The Equifax March National Consumer Credit Trends Report presents more evidence that the home finance related credit picture is improving rapidly.  The report shows that the level of home finance balances written off in the first quarter was down nearly 23 percent from that written off in the fourth quarter of 2012.

Lenders wrote off $43.1 billion in so called severe derogatories in the first quarter, a five year low.  These include loans for which foreclosures have been completed, loans where the borrowers had entered bankruptcy, and loans that were otherwise charged off.  In the previous quarter write-offs totaled $55.4 billion.

First mortgage balances were charged off in the first quarter at a rate that was down 17.6 percent from the previous quarter while outstanding severely delinquent loans had an aggregate balance that dropped 25 percent from $477 billion in the fourth quarter of 2012 to $3.55 billion. 

The outstanding balance of severely delinquent mortgages in March is down 51 percent from the peak of $714 billion in March 2010.  More than 65% of severely delinquent balances among first mortgages are attributable to loans originated from 2005-2007.

Transition rates for balances moving from current status to 30 days-past-due, 30 to 60 days-past-due and 60 to 90 days-past-due are all at new lows for the 5-year look-back period but rates for balances moving from in-foreclosure to bank-owned real estate (REO) status are running at 12 percent per month on a six-month moving average basis.  This is near the 5-year period peak.

The outstanding balance of home equity revolving loans charged off in the first quarter declined 44.1 percent and severely delinquent loan balances for those loans declined from $13.6 billion to 9.7 billion, a change of 29 percent.  Seventy-three percent of the severely delinquent balances of home equity revolving loans are tied to accounts opened in the 2005-2007 period.

Charge-offs of home equity installment loans declined by 32.9 percent and delinquent balances were down about 26 percent from $6.6 billion to $4.9 billion. 

"Overall home finance balances decreased to $8.38 trillion in March 2013 from $8.64 trillion same time a year ago," said Equifax Chief Economist Amy Crews Cutts. "The decline is due to write offs from foreclosures as well as from consumers paying down balances when refinancing, known as cash-in refinancing, shortening terms when they refinance their loans or making extra principle payments each month for faster amortization; some have even paid-off their mortgages entirely.  The share had been running 50-50 until recently when it has shifted to a 60-40 split with write-offs dominating. This shift is important as increased home purchases are finally leading to more demand for mortgage credit and may soon stop the decline in mortgage debt outstanding."