Thursday, February 4, 2010

Mortgage or Credit Card?

Well, an increasing number of consumers are making sure the plastic is paid before the mortgage, bucking the historical trend and adding to strategic default worries nationwide, according to credit bureau TransUnion.

In the first quarter of 2008, the percentage of consumers current on credit cards but delinquent on mortgages first surpassed the percentage of consumers current on their mortgages and delinquent on their credit cards.

Since then, the trend was worsened, with the percentage of consumers who are delinquent on their mortgages and current on their credit cards rising to 6.6 percent as of the third quarter of 2009, up from 4.3 percent in Q1 2008.

“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, in the release.

“However, a 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.”

It’s even worse in hard-hit foreclosure hotspots like California and Florida; in the Golden State, more than 10 percent of consumers are current on their credit cards but late on the mortgage, up from 3.5 percent in 2007.

In the Sunshine State, the number is above 12 percent, up from five percent in in 2007.

The reversal in payment hierarchy could signal that homeowners see mortgage default as inevitable or less of a concern, now that it’s become so widespread.

Or it may have to do with continued loss of equity, pushing more homeowners to stop paying voluntarily and focus on other, more manageable obligations.

It looks increasingly likely 2010 will be the year of the strategic default…

Any questions or concerns don’t hesitate to contact me, Gene Neal your Mortgage Expert.

Tel (631) 687-3510 Ext. 101

Fax (631) 687-3513