Moody's: despite HEtTrouble spots, serious delinquency rate remains low.(home equity)

The percentage of home equity loans that were seriously delinquent remained low by historical standards in the first quarter, according to Moody's Investors Service.

More troubling, however, is a rise in loan charge-offs. The charge-off rate in Moody's Home Equity Index Composite hovered at 1.3% in January and February, but jumped to 1.49% in March.

"The charge-off rate tends to be rather volatile, so it remains to be seen whether this increase is a temporary spike or whether the rate of charge-offs is trending higher," Moody's said.

And the performance of traditional home equity loans - just one component of the Moody's index - deteriorated in the first quarter of this year. And the increase comes despite heavy recent issuance, which should boost performance by refreshing the outstanding home equity universe with new, fresh loans that have not reached their peak seasoning level, Moody's said.

In fact, a major reason for the low overall delinquency rate in the Moody's index is that a high volume of recently issued securities means that new, unseasoned pools account for a big share of outstanding balance of home equity loans. Those deals tend to have low losses early in their lives, Moody's analysts noted.

"Another factor contributing to the low delinquency rate reflected in the HEIC has been the strong performance of the 2002 vintage subprime mortgage pools. Because subprime mortgage issuance was very heavy in 2002, these pools have a major impact on the overall index, comprising 36% of the index balance in March," Fitch analysts Julia Tung and Henry Engelken said in their report.

Serious delinquencies in the 2002 vintage remain low compared to prior vintages at the same point in loan seasoning. This probably ...