Consumers Shift to Paying Mortgage First, Then Credit Cards

Shifting previous consumer attitudes that had developed in the wake of the housing bust, Americans are now prioritizing paying their mortgages ahead of credit card bills, new research suggests.

During the downturn as home values plunged, consumers began defaulting on their mortgages even though they continued to make credit card payments, but now that trend has reversed, according to research from credit-reporting firm TransUnion as reported by The Wall Street Journal.

“People are paying their mortgages again ahead of their bank card,” Steven Chaouki, a financial services executive at TransUnion, in the WSJ article. 

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The payment relationship has not entirely returned to pre-crisis levels, according to the data, which also show that before, during and after the crisis, American consumers are most likely to prioritize making car payments first.

There was a strong correlation between the performance of home values and consumer payment behaviors during the downturn, with states that experienced greater home price declines and higher unemployment rates seeing more borrowers missing payments on mortgages while remaining current on credit cards.

For example, in Nevada, where home prices fell 57% between 2006-2009, more than 15% of borrowers were delinquent on their mortgages yet continued to make payments on their credit card bills. 

In North Dakota, where TransUnion notes prices didn’t decline, only 2.4% of borrowers were delinquent on their mortgages while staying current on credit card payments.

Home equity was also a factor influencing borrowers’ behaviors, as those who had lost all of their home equity during the crisis were more willing to default on their mortgages, especially when there was no immediate threat of foreclosure, suggested TransUnion researchers. 

Read more at The Wall Street Journal. 

Written by Jason Oliva

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