Smart Borrower Blog

Credit Card Payments Now Trump Mortgage Payments


Feb 3rd, 2010 @ 1:36 PM by Amber Nelson


Time for mortgage lenders to totally rethink their business. A new survey from credit bureau TransUnion shows that the old rules and assumptions about the average American homeowner have been thrown out the window.

The recent survey found that Americans, in record numbers, are now paying off their credit card bills before they try to keep up with their mortgage payments. This is a radical departure from the traditional financial thinking of most Americans.

“Conventional wisdom has always been that, when faced with a financial crisis, consumers will pay their secured obligations first, specifically their mortgages,” said Sean Reardon, the author of the study and a consultant in TransUnion’s analytics and decisioning services business unit. Yet “recent TransUnion analysis has found that increasingly more consumers are paying their credit cards before making mortgage payments. This analysis reaffirms the results of a previous TransUnion study that examined data between the third quarter of 2006 and the first quarter of 2008.”

Here are the stats: In the first quarter of 2008, 4.3 percent of consumers with at least one credit card and one mortgage were behind on their home loan but current on their credit card payments. By the third quarter of 2009 that percentage had increased 6.6 percent.

And this new priority of payments has seen the most dramatic increase among consumers with the lowest credit scores. The percentage of those in this lowest scoring segment with late mortgage payments but current credit card payments was 19.1 percent in the last quarter of 2007 and has risen to 29 percent as of the third quarter of 2009.

Mortgage loans used to be considered among the safest of all loans because they were backed by valuable collateral and therefore borrowers would fight hard to keep their homes in financial hardship. Not so anymore.

“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 in a statement.

I think what this information means is that the foundations of mortgage loans are going to get shaken up and lenders are going to have to take an entirely different approach to home loans since they may never be the bastions of “safe” lending that they used to be.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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