Home Equity Borrowers Fall at Riskier End Of Moody's Index of

conventional mortgage borrowers. And while delinquencies on first mortgages have fallen over the past year, delinquencies on home equity loans have risen. The patterns emerge in a new index that tracks securitized pools of home equity loans. The index, developed by Moody's Investors Service, is among the performance barometers that three credit agencies have come out with recently. The indexes and guidelines - from Moody's, Duff & Phelps Credit Rating Co., and Standard & Poor's Corp. - provide insights about delinquencies, foreclosures, and losses on a number of types of loans. Moody's used 250 loans it has rated to create its home equity indexes. The barometers indicate performance peaks and valleys for the loans over the past several years. Despite higher delinquencies, lenders and servicers are not inclined to foreclose on home equity loans, an overlay of charts reveals. Servicers "simply seem willing to write bad loans off rather than pursue costly foreclosures which likely will recover very little," the agency said in a report that accompanies the data. Around midyear, home equity delinquencies were around 7%, while a grouping of all mortgages was at 3%. Moody's expects these percentages to converge as "underwriting standards in the first-mortgage market ease while home equity lending standards improve." Meanwhile, Duff & Phelps has created an index to track the performance of variable-rate mortgages. Using data from six mortgage deals that were securitized in 1994, the barometer tracks 30-, 60-, and 90-day delinquencies, foreclosures, and cumulative losses. The barometer shows a 3.89% delinquency rate for the variable mortgages, which is about four times the 0.89% rate for 30-year loans originated during the same 1994 timeframe. But variable-rate loans have half the delinquency rate of B and C loans to credit-impaired borrowers, a Duff & Phelps report said. The adjustable-rate index was launched last month and joins models that the New York credit agency has devised to track other securitized pools of mortgages. And, citing an increase in demand for Title I loans, Standard & Poor's has reissued the criteria it uses to evaluate securities linked to these products. The guidelines, which appear in the credit rating firm's Oct. 30, newsletter, remind lenders that the government does not fully guarantee Title I loans. As a result, S&P said it continues to requires tight controls on underwriting and collection procedures for these loans, which are used to repair and rehabilitate homes.