Home equity loan delinquencies fall for first time in two years

The delinquency rate on home equity loans has fallen for the first time in two years, reflecting the slowly stabilizing housing market and consumers' efforts to clean up personal balance sheets, the American Bankers Assn. said Wednesday.

The percentage of home equity loans on which consumers were at least one payment late declined to 4.12% in the first quarter from 4.32% the previous quarter. Not since the first quarter of 2008, when the rate fell to 2.34% from 2.39%, had there been a decline.

Missed payments on consumer loans overall improved for the third straight quarter, the ABA said in its quarterly Consumer Credit Delinquency Bulletin. Bank card delinquencies fell from 4.39% to 3.88% of all accounts -- the first time since 2002 that card delinquencies were below 4%.

Home equity loans, which are second mortgages, differ from home equity lines of credit because borrowers can't withdraw more money once the loan has been made.

Delinquencies on home equity-linked credit lines peaked at 2.12% in the third quarter last year, fell to 2.04% in the fourth quarter and dropped again in the latest survey to 1.81%.

In another sign that consumers are cleaning up their personal finances, applications to refinance home loans jumped by 9.2% last week to the highest level in nearly 14 months, the Mortgage Bankers Assn. said in a separate report. With mortgage rates near record lows, refinancing can allow homeowners to lower their monthly housing costs.

However, the mortgage group's index of applications to buy homes declined 2% from the previous week. The index has fallen in eight of the last nine weeks, reflecting the end of federal tax credits for home buyers at the end of April. Economists are hoping purchase lending may revive by the end of this summer, signaling a fundamental improvement in housing.

"Maybe we're starting to see an inkling of stability in the housing market," said James Chessen, chief economist for the ABA. "The pace, though, of the housing recovery is still going to be very long and drawn out."
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