Residential Loan Charge-offs Down 23 Percent from Q4, at Five Year Low

The Equifax March National ConsumerrnCredit Trends Report presents more evidence that the home finance relatedrncredit picture is improving rapidly.  Thernreport shows that the level of home finance balances written off in the firstrnquarter was down nearly 23 percent from that written off in the fourth quarterrnof 2012.</p

Lenders wrote off $43.1 billion in sorncalled severe derogatories in the first quarter, a five year low.  These include loans for which foreclosuresrnhave been completed, loans where the borrowers had entered bankruptcy, andrnloans that were otherwise charged off.  Inrnthe previous quarter write-offs totaled $55.4 billion.</p

First mortgage balances were charged offrnin the first quarter at a rate that was down 17.6 percent from the previousrnquarter while outstanding severely delinquent loans had an aggregate balancernthat dropped 25 percent from $477 billion in the fourth quarter of 2012 torn$3.55 billion.  </p

The outstanding balance of severelyrndelinquent mortgages in March is down 51 percent from the peak of $714 billionrnin March 2010.  More than 65% of severelyrndelinquent balances among first mortgages are attributable to loans originatedrnfrom 2005-2007.</p

Transition rates for balances movingrnfrom current status to 30 days-past-due, 30 to 60 days-past-due and 60 to 90rndays-past-due are all at new lows for the 5-year look-back period butrnrates for balances moving from in-foreclosure to bank-owned real estate (REO)rnstatus are running at 12 percent per month on a six-month moving averagernbasis.  This is near the 5-year periodrnpeak.</p

The outstanding balance of home equityrnrevolving loans charged off in the first quarter declined 44.1 percent and severelyrndelinquent loan balances for those loans declined from $13.6 billion to 9.7rnbillion, a change of 29 percent.  Seventy-threernpercent of the severely delinquent balances of home equity revolving loans arerntied to accounts opened in the 2005-2007 period.</p

Charge-offs of home equity installmentrnloans declined by 32.9 percent and delinquent balances were down about 26rnpercent from $6.6 billion to $4.9 billion. rn</p

“Overall home finance balancesrndecreased to $8.38 trillion in March 2013 from $8.64 trillion same time a yearrnago,” said Equifax Chief Economist Amy Crews Cutts. “The decline isrndue to write offs from foreclosures as well as from consumers paying down balances when refinancing,rnknown as cash-in refinancing, shortening terms when they refinance their loansrnor making extra principle payments each month for faster amortization; somernhave even paid-off their mortgages entirely. rnThe share had been running 50-50 until recently when it has shifted to arn60-40 split with write-offs dominating. This shift is important as increasedrnhome purchases are finally leading to more demand for mortgage credit and mayrnsoon stop the decline in mortgage debt outstanding.”

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