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Home Equity Credit Market Improving

Some good news is emerging from the home equity credit market, which given historic high delinquency rates and negative equity concerns are both unexpected and welcome.

Equifax Inc. of Atlanta reports home equity, auto and credit card loans continued their year-over-year delinquency rate decline in May showing signs of improvements not yet visible in many other industries.

Delinquencies in home equity revolving lines of credit decreased from 3.27% in April to 3.09% in May, also down from 3.44% in May 2009.

The improvement is marginal and relative, however, since these rates still exceed the 2.52% rate of May 2008 and the 1.28% rate of May 2007.

Overall the good news in delinquency rates is that it is not getting much worse, according to the May 2010 Mortgage Monitor Report from Lender Processing Services Inc., Jacksonville, Fla.

It shows both delinquency and foreclosure rates "continue to remain relatively stable at historically high levels," while the percentage of mortgage loans in default over 90 days increased slightly.

Month-over-month the total loan delinquency rate based on the LPS database of nearly 40 million residential mortgages across the spectrum of credit products shows that the nation's home loan delinquency rate increased 2.3% to 9.2% because early-stage delinquencies crept up after seasonal and incentive-based improvements started to wear off.

The number of delinquent loans that "cured" to a current status declined for every stage of delinquency, except in the "greater than six months delinquent" category. This improvement was likely the result of trial modifications made through the Home Affordable Modification Program that transitioned into permanent status.

Equifax values at $112 billion the number of HELOC accounts available to consumers or an estimated 1.3 million lower than the September 2008 peak of approximately 14.5 million accounts.

Equifax's U.S. Consumer Information Solutions president, Dann Adams, says it means credit rationing is continuing "at a much slower pace" across the board and especially in HELOCs.

Apparently, reported home price improvements due to seasonal factors and first-time homebuyer tax credits that helped increase sales are not yet enough to promote this type of credit. The passage of H.R. 5623, the new legislation that extends the tax credit deadline until Oct. 1-applicable to residencies purchased after June 30-may help improve home prices further this year.

Meanwhile the Equifax May Credit Trends Monitor Report sourced from nearly 200 million files of U.S. consumers who use credit marked the fourth consecutive month when first or primary mortgage delinquencies decreased, though they remain higher than for the same months in 2009.

In May the number of primary home mortgages at least 30 days in default was 7.49%, down 2.7% from 7.69% in April and "significantly higher" than 7.01% in May 2009 and 4.42% in May 2008.

To keep delinquency rates in check home equity lines are primarily being issued to lower-risk consumers. Almost 82% of the consumers who received HELOCs in April 2010 had Equifax risk scores of 740 and above, up from about 66% in April 2007.

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