Late Payments Rise for Home Equity Loans
Submitted by John on Tue, 2007-07-03 07:47.
WASHINGTON (AP) -- Late payments on home equity loans climbed to a 1 1/2-year high in the opening quarter of this year, while delinquencies on credit card bills fell, painting a mixed picture of how people are managing their debt.
...The survey also showed that the delinquency rate on a composite of other types of consumer loans, including those for autos and boats, home improvement and for certain home equity loans, increased to 2.42 percent in the first quarter.
...On a brighter note, late payments on credit card bills dropped in the first quarter to 4.41 percent. That was down from 4.56 percent in the fourth quarter and was the best showing in nearly a year.
"The improvement in credit card late payments is somewhat remarkable, given that the economy was not operating on all cylinders," Chessen said.
http://biz.yahoo.com/ap/070703/late_loans.html?.v=4
Please allow me to explain for Mr. James Chessen, American Bankers Association chief economist, why it is UNremarkable that credit card late payments are improving: It is highly likely that people are using home equity to pay off credit card debt. Therefore, there is no "mixed picture". People are not managing debt well, and it will get worse in the coming months. The home equity party is just beginning to unravel. And, Mr. Chessen is correct, the economy was not (and is not) operating on all cylinders. It just isn't obvious to everyone. Yet...
»
- Login to post comments
It is still surprising
It is still surprising though since if the masses don't manage their debt well, one would assume they don't figure out where to pay less interest. Also, people getting squeezed might take out a home-equity loan one time to pay off all their credit card debt at once. But after that they might run it up again if they get short on money. Unless they take another home-equity loan, but I was under the impression that this party was over, and very few people would take out loans at this point. Well, I guess whoever has still equity will rather extract that via a loan before selling his home. I expect homeowners equity to drop nation-wide for the next years and bottom close to zero. Falling home prices, extracted equity, and no incentive to pay back the loans (in an inflationary monetary policy) are the main factors.
Yes, unfortunately those who
Yes, unfortunately those who are not good at managing a budget will likely build up a credit card balance again after using a HELOC to pay off such a balance (not a smart idea to take unsecured debt and then secure it with a house, for starters). If we assume the revolving debt balance got reduced to zero via a HELOC within the past few years, then it may take some time for the debtor to accrue another unmanagable credit card balance until he/she is again unable to make the minimum payment on time. So, are these kinds of people going into a credit card to the tune of $500 per month? More? How many months until the minimum payment is even $100? Lots of scenarios can be played with. I don't know the answer, but there is simply too much unmanagable debt no matter where you try to hide it.