Home loan delinquencies continue steady drop

Consumers made their home equity loan payments on time during the final quarter of last year with the help of an expanding economy, another sign of the housing market's improving health, a new survey shows.

Delinquencies fell significantly in home equity loans and lines, continuing a downward trend that is approaching their 15-year averages for the first time since the recession, according to the American Bankers Association’s (ABA) Consumer Credit Delinquency Bulletin released on Thursday. 

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Home equity loan delinquencies fell to 2.68 percent, from 2.91 percent, of all accounts and home equity line delinquencies dropped to 1.18 percent, from 1.31 percent, of all accounts during the October-December period. 

A third category, property improvement loan delinquencies rose 5 basis points, to 0.92 percent of all accounts.

"It’s been a long, rocky road, but home equity delinquencies have finally worked their way back to historical norms,” said James Chessen, the ABA’s chief economist. “The strong and consistent rise in home prices over the last three years has restored equity, which makes keeping loans current even more of a top priority for homeowners," Chessen said.

The ABA report defines a delinquency as a late payment that is at least 30 days overdue.

“A confluence of factors have kept delinquencies very low,” said Chessen. “The economy’s better, jobs are up, wages have grown and consumers are keeping a watchful eye on their finances. Even during the holiday spending season when temptation to overspend reaches its peak, consumers did a good job of ensuring expenses did not outpace income.”

Chessen said that rising home equity and shrinking delinquencies will spur banks to offer more home equity loans. 

Installment loan delinquencies remained near historical lows, matching the third quarter’s composite number.

The composite ratio, which tracks delinquencies in eight closed-end installment loan such as personal and auto loans, remained at 1.41 percent in the fourth quarter, well below the 15-year average of 2.24 percent. 

Bank card delinquencies fell slightly in the fourth quarter, decreasing two basis points to 2.52 percent, holding below their 15-year average of 3.70 percent.

“The national savings rate is at one of its healthiest points since the recession and trending upward, which means people are well-positioned to repay their debts,” Chessen said.

"Disciplined saving, along with steady job growth and climbing household wealth, signal that delinquency levels are likely stay near these historic lows for some time.”