Home Equity Overdues Rise

The number of home-equity loans and lines that were overdue increased sharply late last year, according to the American Bankers Association.

And that helped push the overall consumer loan delinquency rate at banks to a high not seen since 1992.

The delinquency rate on closed-end home-equity loans rose 11 basis points from the third quarter to 2.39% at the end of 2007, according to the ABA. The delinquency rate on home-equity lines of credit rose 12 basis points to 0.96%.

The delinquency rate for closed-end home-equity loans is at its highest level since the second quarter of 2005. And the delinquency rate on HELOCs is at its highest level since the fourth quarter of 1997, though the HELOC overdue rate remains the lowest among consumer credit categories tracked by the ABA.

All eight consumer loan types saw an increase in overdue rates, with the largest increase being posted by indirect auto loans.

That pushed the ABA's composite consumer delinquency rate to 2.65%, the highest level in 16 years.

James Chessen, chief economist for the ABA, said the rise in consumer credit delinquencies reflects a rapidly slowing economy.

"I think the housing market is still the dominant story here, but it's a broader tale here of a weak economy. There is more going on here than just housing," he told NMN.

He predicts that delinquency rates will continue to rise through the first half of this year, because food and gas prices remain high and income growth is weak.

"It's really hard to forecast when the turn might be on delinquencies, because they tend to lag the general economic conditions," Mr. Chessen said. "The key elements are when do jobs start to pick back up and when does income growth start to accelerate."

Along with the rest of the consumer credit categories, he expects home-equity delinquency rates to continue to rise.

On the bright side, he said the banking industry entered this period of weakness with strong capital and plenty of loss reserves.

It also means the industry is well positioned to weather the storm. Increases in the delinquency rate on auto loans, which comprise two-thirds of all closed-end consumer installment loans at banks, were a key factor in driving up the overall rate, Mr. Chessen said.

Property improvement loans also saw an increase in overdues, with a fourth-quarter delinquency rate of 1.81%, up 20 basis. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/