The rate of serious delinquency on residential mortgages and home-equity products has declined to the lowest level in seven months and would be even lower if it weren’t for a bloated foreclosure inventory. First mortgages outstanding have diminished by $200 billion since the beginning of 2012 mostly due to write-offs. The volume of home-equity originations, which has suffered severely during the past few years, is projected to rise again.
Residential delinquency of at least 90 days was 5.78 percent last month. It was the lowest rate since April, when delinquency also stood at 5.78 percent.
The past-due rate improved from October, when it was 5.91 percent.
Delinquency has fallen 80 basis points since November 2011, according to the CreditForecast.com report jointly produced by Equifax and Moody’s Analytics.
Mortgage delinquency remains elevated relative to historical levels because of the backlog of loans in the foreclosure process.
Early-stage delinquencies are low and falling, an indication that more recent vintages are performing better.
“Consumer credit continued to contract in November,” the report stated. “Defaults on mortgages and home equity loans continue to drive the decline, although there are signs that the contraction is slowing.”
Outstanding balances on first mortgages were $7.8 trillion last month, down from $8.0 trillion in January. Around 80 percent of the reduction is tied to lenders writing off bad debt.
However, the report noted that borrowers have also been slowly increasing principal repayments.
The origination of HELs and home-equity lines of credit has slowed 80 percent from the peak of the housing market.
But while lenders were punished for holding home-equity products in their loan portfolios because declining home values left many of the loans with combined loan-to-value ratios in excess of 100 percent, the report predicts a resurgence in HEL and HELOC originations.
“They remain attractive lending products for borrowers seeking to tap the equity in their homes to finance remodeling projects, invest in small businesses, or consolidate debts,” CreditForecast.com said in the report. “Banks will expand originations as house prices firm and as equity is restored.
“But new legislation as well as shifting risk appetites will restrict growth in the sector for a number of years.”
