Mortgage Loan risks rise as profit margins shrink

The Orange County Register reports:

When in doubt, lenders keenly watch what backs up their loan: the collateral, or the value of the borrower's home.

Rising home prices in this area and many others make older mortgages look safer. But the quality of loans given to the freshest crop of buyers is in doubt.

For instance, risk measures by a new San Juan Capistrano venture suggest that the value of most California homes is somewhat shakier.

The risk indexes from Mike Ela, a veteran housing data specialist, combine everything from foreclosure trends in a neighborhood to changes in sales activity to the pace of quick resales of the same property to wild fluctuations in price appreciation.

Risk scores of individual houses are merged into statewide and regional measures by Ela's Homesmartreports.com.

This work found that the state's collective risk index is up 42 percent on the year. That's in line with other data, such as mortgage delinquencies. Formal warnings to tardy California borrowers grew on an annual basis in the third quarter for the first time since early 2002.

Orange County's risk score tied San Diego's for the lowest in the third quarter among the state's major markets. But O.C. riskiness is up 76 percent from the start of the year.

You might want to read the whole incredible article if you live in California.Check the table at the end.