Home equity, bank card delinquencies up

An increasing number of homeowners and consumers are coming up short when it comes to paying their monthly debt obligations. According to the American Bankers Association, delinquency rates for home equity lines of credit and bank cards rose during the first quarter.

The percentage of home equity accounts that were more than 30 days past due rose 14 basis points to 1.10 percent, the highest recorded rate for this category since 1997. However, the delinquency rate for home equity accounts remains lower than all other consumer credit categories.

Bank card delinquencies rose to 4.51 percent, above the five-year average delinquency rate of 4.40 percent.

“Faced with rising food and gas prices, and little income growth, fewer resources have been available to manage debt,” said James Chessen, the association’s chief economist.

Delinquencies also increased for boat, recreational vehicle, mobile home and auto loans.

“The tax stimulus is helping to boost personal income, but persistently high gas and food prices will eat away at overall resources,” Chessen said.

Take Charge America, a Valley based, nonprofit credit counseling agency, has seen a sharp increase in the number of people too far gone financially to help, said Mike Sullivan, director of education.

“The people who are calling now are in much worse shape than they were even a year ago, and rather than being concerned about a credit card, the ones we’re talking to are to the point of losing their homes and having cars repossessed,” he said. “We would expect them to be delinquent on everything. We certainly sense and feel from our callers that people are in much worse shape.”

The housing crisis is the main reason more consumers are being severely squeezed by the current economic downturn, Sullivan said.

“I’ve never really seen home values diminish so much, and that means that homeowners, who are not the lowest income people in society, are all of a sudden feeling poor and in many instances becoming poor,” he said. “The second thing is we’re having spiraling prices and stagnant wages, so you can’t really say it’s inflation because people don’t have any more money, it’s just that everything costs more.”

Many consumers used to make up the difference between their income and expenses by borrowing off the increased equity of their homes, Sullivan said.

“Now they not only can’t borrow that money, but they have to pay back all that money and they have less equity in their home to do it with,” he said. “I sense a lot of people, more than usual, have a negative net worth, and even those who aren’t negative, they’re dropping in a hurry.”

Now more than ever, consumers need to curb spending and focus on “downward mobility,” Sullivan said.