When third-quarter home equity loan delinquency figures edged up, some rating agencies started sounding alarms. Standard and Poor's Corp. responded by requiring a higher level of credit enhancement for home equity loans; some others began downgrading mortgage companies that originate these loans.

But industry observers say this concern may be unfounded.

"Delinquency figures are just drifting back to normal from record lows," said David Olson, president of David Olson Research Co. in Columbia, Md. "There's no real cause for concern."

As reported by the American Bankers Association, the percentage of home equity loans that were 30 days or more past due increased to 1.26% in the third quarter of 1995, up from 1.20%. But these figures are significantly lower than 1994's high of 1.51%, in the first quarter, or 1991's high of 2.06% at the end of the year.

What's more, the number of seriously delinquent home equity accounts has gone down significantly, according to the National Home Equity Mortgage Association.

By the middle of the third quarter, accounts that were 90 days or more past due were only 2.25% of total end-of-month receivables, down from over 3% in the beginning of the second quarter. Although the percentage jumped 29 basis points at the end of the third quarter, the trend is for seriously delinquent accounts to decrease, according to Craig Sandell, data director for the association.

"People are starting to dig out of the (financial) hole that the past couple of years have put them in," he said. "They are restructuring loans to put them back in good graces with creditors."

The home equity association's preliminary data indicate that the percentage of seriously delinquent accounts will hold steady or decrease slightly in the fourth quarter, Mr. Sandell said.

The association also found that 30-day-delinquent loans were up 18 basis points by the end of the third quarter, to 3.77%.

Although some of these may translate into 60-day-delinquent loans in the fourth quarter, Mr. Sandell says there is little reason for concern. Delinquencies traditionally rise slightly in the fourth quarter, he said, as people with limited funds make decisions about what to pay and when.

If the loan is less than prime quality, borrowers are often making "hard decisions about where to put their cash" during the holidays, he said.

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