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Deliquencies on home equity loans are up, but projected to improve in 2011

[Jan 15, 2011.]


Homeowners are still struggling to repay their home equity loans and other consumer debt, according to the most recent report from the American Bankers' Association (ABA). Reading about homeowners struggling is nothing new, but what may be news is that 2011 could be the year that delinquencies really start to decline. The two key factors to improving delinquencies may be improved unemployment figures and low income taxes.

What 2011 may bring for home equity loans

Delinquencies on home equity loans and other consumer debt hit a high point in the second quarter of 2009. At that time, 3.35 percent of consumer debt outstanding was past due. Although delinquencies have recently increased again for the second straight quarter, they are still trending toward improvement. Economists believe the upswing in delinquencies is normal and could correct this year. Two factors may contribute.

Unemployment, the biggest contributor to delinquencies

The primary cause for such a high number of delinquencies continues to be unemployment. Unemployed workers are not able to keep up with the debts they incurred during better economic times. Unemployment in November 2010 was 9.8 percent.

As long as unemployment figures are out of balance, homeowners will likely struggle to pay their home equity loans. According to many economists, about 3.0 percent unemployment is ideal. 3.0 percent unemployment is considered by many economists to be full employment--a state which the economy can grow at a healthy rate, but still keep inflation in check. The current 9.8 percent unemployment rate is much too high and actually threatens to trigger deflation. Deflation may be evidenced by the drop in home values. Achieving a proper balance will reduce delinquencies on consumer debt. Economists believe 2011 could be a positive year.

Investigate rates and terms on home equity loans now.

Changes in the tax structure may help improve the delinquency rate

The White House and Congress are working to reduce taxes for many homeowners. Lower taxes allow homeowners to retain more income and be more likely to make timely payments toward their consumer debt obligations like home equity loans. Many economists believe that lower taxes could stimulate the economy to the point of reducing delinquencies in 2011.


About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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