Fundamentals Showing Strength.

Washington -- While experts see plenty of reason to be cautious about credit quality trends, third quarter data suggests that at least so far, a strong economy is outweighing factors that could push up home loan delinquencies.

In the third quarter of last year, the delinquency rate on single-family home loans stood at 4.44%, a slight improvement from the second quarter. Excluding the impact of Hurricane Katrina, the delinquency rate was lower than it had been one year earlier for all loan types.

Despite the good news, Mr. Duncan noted that delinquency and foreclosure rates could come under some pressure from rising energy costs and the seasoning of loans originated during the 2003 and 2004 refinancing boom years.

In addition, Mr. Duncan and other economists say that the rising popularity of new loan products, such as option-payment loans and interest-only loans, could have long term consequences for credit quality. The MBA has also noted an increase in non-prime credit quality loans in its survey universe.

"Just that averaging process is likely to raise the delinquency rate to some degree," Mr. Duncan said during a conference call in December. "On a weighted average basis, the underlying risk profile in the portfolio going forward will be higher."

The home equity sector, which also has been the subject of concern about credit quality, has weathered those pressures as well to date. Both banks and rating agencies saw declines in home equity credit problems late last year.

Delinquency rates on home-equity loans at banks fell in the third quarter of last year, reflecting overall improvement in the consumer credit sector despite rising short-term interest rates, according to the American Bankers Association.