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Home Equity Lines Doing Well

The number of home equity loans that banks reported past due increased by 22 basis points in the fourth quarter, but home equity lines of credit are performing better than any other kind of consumer credit, according to data collected by the American Bankers Association.

In the fourth quarter, 1.64% of closed-end home equity loans were past due, up from a delinquency rate of 1.38% in the third quarter. That's the highest delinquency rate for home equity loans the ABA has seen since 1993.

However, delinquencies on home equity lines of credit declined slightly in the quarter. Past due payments accounted for just 0.56% of HELOCs, a decline of two basis points from the third quarter and the lowest delinquency rate among any category of consumer loan.

Keith Leggett, an economist at the ABA, said that home equity lines represent a fast growing segment of the consumer loan market and generally have higher credit scores than other types of consumer credit.

Home equity lines also tend to be larger in dollar size than home equity loans.

"People are opening up lines of credit because it gives them great latitude in terms of when they are going to make withdrawals and use it," Mr. Leggett said.

Home equity lines can be tied to a checking account or a credit card, for instance, adding to the convenience of making draws.

He said the market for closed-end home equity loans is somewhat different, and may include more borrowers with subprime credit characteristics.

That segment of the population is "more affected by this jobless recovery we are in," Mr. Leggett said.

The ABA also reported a rise in delinquencies on mobile home loans. Mobile home delinquencies rose to 5.52% in the fourth quarter, from 5.38% in the third quarter.

The ABA's quarterly survey of consumer credit delinquencies also reported a rise in credit card delinquencies to a record 4.07% in the fourth quarter. Credit cards are often an early indicator of consumer credit problems. Based on dollar amount, 4.63% of credit card debt outstanding was delinquent at the end of the year, slightly lower than a high established in the fourth quarter of 2001.

"The rise in delinquencies is not surprising given the cumulative weight of layoffs and the poor prospect for re- employment in the face of anemic job growth," said James Chessen, the ABA's chief economist, in a statement. "Consumers tend to rely on savings and credit cards to get through uncertain economic times, and the fourth quarter was no exception."

The ABA's composite consumer credit delinquency rate, which combines eight different categories of closed-end installment loans, also rose in the fourth quarter by 10 basis points to 2.16% of accounts being late.

Among the different categories, delinquencies on personal loans fell in the quarter and late payments on direct auto loans rose.

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