign. Texas andFlorida, long magnets for population inflows, now show metros such as Austin and Miami posting meaningful pricedeclines. By contrast, northern markets — especially in the Midwest — continueto exhibit tight supply and rising real prices. Defaults, as always, follow thelocal cycle, not the national headline.
“Excess supply precedes falling home prices, and fallingprices paired with weakening local economies are the textbook precursors tomortgage default,” said Dennis Capozza, Professor Emeritus of Finance at theUniversity of Michigan and a founding principal of UFA. “But the structuraltinder that fueled the GFC—thin equity cushions, speculative lending, negativeamortization products—is largely absent today. The risk of a repeat remainsremote.”
The UFA Default Risk Index measures the risk of defaulton newly originated mortgages. UFA’s analysis is based on a‘constant-quality’ loan, that is, a loan with the same borrower, loan andcollateral characteristics. The index reflects only the changes incurrent and expected future economic conditions, which are less favorablecurrently than in prior years.
Each quarter UFA evaluates economic conditions in the UnitedStates and assesses how these conditions will impact expected future defaults,prepayments, loss recoveries and loan values for nonprime loans. A number offactors affect the expected defaults on a constant-quality loan. Most importantare worsening economic conditions. A recession causes an erosion of bothborrower and collateral performance. Borrowers are more likely to be subjectedto a financial shock such as unemployment, and if shocked, will be less able towithstand the shock. Fed easing of interest rates has the opposite effect.
UFA’s pioneering mortgage analysis has successfullypredicted problems in the mortgage market well in advance including theincreased defaults in Southern California in the mid-90s and the recentnational mortgage crisis. Its predictions are based on an extensive analysis oflocal economic conditions in each state and the relationship of thoseconditions to loan performance. The historical record of millions of mortgageloans is studied each quarter to assess the vulnerability of each state to loanlosses and prepayments. The detailed analysis of each state — including bestand worst places to lend — is available in the UFA Mortgage Report, publishedon a quarterly basis.
