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Saturday, February 06, 2010

Paying Credit Cards before Mortgage

by Calculated Risk on 2/06/2010 07:41:00 PM

From Michelle Singletary at the WaPo: Paying your credit card bill before the mortgage

TransUnion ... recently released a report showing that an increasing number of consumers are choosing to pay their credit card bills before their monthly mortgages. ... The percentage of people delinquent on their mortgages but current on credit cards jumped to 6.6 percent in the third quarter of 2009, up from 4.9 percent in the third quarter of 2008.
The percentage of consumers current on their credit cards but delinquent on their mortgages first surpassed the percentage of consumers up to date on their mortgages but delinquent on their credit cards in the first quarter of 2008, according to TransUnion.

"The implosion of the mortgage industry over the last 24 months, the resetting of adjustable-rate mortgages and the weak job market have all come together to redefine how consumers are managing their finances and meeting or not meeting their credit obligations," said Ezra Becker, director of consulting and strategy in TransUnion's financial services business unit.
Check out the numbers for California and Florida!

This behavior first showed up with subprime borrowers, from Bloomberg in June 2007: Subprime Borrowers More Apt to Pay Card Debt, Ignore Mortgages
The riskiest borrowers in the U.S. are more likely to pay off their credit-card debt than their mortgage, bucking historical trends, a new study shows.
Bankers in the past have reasoned that consumers would give up everything else before they risked losing their homes, making mortgages less risky than other forms of lending. The report found borrowers with strong ratings still follow the historic trend of paying their mortgage before their credit-card debt.

The penchant of subprime borrowers to do the opposite may be ``a potential shift in this payment paradigm,'' the study said.
Another "subprime" behavior goes mainstream ...