Wednesday, July 2, 2008

Overdue Home-Equity Credit Lines Rise Most Since 1987, ABA Says

Overdue Home-Equity Credit Lines Rise Most Since 1987, ABA Says

By Hugh Son

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Consumers fell behind on loans secured by their homes at the fastest pace in two decades in the first quarter, signaling deeper distress in the U.S. economy, the American Bankers Association reported.

Home-equity lines of credit at least 30 days past due rose 14 basis points to 1.1 percent of accounts for the quarter, the Washington-based group said today in a statement. Delinquent credit-card accounts increased 13 basis points to 4.51 percent, the highest level since 2006.

‘‘People are looking for any source of funds to pay their daily expenses,'' Carol Kaplan, spokeswoman for the bankers' group, said yesterday in an interview. ‘‘It's a sign of the overall condition of the economy that people are having trouble making their payments.''

Consumers squeezed by higher food and fuel prices are tapping revolving credit lines to stay afloat as the economy slows. The U.S. lost 49,000 jobs in May, the fifth straight monthly decline, and the unemployment rate rose to 5.5 percent, the biggest jump in than two decades.

The rise in delinquent home-equity accounts was the biggest since the ABA began collecting data in 1987, Kaplan said. It was also the highest in 11 years. Delinquencies often don't peak until late in an economic slowdown.

ABA chief economist James Chessen said in the statement that because of job losses, slow income growth and falling real estate and equity markets, there is ‘‘little relief'' in the coming months.

‘Tapped Out'

‘‘The average consumer is tapped out and burned out,'' billionaire investor Wilbur Ross said yesterday in a Bloomberg Television interview. ‘‘They kind of used their house as an ATM machine with a couple bedrooms attached to it.''

Home-equity credit lines differ from home-equity loans in that the borrower isn't advanced the entire sum up front. Like credit cards, minimum monthly payments on borrowed money are required and the interest rate is variable.

Mobile-home delinquencies jumped 30 basis points to 3.22 percent in the quarter, the ABA said. An overall composite index tracking eight categories of non-revolving loans fell 3 basis points to 2.62 percent as late payments improved for auto loans made at dealerships.

Confidence among U.S. consumers fell to the lowest since May 1980 in June, according to the Reuters/University of Michigan final index. Consumer spending accounts for more than two-thirds of the U.S. economy.

Gasoline Prices Climb

The national average pump price for regular gasoline last week was $4.06 a gallon, up 36 percent from a year earlier, MasterCard Inc. said yesterday in its SpendingPulse report.

American Express Co. Chief Executive Officer Kenneth Chenault said last week that credit indicators including late payments have worsened beyond the company's expectations in June. New York-based American Express is the biggest U.S. credit-card company by purchase volume.

American Express, Capital One Financial Corp. and Discover Financial Services shares have dropped by more than a third in the past year on concern that late payments and loan losses will be worse than the lenders expect.

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