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HELOC Losses Tumble

Write-offs on all home loans see big year-over-year drop

April 16, 2013

By Mortgage Daily staff

The amount of write-offs on credit lines secured by residential properties has plummeted over the past year. Even closed-end loans have seen a respectable decline. Overall, write-offs have fallen to the lowest level in years.

In the first three months of this year, $43.1 billion in home finance balances were written off.

Included in the amount of severe derogatories are loans that completed the foreclosure process and became real-estate owned by the servicer. It also includes loans where borrowers have entered bankruptcy or that have been charged off by the lender.

First-quarter activity was a big drop from a year prior, when $55.4 billion was written off.

It was also the lowest level of write-offs in five years.

The findings were reported Tuesday by Equifax in its National Consumer Credit Trends Report.

On just first mortgages, an 18 percent decline in home finance write-offs from a year earlier was logged by Equifax. At the same time, the overall balance of severely delinquent first mortgages, those that are at least 90 days past due or in foreclosure, fell to $355 billion last month from $477 billion in the year-earlier period. The peak of $714 billion was reached in March 2010.

Nearly two-thirds of severely delinquent first mortgages were originated between 2005 and 2007.

The report indicated that fewer first mortgages are transitioning from a current status to a 30-day status than during any of the past five years. The story was the same for 30-day loans transitioning to 60-day delinquency and 60-day loans moving into the 90-day category.

Using a six-month moving average, transition rates for balances moving from in-foreclosure to REO status are near the highest level in five years and currently running at 12 percent per month.

Write-offs on home-equity loans were off a third from the year-earlier period, while outstanding balances on severely delinquent HELs declined to $4.9 billion from $6.6 billion..

HELs outstanding fell to 4.2 million loans for $136.6 billion in March from 4.5 million loans for $148.1 billion in the year-earlier period.

The amount written off on home-equity lines of credit plummeted 44 percent from the first-quarter 2012. The balance of HELOC loans that are considered severely delinquent dropped 29 percent to $9.7 billion as of last month.

Around 73 percent of the 10.9 million HELOCs outstanding for $516.4 billion were originated from 2005 to 2007.

A year earlier, 11.5 million HELOCs were outstanding for $569.1 billion.

Equifax said that new HELOC credit originated in January was $6.2 billion, rising from $5.1 billion in January 2012 "and the strongest start to a calendar year since 2009."

Equifax Chief Economist Amy Crews Cutts noted in the report that overall home finance balances fell to $8.38 trillion last month from $8.64 trillion in March 2012.

"The decline is due to write offs from foreclosures as well as from consumers paying down balances when refinancing, known as cash-in refinancing, shortening terms when they refinance their loans or making extra principal payments each month for faster amortization; some have even paid-off their mortgages entirely," Cutts stated in the announcement. "The share had been running 50-50 until recently when it has shifted to a 60-40 split with write-offs dominating.

"This shift is important as increased home purchases are finally leading to more demand for mortgage credit and may soon stop the decline in mortgage debt outstanding."

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