US News & W.R. - Forget the Mortgage, I'm Paying My Credit Card Bill

[HighOnHendrix]

http://finance.yahoo.com/news/Forget-the-Mortgage-Im-Paying-usnews-816222158.html?x=0&.v=2

Forget the Mortgage, I'm Paying My Credit Card Bill


Amid high unemployment and sliding home prices, a growing number of struggling consumers are doing what was once considered unthinkable: paying their credit card bills instead of their mortgages. A recent study developed by TransUnion found the percentage of Americans who were current on their credit cards but behind on their mortgage increased to 6.6 percent in the third quarter of 2009, up from 4.3 percent in the first quarter of 2008. Meanwhile, the share of consumers making mortgage payments on time but behind on their credit cards moved in the opposite direction, sliding from 4.1 percent to 3.6 percent over the same time period.

The data reflects a "fundamental paradigm shift" in the way consumers prioritize payment of debt obligations, says Ezra Becker, of TransUnion. "This is dramatically different," he says. "It is a clear manifestation of the dynamics that lead up to the recession and the recession itself."

Before the housing crisis, bankers typically operated under the assumption that homeowners would do whatever possible to remain current on their mortgage--even if that meant falling behind on other bills. "It used to be that the mortgage was sacrosanct," says Keith Gumbinger of HSH.com. "You paid it before anything else." But a combination of factors linked to the current economic mess--falling home prices, high unemployment, and tight consumer credit--have lead many consumers to prioritize credit card payments above mortgage bills. "This sort of thing is what keeps bankers awake at night," Gumbinger says.

The development is rooted in the housing bust. When home prices turned south--falling roughly 30 percent from their peak in the second quarter of 2006--a great deal of borrowers watched the value of their homes drop below what they owed on their mortgages. Today, roughly one in four homeowners finds himself in this position, which is also known as being "underwater." Without equity in their homes, such borrowers are more likely to default. "They don't see any value in putting money into an asset that has lost that much value and will probably never regain that value to offset the mortgages," says Celia Chen, of Moody's Economy.com.

Rest of article at link.


"This sort of thing is what keeps bankers awake at night," Gumbinger says.

They made their bed, now they have to sleep in it. I don't feel bad for them losing sleep over a situation they themselves created. I wouldn't mind seeing some of the money we got suckered into dropping into their black hole get slipped back into my pocket right about now. Things are getting pretty bad at my house right now, I had to sell one of my electric basses last week to keep my electric on.

[Larry]

You mean, consumers are paying off the debt that has the highest interest rate, (and, probably, the most punitive penalty. And the one that they won't get bailed out of.), first?

But, irony aside. To me, this does mean that I don't think we can declare Mission Accomplished on saving the economy, quite yet.

[TheGreatBuzz]

They made their bed, now they have to sleep in it. I don't feel bad for them losing sleep over a situation they themselves created. I wouldn't mind seeing some of the money we got suckered into dropping into their black hole get slipped back into my pocket right about now. Things are getting pretty bad at my house right now, I had to sell one of my electric basses last week to keep my electric on.

While i agree about the bankers sleeping in the bed they made, lets not forgot about the home owners responsibility. Half of them got loans they should have known they could never afford. The other half signed a piece of paper promising to pay their bills. No where did it say they will only have to pay their mortgage if their house is worth more then they owe.

[Destino]

I said it before I'll say it again: The banks were the ones engaged in risk taking. More than the home buyer. The contract states that if you don't pay they take the house.... when the house is worth 200k less than what people owe that isn't a threat it's a favor. hahaha

[Destino]

While i agree about the bankers sleeping in the bed they made, lets not forgot about the home owners responsibility. Half of them got loans they should have known they could never afford. The other half signed a piece of paper promising to pay their bills. No where did it say they will only have to pay their mortgage if their house is worth more then they owe.

The consequences of not paying are written into the contract. If they don't pay the house is taken from them. No one here is arguing they shouldn't pay and be allowed to keep the house.

[GibbsFactor]

But, irony aside. To me, this does mean that I don't think we can declare Mission Accomplished on saving the economy, quite yet.

People are way over their heads in debt. That's the problem. No one has adjusted. Everyone is still spending, spending and spending. There's been a reduction in most peoples revenue stream. But they can't turn that digital cable off. No. They'll just forgo their mortgage payment in order to keep their $200 cell and cable bills.

Got to get them new shoes, that new video game, that vacation to Cabo and can't afford to so if they have to live responsibly.

[TD_washingtonredskins]

I said it before I'll say it again: The banks were the ones engaged in risk taking. More than the home buyer. The contract states that if you don't pay they take the house.... when the house is worth 200k less than what people owe that isn't a threat it's a favor. hahaha

That's a good point. There is no "what if" to not paying your credit card that I'm aware of. At some point, you owe that money. With a house, the bank has the right to take ownership of it. As long as these people aren't hoping to not pay their mortgages AND keep their house, they are simply making a business decision.

[TD_washingtonredskins]

People are way over their heads in debt. That's the problem. No one has adjusted. Everyone is still spending, spending and spending. There's been a reduction in most peoples revenue stream. But they can't turn that digital cable off. No. They'll just forgo their mortgage payment in order to keep their $200 cell and cable bills.

