Delinquencies on home-equity loans hit record

Late payments on home equity loans rose to a record in the first quarter as 18 straight months of job losses and a slumping economy left more borrowers unable to pay their debts, the American Bankers Assn. reported.

Delinquencies on home equity loans climbed to 3.52% of all accounts from 3.03% in the fourth quarter, and late payments on home equity lines of credit climbed to a record 1.89%, the group said Tuesday. An index of eight types of loans rose for a fourth straight quarter, to 3.23% from 3.22% in October through December, the group said.

“The No. 1 driver of delinquencies is job losses, which we’ve seen build and build,” said James Chessen, the group’s chief economist. “Delinquencies won’t come down without a dramatic improvement in the economy, and businesses will have to start hiring again.”

Delinquent bank card accounts jumped to a record 6.60% of outstanding card debt in the first quarter from 5.52% in the previous period, a signal that unemployed borrowers are relying on cards as falling prices erode the equity in their homes. More borrowers are using cards to meet daily expenses after losing their jobs, the bankers association said.

U.S. banks issued 9.8 million credit cards from January through April, a 38% decline from the year-earlier period, according to data compiled by Equifax Inc. The average limit on a new card fell 3% to $4,594, Equifax reported.

“There is less equity to draw on, and certainly financial institutions have been scaling back the available lines of credit,” Chessen said. Banks boosted reserves for losses on delinquent loans and have adopted more cautious underwriting policies, he said.