With Fewer Write-Offs and Severe Delinquencies, Borrowers Are Managing Mortgage Debt Better

Borrowers are managing their mortgage debt better, reporting substantial declines in write-offs and severe delinquency rates, according to Equifax's Q1 2015 National Consumer Credit Trends Report released earlier this week.

The total balance of write-offs for first mortgages and home equity lines and loans (excluding those in bankruptcy) for Q1 2015 was $12.34 billion, a year-over-year decline of 32.6 percent. Likewise, the percentage of loans severely delinquent (90 or more days overdue or in bankruptcy or foreclosure) on first mortgages declined year-over-year from 3.27 percent in Q1 2014 to 2.35 percent in Q1 2015.

The severe delinquency rate on home equity installment loans fell from 2.59 percent in Q1 2014 to 1.98 percent in Q1 2015, while balances declined by 16.4 percent year-over-year in Q1 down to $136.1 billion and accounts declined by 10.6 percent down to 4.5 million for the same period.

Meanwhile, home equity revolving lines of credit reported a year-over-year severe delinquency rate decline down to 1.47 percent in Q1 2015 (from  1.71 percent a year earlier. Balances on home equity revolving lines of credit reported a year-over-year decrease of 3.1 percent (down to $509.8 billion) and accounts declined by 4.3 percent (down to 11.4 million) from Q1 2014 to Q1 2015.

"We're seeing borrowers become increasingly better at making on-time payments, but we're also seeing a faster rate of amortization due to low interest rates," said Amy Crews Cutts, Chief Economist at Equifax. "Because a larger portion of each payment is going to principal, consumers are now paying off their mortgage debts faster than they would have just a few years ago. Overall mortgage balances are unchanged from a year ago which means new mortgage credit is exactly offsetting the payoffs."

The Equifax data revealed that the total credit limit originated on HELOCs (home equity lines of credit was $9.5 billion in January 2015, a seven-year high. The number of new accounts originated jumped year-over-year by 20 percent for January, up to 88,000. The average HELOC loan credit limit experienced a 5.7 percent year-over-year increase in January, up to $108,010.

The report also found an increase in subprime lending. The number of new HELOCs originated in Q1 for borrowers with an Equifax Risk Score below 620 increased year-over-year by 36 percent (up to a total credit limit of $49.3 million). The percentage of new HELOC accounts that were subprime also increased, from 1.3 percent in Q1 2014 up to 1.5 percent in Q1 2015.

"With so many homeowners having very low interest rates on their first mortgage, the increased demand for HELOCs makes sense," Cutts said. "They don't want to refinance the first lien either because the new rate would be higher or they would have to pay large closing costs, when all they want to do is tap a little equity to make improvements or fund some other need."