Despite higher interest rates and production volume, home equity loan delinquencies declined last year, according to a new study.
The National Second Mortgage Association's compilation showed that the number of loans at least 30 days delinquent at nine home equity lenders of varying size and geographic location fell 16%, to 24,754, last year. The association did not name the lenders.
The survey also found that foreclosures were lower last year than in 1993 - but were trending upward toward yearend. Net credit losses were relatively high.
The trade group's study "does not pretend to be all inclusive," said Jeffrey L. Zelter, executive director. Rather, it is just a quick sketch of foreclosure and delinquency trends in the industry.
Lenders say second mortgages are among the most surefooted when it comes to delinquency and foreclosure rates.
"Most of the people in the banking industry are unaware of the credit risk," said George R. Yacik, a vice president at SMR Research Corp. in Budd Lake, N.J. "There really is virtually no credit risk."
Mr. Yacik said those who have home equity loans are generally among the least risky borrowers. He said even at finance companies, which mostly lend to borrowers with more risky credit standings, the losses as a result of loans going sour are relatively low.
But David Olson, a consultant in Columbia, Md., warned that the proliferation of home equity mortgages with 100% loan-to-value ratios was a potential vortex of credit problems for the industry.
He pointed to rising chargeoffs at lenders that make loans based on home equity and those that make mortgage loans to borrowers with less-than- stellar credit standings, as proof of problems brewing.
Net chargeoffs at lenders that make loans to such borrowers climbed 50 basis points, to 1% of total home equity loans outstanding, from 1990 to 1994, Mr. Olson said.
So far, delinquency and foreclosure rates for home equity loans do not have the same ominous signs, according to the National Second Mortgage Association study.
Of all home equity loans, 3.51% were 30 days delinquent by the end of December, according to the survey. That's down from 4.07% at the end of January 1994, the two-year high.
By contrast, 4.15% of all first mortgages were past due - for any duration - at the end of last year, according to a survey by the Mortgage Bankers Association of America.
The National Second Mortgage Association's survey does not start counting home equity loans as delinquent until they are 30 days past due, said John Hayt, president and chief executive at Equicredit Corp., Jacksonville, Fla., and president of the trade group.
The number of home equity loans delinquent for longer past-due periods also declined.
Foreclosures hit a two-year high in February 1994 - 1.71% of all home equity loans were in foreclosure procedures then. By the end of the year that rate dropped to 0.85%, or 4,377 loans in foreclosure.
The low rate "is a credit to the fact that the borrowers themselves are responsible, plus the finance companies do a good job making sure people pay," SMR's Mr. Yacik said.
At the end of 1993, the home equity loan foreclosure rate was at its lowest for the past two years - 0.63%.