Mortgage Delinquencies Drop for Fourth Consecutive Month

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Home loan delinquency rates remain near historic highs, but new data from Equifax Inc. suggests the upward trend may finally be reversing.

The Atlanta-based credit bureau analyzed nearly 200 million credit files of U.S. consumers and found that past due first mortgages declined in May for the fourth consecutive month, while home equity loan delinquencies dropped on both a month-over-month and year-over-year basis.

According to Equifax’s monthly Credit Trend Report, the number of primary home mortgages at least 30 days late in May was 7.49 percent.

That’s down 2.7 percent from April’s level of 7.69 percent, however first mortgage delinquencies remain elevated compared to the same month in recent years. In May 2009, Equifax reported the delinquency rate on primary mortgages at 7.01 percent, In May 2008, it was just 4.42 percent.

The delinquency rate of home equity lines of credit (HELOC) also eased down slightly, from 3.27 percent in April to 3.09 percent in May.

However, unlike first mortgages, overdue HELOCs are trending lower than year-ago levels. Based on Equifax’s analysis, the home equity delinquency rate in May 2009 was 3.44 percent. To illustrate how far loan performance has slipped, though, the company notes that in May 2008, the HELOC delinquency rate was just 2.52 percent.

According to Equifax, home equity credit lines available to consumers are now an estimated $112 billion lower and the number of accounts is an estimated 1.3 million lower than the September 2008 peak of approximately 14.5 million accounts.

With U.S. home prices still severely depressed, originations for home equity lines of credit continue to decline. In May 2010, new HELOC originations fell to 73,600, Equifax reports. The previous month, new originations totaled 76,700.

Equifax explained that home equity lines are primarily being issued to lower-risk consumers. Almost 82 percent of the borrowers who received HELOCs in April 2010 were considered low-risk – meaning they had an Equifax Risk Score of 740 or above.

In conjunction with declining home prices and home equity, Equifax has tracked a steady decline in home equity lines over the past two years, with the average falling from $101,125 in April 2008 to about $82,120 in April 2010.

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Paul Roesch
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