The Northwest is facing mortgage loan defaults well above the national average, according to a new study.

University Financial Associates said life-of-loan defaults are a fifth likelier in the region, which comprises Oregon, Washington, Idaho, and Alaska, than nationwide. The risk is also relatively high in Utah, New Mexico, and Montana, the study found.

The Ann Arbor, Mich., firm specializes in valuing loans and making underwriting models for lenders.

Dennis R. Capozza, a University of Michigan professor of finance and a principal of the firm, said the Northwest is particularly risky because the region's economy, whose long expansion has pushed up home prices, "appears to be weakening."

According to the study, the Northeast appears to be in the best shape, with a projected default rate about seven-eighths the national average.

"The Northeast is recovering from the declining house values of the late 1980s and early 1990s," Mr. Capozza said.

"Places like New York will always have high prices, but the question is: Is it ahead of itself or behind itself in terms of its fundamental economics, like its employment rate, average income, taxes, etc.?"

Mr. Capozza said that even though low interest rates and a booming economy have made subprime lending less risky in recent years, "some lenders do not understand the risk very well."

"It is easy to buy in a little too deep," Mr. Capozza said. "Gain-on- sale accounting escalates the risk to lenders a tremendous amount, because though they are selling the loans in pools on Wall Street, they are retaining the riskiest piece of the pool."

Mr. Capozza said the slightest adverse movement can destroy the value of those lenders' portfolios. He added that home equity and subprime loans were the most vulnerable to shifts in regional economies.

"Subprime lenders are more exposed because they are dealing with borrowers with a higher payment-to-income ratio who probably have no income reserve," Mr. Capozza said.

He said the midwestern states have less volatile economies than those elsewhere in the country. But he stressed that the predictions may change as more people move to rural areas.

"People no longer have to be in a big city for their jobs," Mr. Capozza said. "Telecommunications just lets them choose where they want to live."

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