More Homeowners Pay Credit Cards Before Mortgages
Source: Reuters
More consumers are opting to keep their credit card payments current and let mortgage payments fall behind in an effort to create cash flow as the worst recession in decades slowly wanes, new statistic show.
The percentage of consumers delinquent on mortgages, but current on credit cards rose to 6.6 percent in the third quarter of 2009 from 6.3 percent in the previous quarter and 4.9 percent in the same quarter a year earlier, a new study developed by TransUnion showed.
The trend first emerged in the first quarter of 2008 when it was at 4.3 percent, Chicago-based TransUnion said.
Less emphasis on mortgage payments could portend higher delinquency rates and perhaps even more foreclosures. That does not bode well for the hard-hit housing market, which remains highly vulnerable to setbacks.
“This goes against conventional wisdom and that has always been that, when faced with a financial crisis, consumers will pay their secured obligations first, specifically their mortgages,” Sean Reardon, the author of the study and a consultant in TransUnion’s analytics and decisioning services business unit, said in an interview.
By making a minimum payment on a credit card before a full mortgage payment it gives consumers monetary leeway to go about their daily activities, especially if they have lost a job.
“You cannot buy groceries with your house,” he said.
Cash is king
As more homeowners recognize falling interest rates on mortgages coupled with ongoing refinancing and mortgage modification activity, they are squeezing the life out of their Visa platinum cars and letting their South Nyack real estate mortgages lag. That’s not the pattern of debt management traditionally recommended by financial experts who say regardless of whether you own a one-bedroom condo in Dallas or a seven acre slice of Palisades real estate, you take care of your mortgage and pay the card with the highest interest first.
The study, obtained exclusively by Reuters prior to its scheduled release, was conducted on consumers that had at least one credit card and one mortgage, and examined 30-day credit card and mortgage delinquency data between the second quarter of 2008 and the third quarter of 2009.
Conversely, the percentage of consumers who were delinquent on their credit cards and current on their mortgages decreased to 3.6 percent in the third quarter of 2009 from 4.1 percent in the first quarter of 2008.
“The ‘flip’ in payment hierarchy in the lowest scoring segment was evident earlier during the fourth quarter of 2007, compared to the first quarter of 2008 for the total market,” Reardon said.
The delinquency rate for consumers with the lowest credit scores who were delinquent on their mortgages, but current on credit cards during fourth quarter of 2007 was 19.1 percent, and rose to 29 percent in the third quarter of 2009.
In a trend similar to that of the total market, the percentage of consumers delinquent on credit cards, but current on mortgages decreased from 18.1 percent in the first quarter of 2008 to 14.5 percent in the third quarter.
Consumer caught in a conundrum
“The implosion of the mortgage industry over the last 24 months, the resetting of adjustable-rate mortgages and the weak job market came together and redefined how consumers are managing their finances and meeting or not meeting their credit obligations,” Ezra Becker, director of consulting and strategy in TransUnion’s financial services business unit, said in the interview.
The analysis shows changing consumer preferences, he said.
“The financial services industry must recognize and adjust to the payment hierarchy shift,” he said.
In California, the percentage of consumers delinquent on mortgages, but current on their credit cards increased from 3.5 percent in the third quarter of 2007 to 10.2 percent in the third quarter of 2009. In Florida, this same variable increased from 5.1 percent to 12.4 percent.
In this same time frame, the United States increased from 4.0 percent to 6.6 percent.
In contrast, the number of California consumers delinquent on their credit cards but current on their mortgages declined from 3.3 percent in the third quarter of 2007 to 2.7 percent in the third quarter of 2009. In Florida, this variable declined from 5.0 percent to 3.9 percent, the report showed.
___________________________________
My Take: I’m not surprised to hear more homeowners are opting to let their mortgages fall behind and keep up with credit card payments instead. After all, under the governments ongoing mortgage modification plans there is help for homeowners struggling to make their monthly payments, but so far, despite having received federal bail outs, the banks nor the credit card companies have yet to offer homeowners a credit card payment “do over.”
The days are long gone when you can walk into a bank and lay out your mortgage equity for cash. Spending on upgrades, like a new mahogany front entry door or a bathroom remodel have had to hold for many homeowners in trouble. Buying new windows, wood entry doors, putting a new roof on, even fixing leaking pipes have all been considered luxury expenses throughout this housing crisis, and there is little real relief insight given the state of the country’s unemployment rates. Strapped homeowners also have had to do some crafty shopping around for a cheaper car insurance quote in these hard times, opting in many cases for the minimum coverage to get a hold of a few extra bucks each month.
That reminds me, I love the fact that there are now so many Web sites out there that make it easier than ever to get an instant car insurance quote right over the Internet with a lot of comparables to consider.
You may not want to buy a house after all the real estate drama we’ve seen over the last three years. And, if you have a home that’s been on the market and not selling, it’s too soon to tell whether the wiser move would be to offer those homes for rent or start lowering the price.
——————————————————————-
Other Resources
Legal Links
No one wants to have to think about hiring a lawyer, especially if you’re talking about a Brooklyn wrongful death lawyer. But the legal referral services online are great sources for legal representation, whether you need a divorce attorney, a New York City car accidents lawyer, or an attorney to help you with a business contract.
Traditional Farmhouse Tables
Reclaimed wood farm tables are that company’s forte! Custom sizes and colors are just a few of the options you have when deciding on any table in the reclaimed wood table collection. Impressive yet affordable, a reclaimed wood table is, by far, one of the most family–friendly, durable tables on the market. Ding it, scratch it, dent it…These tables are extremely low maintenance and can easily stand up to the test of time. Whether you are a casual diner or prefer to dine in a more elegant fashion, these reclaimed wood furniture tables have remarkable flexibility to appeal to both.
