Home Equity Delinquencies Increase

The weakness in the housing sector that has driven up mortgage delinquencies appears to be spilling over into the home-equity loan sector as well, according to a quarterly consumer delinquency report from the American Bankers Association.

The delinquency rate on closed-end home-equity loans rose 13 basis points from the third quarter to 1.92% in the fourth quarter of last year, according to the ABA. It's the first time the home-equity delinquency rate has been that high since the first quarter of 2006.

However, the delinquency rate on home-equity lines of credit remained unchanged at 0.57%, the lowest delinquency rate among any of the consumer credit categories tracked by the ABA.

The delinquency rate on mobile homes declined 42 basis points to 2.82% in the fourth quarter. Likewise, the delinquency rate on property improvement loans fell 29 basis points to 1.29% in the fourth quarter.

ABA chief economist James Chessen said in a news release that overall, a modest increase in the composite consumer loan delinquency rate in the fourth quarter was driven by higher delinquencies on "indirect" auto loans, which are arranged through dealerships, as well as the rise in home-equity overdue payments.

"It's not a surprise to see some increase in home-equity loan delinquencies, given the weakness in the housing market," he said.

He said that for the most part, consumers are managing debt well. Given continued job growth and a strong economy, he said the banking organization is confident that the "spillover" from weaker home-equity and auto loan performance will be small.

Snapshot: Home Equity Delinquencies Start Rising

4th Qtr '06 1.92%

3rd Qtr '06 1.79%

2nd Qtr '06 1.89%

1st Qtr '06 1.94%

Source: American Bankers Association consumer credit survey.

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