Got to get them new shoes, that new video game, that vacation to Cabo and can't afford to so if they have to live responsibly.

Do you think you might be lumping a bunch of different circumstances into one big group? I don't believe the picture you just painted is very representative at all.

[TheGreatBuzz]

An issue that you and I agree 100%. I always find it odd that people think that banks should incur no risk on loans. Especially on the types of predatory loans that were prevalent 5 years back.

I agree with this also. My comment about the home owners wasn't saying that the bank shouldn't except risk. But I think people should still be paying their mortgage. They were the ones that signed a piece of paper promising to. And stop spending on other frivoulus things.

[TheGreatBuzz]

Do you think you might be lumping a bunch of different circumstances into one big group? I don't believe the picture you just painted is very representative at all.

I can say honestly that I know more then a few people who fall into that group. Thankfully, I'm not one!

[TD_washingtonredskins]

I agree with this also. My comment about the home owners wasn't saying that the bank shouldn't except risk. But I think people should still be paying their mortgage. They were the ones that signed a piece of paper promising to. And stop spending on other frivoulus things.

I mostly agree as well. I haven't missed a payment and my house is worth a lot less than it was when I bought in 2006.

However, they promised to pay OR incur the ramifications. If they are willing to accept the bank repossessing their house, I'm not sure anyone can really judge them on this decision. Now, the people that want to have their cake and eat it too are a different story altogether.

[Ellis]

You mean, consumers are paying off the debt that has the highest interest rate, (and, probably, the most punitive penalty. And the one that they won't get bailed out of.), first?
Agree.

[GibbsFactor]

Do you think you might be lumping a bunch of different circumstances into one big group? I don't believe the picture you just painted is very representative at all.

What does circumstance have to do with anything? You lose revenue, you cut spending. That's it. Problem is, A LOT of people aren't. No one has been presented with rock bottom. You want change? You have to hit bottom first. It's just human nature.

And I can cast stones in this situation, as I'm sure many here can. I've sacrificed and am doing just fine. Others? Not so much. And they are gonna screw us all with their carelessness.

[TD_washingtonredskins]

What does circumstance have to do with anything? You lose revenue, you cut spending. That's it. Problem is, A LOT of people aren't. No one has been presented with rock bottom. You want change? You have to hit bottom first. It's just human nature.

And I can cast stones in this situation, as I'm sure many here can. I've sacrificed and am doing just fine. Others? Not so much. And they are gonna screw us all with their carelessness.

No, I understand. If there are people who are spending more on other things and neglecting their mortgage, they deserve your stone-casting. What I meant to say was that many people ARE doing exactly what you said (cutting spending elsewhere to pay their mortgages). Also, some people have made the business decision to stop paying their mortgages and accept the ramifications. In that case, it's a completely personal choice that deserves no judgement from us.

[TheGreatBuzz]

No, I understand. If there are people who are spending more on other things and neglecting their mortgage, they deserve your stone-casting. What I meant to say was that many people ARE doing exactly what you said (cutting spending elsewhere to pay their mortgages). Also, some people have made the business decision to stop paying their mortgages and accept the ramifications. In that case, it's a completely personal choice that deserves no judgement from us.

I gotta say I LOVE this whole situation. As a guy with a job that isn't going anywhere, a good credit score, and almost no debt (new vehicle loan, that's it), an economy like this is a huge shopping spree. Can't count the number of things I've bought for almost nothing so someone else can pay their electric bill. I just hope it lasts to 2011 so I can buy a house at my next duty station.

[jpillian]

I'd also say that if you're in really dire straights, this is the most pragmatic decision. Foreclosure will take a number of months to occur. The line of credit from a credit card is heckuva more liquid than the equity in your mortgage. Just depends on the situation.

[Switchgear]

I gotta say I LOVE this whole situation. As a guy with a job that isn't going anywhere, a good credit score, and almost no debt (new vehicle loan, that's it), an economy like this is a huge shopping spree. Can't count the number of things I've bought for almost nothing so someone else can pay their electric bill. I just hope it lasts to 2011 so I can buy a house at my next duty station.

Hooray for other people's misery...

[TheGreatBuzz]

Hooray for other people's misery...

Sounds a little harsh but I think the situation most people are in is of their own making. I didn't make them buy things they couldn't afford down the road.

Don't hate because I made better decisions in the past

[McD5]

This is why the stimulus plan is destined for catastrophic failure.

Banks and special interests got bailed out.

American households got nothing.

We need large tax rebates, immediately.

[HighOnHendrix]

This is why the stimulus plan is destined for catastrophic failure.

Banks and special interests got bailed out.

American households got nothing.

We need large tax rebates, immediately.

I agree. While all of us do benefit indirectly from the bailouts that occurred last year, most of us got no direct benefit at all. I wonder how much each one of us would have gotten if they'd just cut us each a check for our share? I know I could have used it, hell still could use it. I don't see Mr. O nor the Congress issuing any tax rebate checks - ever.