Risky loans, sloppy underwriting and questionable borrower qualifications aren't the only reason homeowners are having a tough time keeping up with home loan payments.
More homeowners with home equity loans are coming up short because of slow job and income growth, little or no home value appreciation and generally weak economic conditions.
In the first quarter this year, home equity loan delinquencies increased to 2.15 percent from 1.94 percent the first quarter in 2006. During the same period, property improvement loan delinquencies rose to 1.61 percent from 1.42 percent, according to the latest "American Bankers Association’s (ABA) Consumer Credit Delinquency Bulletin." .
"There are still signs of consumer financial distress, which will continue throughout most of this year as the worst of the housing problem works its way through the economy," said James Chessen, ABA's chief economist, referring to the sharp increase in the composite ratio, particularly items directly related to housing.
The number of delinquent accounts in the association's composite ratio comprised of eight closed-end installment loan categories, increased to 2.42 percent in the first quarter this year from 1.94 percent during the same quarter in 2006.
The ratio has trended upward for the past year, reaching levels not seen since 2001, with home-based loans leading the way, the ABA reported.
"The increase in the first quarter of 2007 was driven in part by double-digit increases in home-equity loan delinquencies," Chessen said.
While many homeowners with subprime and nontraditional mortgages face or have been suffering major interest rate adjustments on their first mortgages, some home equity loans have given borrowers a respite from similar financial stress.
The lowest delinquency rate category in ADA's survey was the popular home equity line of credit. The delinquency rate was 0.60 percent in the first quarter this year up from 0.55 percent during the first quarter last year.
Most home equity loans are tied to the Wall Street Journal prime or the WSJ prime a consensus prime rate based on the rate offered by the 30 largest banks.
The prime rate moves up and down virtually in lock step with the Federal Reserve's federal funds rate.
The Fed raised the federal funds rate 17 times in a row, a quarter-point each time, from June 2004 to June 2006. However, it has held short-term rates steady at 5.25 percent for nearly a year.
Likewise, the prime rate has been at 8.25 percent for more than a year, giving homeowners a breather from the crash market of riskier first mortgages.
Revealing credit stress elsewhere, ABA also reported:
- Late payments on credit cards accounted for 4.41 percent of credit card accounts in the first quarter of 2006, up only slightly from 4.40 percent during the same quarter in 2006.
- During the same period personal loan delinquencies increased to 2.08 percent, up from 1.81 percent.
- The share of mobile home loan delinquencies dropped during the period from 3.37 percent to 2.94 percent.
"It's important that consumers who are having trouble meeting their financial obligations contact their lender immediately," Chessen said.
"Lenders are willing to work with borrowers during periods of financial stress, but ignoring the problem only makes the situation much worse," he added.
