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Serious Residential Delinquency Rises

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The rate of serious delinquency moved higher for the second consecutive month. But a decline in early stage late payments points to a lower serious delinquency rate in the coming months. Home-equity lending is making a slow comeback — even in some of the worst housing markets — which could benefit local economic conditions.

Home-loan borrowers who were past due at least three months on their mortgages accounted for 6.04 percent of all residential borrowers during the month of June based on loan balances.

Delinquency deteriorated from May, when the rate came in at 6.02 percent and was up 24 basis points from April.

The statistics, which were based on a CreditForecast.com report jointly produced by Moody’s Analytics and Equifax, indicated that the level of past-due payments improved, however, from 6.59 percent in June 2011.

Serious delinquency could turn lower in the next month or two based on the 30-day delinquency rate, which Lender Processing Services Inc. reported fell 9 BPS between May and June to 11.23 percent. The LPS rate includes a foreclosure presale inventory rate of 4.09 percent.

The CreditForecast.com data reflected a $331 billion decline, or 4.4 percent, in first mortgages outstanding in June from a year earlier.

“Household deleveraging is continuing overall as loan servicers continue to work through mortgage foreclosures,” the report said. “However, credit is expanding outside of home financing.”

The year-over-year decline on home-equity loans outstanding was $17 billion, while home-equity lines of credit were down $44 billion. The report said that community banks are carefully wading back into HEL lending because they see opportunity in lending to highly qualified borrowers as home prices stabilize.

Even hard-hit markets like Florida, Nevada and Michigan are seeing a resurgence in HEL originations for rehabilitation and remodeling.

“When used prudently, second mortgages can provide borrowers with the flexibility to finance small businesses, college educations, and other productive enterprises,” according to CreditForecast.com. “Home-equity lines of credit can also provide homeowners with quick, low-cost financing in the event of a medical or other type of emergency.”

Factoring in late payments on auto loans and bankcards, 90-day delinquency inched up to 5.65 percent from 5.63 percent in May but was better than 6.16 percent in June 2011.

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