Americans had less mortgage debt in the first quarter compared to the first quarter of 2014Â – plus they managed their mortgages better than they did a year earlier – according to a recent report from Equifax.
However, that could soon begin to change, as there has been an increase in the number of lenders originating subprime loans during the past year.
According to Equifax's National Consumer Credit Trends Report, the total balance of write-offs for first mortgage and home equity lines and loans – excluding bankruptcy – in the first quarter was $12.34 billion, representing a decrease of 32.6% from the first quarter of 2014.
The report also shows that severe delinquency rates (90 days or more past due, in bankruptcy or foreclosure) continued to decline: About 2.35% of all first mortgages were severely delinquent in the first quarter, down from 3.27% a year earlier. In addition, 1.98% of home equity installment loans were severely delinquent, down from 2.59%; and 1.47% of home equity revolving lines of credit were severely delinquent, down from 1.71%.
‘We're seeing borrowers become increasingly better at making on-time payments, but we're also seeing a faster rate of amortization due to low interest rates,’ says Amy Crews Cutts, chief economist at Equifax, in a statement. ‘Because a larger portion of each payment is going to principal, consumers are now paying off their mortgage debts faster than they would have just a few years ago. Overall mortgage balances are unchanged from a year ago which means new mortgage credit is exactly offsetting the payoffs.’
In January, the total credit limit originated on home equity lines of credit (HELOC) was $9.5 billion, a seven-year high and an increase of 26.9%. In that same time, more than 88,000 new accounts were originated, a year-over-year increase of 20.1%. The average credit limit of these loans is $108,010, a 5.7% increase from same time a year ago, the report states.
‘With so many homeowners having very low interest rates on their first mortgage, the increased demand for HELOCs makes sense,’ says Cutts. ‘They don't want to refinance the first lien either because the new rate would be higher or they would have to pay large closing costs, when all they want to do is tap a little equity to make improvements or fund some other need,’
Meanwhile, lenders are increasingly targeting subprime borrowers. For consumers with an Equifax Risk Score below 620, the total number of new HELOCs increased 36% from 2014, with a corresponding total credit limit of $49.3 million.
In addition, subprime borrowers represent 1.5% of total new HELOC accounts, up from 1.3% at the same time a year ago, according to the report.