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Borrowers Falling Behind on Seconds as Well

Austin, TX-Two years ago, 45% of homeowners who were experiencing difficulty paying down their home-equity lines of credit also were struggling to pay their first mortgages. Today, that figure has climbed to 61%, according to data also released last week by Equifax Analytical Services, Orange Park, Fla.

Worse, in California and Florida, the two states that have become synonymous with the housing market debacle, late payments on either HELOCs or home-equity loans are associated with late first mortgages "over 80% of the time," senior consultant David Whitin reported at the Consumer Bankers Association's annual Home Equity Lending Conference here.

Equifax also found that because lenders have all but shut down home-equity lending, bank card balances are starting to grow, and if economic conditions continue to drive consumers towards an increased reliance on their plastic, credit scores are likely to deteriorate. Mr. Whitin said home-equity lenders would do well to study the main attributes that drive loan performance and adjust their exposure accordingly. Changes in these attributes, he said, result in "a five- to 16-times increase in the HELOC delinquency rate."

Recent Equifax figures also confirmed that many financially strapped consumers are no longer paying their mortgages first.

In previous down cycles, borrowers have given their homes their highest priorities. But a look at both 2002 and 2005 vintage loans revealed that "more consumers are letting their houses go," said Mr. Whitin.

Delinquent borrowers who took out their home loans in 2005 are more likely to be have clean slates when it comes to their credit cards and auto loans than tardy borrowers who got their loans three years earlier, he reported. Equifax also found that borrowers in the six states with the largest price declines - Arizona, California, Florida, Massachusetts, Maryland and New York - are more likely to fit that description. Another key finding: Borrowers who have trouble paying their mortgages but manage to make credit card and car payments tend to have larger mortgages than those who fail to meet any of the obligations.

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