Reflecting continued weakness in the housing sector, delinquencies in the home equity category reached record-high levels during the first three months of the year, according to the quarterly Consumer Credit Delinquency Bulletin issued by the ""American Bankers Association"":http://www.aba.com (ABA) this week.
The organization’s study showed that the 30-day delinquency rate on closed-end home equity loans jumped from 3.03 percent of accounts in the fourth quarter of 2008 to a record 3.52 percent during the first quarter of 2009. Delinquencies on open-ended home equity lines of credit (HELOCs) also climbed, from 1.46 percent at the end of last year, to a record high of 1.89 percent in Q1.
According to the ""Federal Reserve Board"":http://www.federalreserve.org, second liens and HELOCs totaled $1.1 trillion in outstanding debt during the first quarter of 2009, representing nearly 10 percent of all home mortgage debt.
ABA Chief Economist James Chessen said even if home prices stop falling later this year, he expects rising unemployment to keep home equity delinquencies high for some time.
""The number one driver of delinquencies is job loss,"" he said. ""When people lose their jobs, they can’t pay their bills. Delinquencies won’t improve until companies start hiring again and we see a significant economic turnaround,"" Chessen said, adding that job growth is not likely to improve in the foreseeable future.
According to Chessen, problems in the housing sector are also fueling consumers’ struggles to meet other debt obligations. As an example, he explained that the unemployed seem to be using bank cards to bridge a temporary income gap, especially with less home equity to fall back on as housing prices keep falling. ABA’s study found delinquency rates on outstanding bank card debt, as well as most other consumer loan categories, are also on the rise.
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