Late Payments on Home Equity Loans Hit Postcrisis Low
U.S. homeowners continue to take advantage of rising house prices to dig themselves out of the hole created by the Great Recession.
In the second quarter, the 30-day delinquency rate on home equity lines of credit dropped to 1.34%, its lowest mark since the third quarter of 2008, according to new survey data from the American Bankers Association. Late payments were down from 1.42% in the first quarter.
Similarly, the rate of late payments on closed-end home equity loans dropped to 1.36%, which is another post-recession low. The comparable delinquency rate during the prior three months was 1.53%.
The S&P/Case Shiller index, a widely cited measure of U.S. home prices, is currently at its highest level since November 2007. The index is up 30.7% from its low-water mark of February 2012, and is only 5.2% below its peak in July 2006.
It is no coincidence that as the value of their houses rise, borrowers are doing a better job of staying current on their home equity loans, according to ABA chief economist James Chessen.
"There is a strong correlation between rising home prices and falling home-related delinquency rates," Chessen said in a press release. "As the housing market continues to gain strength, we expect home equity loan delinquencies to continue their downward trend."
Delinquency rates have been falling in defiance of a wave of interest rate hikes for home-related loans that were originated prior to the crisis. Earlier this year, the Office of the Comptroller of the Currency warned that almost half of outstanding balances on home equity lines of credit would reset to higher levels between 2015 and 2017.
Meanwhile, the 30-day delinquency rate on personal loans fell to 1.41% in the second quarter from 1.48% in the first quarter, according to the ABA. The delinquency rate on auto loans arranged through car dealers dropped to 1.45%, down from 1.58% in the first quarter.
The rate of late payments on credit cards rose slightly during the second quarter to 2.52%, up from 2.49% during the first three months of the year, as U.S. consumers are turning back to plastic.
In August 2015, revolving consumer credit reached $918 billion on a seasonally adjusted basis, according to a separate report Wednesday from the Federal Reserve. That is the highest level of revolving debt since November 2009.
The ABA's data is based on a survey of 300 banks nationwide.