Home equity losses surge to highest this decade

By Jonathan Stempel

NEW YORK (Reuters) - More Americans are missing payments on home equity loans than at any time this decade, Moody's Investors Service said on Thursday, showing how the U.S. housing crisis has spread to many loans once considered generally safe.

Moody's U.S. Home Equity Index Composite showed that the rate of loans at least 60 days past due or that entered the foreclosure process was 16.53 percent in September.

That's more than double the 7.93 percent rate a year earlier, and more than triple the 4.99 percent level in June 2005. The rate was 15.23 percent in August.

Moody's announced the results the same day RealtyTrac Inc., a real estate data firm, said U.S. home foreclosures in October soared 94 percent from a year earlier to 224,451, though the total was 8 percent below the 243,947 peak set in August.

On Tuesday, Wells Fargo & Co (WFC.N: Quote, Profile, Research, Stock Buzz), the second-largest U.S. mortgage lender, announced a $1.4 billion fourth-quarter charge tied largely to home equity loans it considers more risky, and which it plans to liquidate.

Most home equity loans are "second liens," meaning that providers get paid after borrowers' primary lenders. Some are home equity lines of credit, which let people borrow up to specified limits. Others are fixed, "closed-end" loans.

Until this year, closed-end "piggyback" loans that let people with first mortgages pay little or nothing down to buy homes -- known as high loan-to-value, or LTV, loans -- had been growing more popular. These, however, overextended many borrowers with good credit. Many lenders have ended or scaled back such loans.

Moody's said its index comprises three types of loans: home equity loans and lines of credit made to low-risk borrowers; high LTV second-lien loans to people with imperfect credit; and first-lien loans to "subprime" borrowers, or those with weaker credit.