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Delinquencies Hit Bank Held Home-Equity Loans.
Washington -- The delinquency rate on home-equity loan products held by banks rose sharply in the third quarter, and the chief economist of the American Bankers Association believes the trend line may worsen in the fourth quarter.
The overdue rate on closed-end home-equity loans rose 29 basis points to 2.28% during the third quarter, according to the ABA's consumer credit delinquency bulletin. That's the highest delinquency rate seen in more than two years.
And while home-equity lines of credit continued to have the lowest delinquency rate among consumer loan products tracked by the ABA, the overdue rate rose seven basis points to 0.84% during the third quarter.
The delinquency rate on property improvement loans rose 14 basis points to 1.6%. The delinquency rate on mobile home loans rose to 2.87% from 2.61% in the second quarter. The deterioration in housing related loan performance drove up the ABA's composite consumer loan delinquency rate to 2.44%, despite improvement in the performance of credit card loans. That was 17 basis points higher than the overall consumer loan delinquency rate in the second quarter and it marked the highest overall consumer loan delinquency rate posted by banks since 1997.
ABA chief economist James Chessen said in a news release that while consumers are facing pressure from resets on adjustable-rate mortgage loans, they are trying to keep up with other payment obligations.
"Consumer loans directly related to the housing market were hit hardest. We anticipate delinquency rates will continue to rise on these types of loans in the fourth quarter of 2007 reflecting continued weakness in the housing sector," Mr. Chessen said in a news release.
Heading into 2008, industry watchers are concerned about what impact a slowing economy might have on the commercial real estate sector. In one sign of increased caution, Fitch Ratings is raising subordination levels on commercial mortgage-backed securities, based on the credit rating agency's view that commercial mortgage loan defaults are likely to rise.
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Source: HighBeam Research, Delinquencies Hit Bank Held Home-Equity Loans.