Commercial Home-Equity Delinquencies Rise Sharply

The delinquency rate on home-equity loans held by commercial banks increased sharply in the first quarter despite a decline in credit card overdue rates, according to the American Bankers Association.

While credit card overdue rates typically are a leading indicator of credit deterioration, the current rise in home-equity delinquencies may be seen as a harbinger of how weak housing markets are affecting consumers.

The ABA's quarterly consumer credit delinquency survey showed that 2.15% of closed-end home-equity loans were overdue at the end of the first quarter of 2007, up from 1.92% in the fourth quarter of 2006. That was the highest overdue rate on home-equity loans since the third quarter of 2005.

Delinquencies also rose on home-equity lines of credit to 0.60% in the first quarter from 0.57% in the fourth quarter. The HELOC overdue rate remained the lowest delinquency rate for any consumer credit category tracked by the ABA.

The overdue rate on mobile home loans and property improvement loans also increased during the first quarter as 2.94% of mobile home loans held by banks were delinquent, up from 2.82% in the previous quarter, and 1.61% of property improvement loans were overdue, up from 1.29%.

By contrast, the overdue rate on credit cards declined 15 basis points from the fourth quarter of 2006 to the first quarter of this year as 4.41% of all credit card accounts were overdue in the first quarter.

ABA chief economist James Chessen said that slow job growth and falling home prices have weakened overall consumer credit. "There are still signs of consumer financial distress, which will continue throughout most of this year as the worst of the housing problem works its way through the economy," Mr. Chessen said.

The ABA urges consumers to contact their lender when they run into problems with loan payments, assuring consumers that ignoring the problem will only make matters worse.


Consumer Credit Delinquency Rates

Composite Home Equity HELOCs Bank Card Auto

1st Q '07 2.42% 2.15% 0.60% 4.41% 1.68%

4th Q '06 2.23% 1.92% 0.57% 4.56% 1.85%

3rd Q '06 2.12% 1.92% 0.57% 4.57% 1.87%

2nd Q '06 1.96% 1.89% 0.52% 4.41% 1.72%

1st Q '06 1.94% 1.94% 0.55% 4.40% 1.78%

Source: American Bankers Association.

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