Mortgage delinquencies rose for 12th straight quarter - more paying off credit cards

[BR_Parkway]

ahead of the mortgage. I guess more are deciding it's not worth it to keep paying when they're so far underwater - pay off the credit cards while still living in the house - then start over somewhere else.

http://www.housingwire.com/2010/02/16/mortgage-delinquencies-rise-for-12th-straight-quarter-transunion/

Mortgage delinquencies of 60 or more days rose for the 12th straight quarter, hitting a record high 6.89% in Q409, according to market research by credit bureau TransUnion.

The rate of deceleration seen in previous quarters in the rise in delinquencies appears “short lived,” the credit bureau said. Year-over-year, the delinquency rate is up about 50% from 4.58% delinquent in Q408.


States with the highest delinquency rates in Q409 were led by Nevada with 16.19% delinquent. Florida came in second with 14.93% delinquent. North Dakota had the lowest delinquency rate of 1.84%, while South Dakota and Alaska came in only slightly higher at 2.46% and 2.84% respectively, TransUnion said.

<snip>

Part of the rise in delinquencies may come from a trend of more borrowers than ever before choosing to pay down credit card debt before making mortgage payments. TransUnion found the share of borrowers who were delinquent on their mortgages but current on their credit cards rose to 6.6% in Q309 from 4.3% in Q108. At the same time, the share of borrowers that were delinquent on credit cards but current on mortgages slipped to 3.6% from 4.1%.

[AllentownJake]

1. Capital One is dealing with a 10% default rate for December 09

Despite what you are hearing, they aren't paying the credit cards either

[FarCenter]

11. The rule of thumb is that credit card uncollectables equal the unemployment rate

So if the unemployment rate is 10%, credit card companies are writing off 10% of outstanding balances as uncollectable.

Of course, if they are charging 18 to 20% interest on the balances that are collectible, it is still a good business for them. They just charge the better risks a high enough interest to cover their losses on the deadbeats.

[SoCalDem]

2. Makes sense..from a fiscal point of view

If you are upside down on your house, and are making $400K payments on a $185K house you are probably "on your way out" one way or another. Foreclosure takes a long time from start to "removal", so I know there are people who are either just staying one payment away from the start of foreclosure, or who may just be not paying at all and are using that "saved" money to keep their credit cards alive.

If the payment was $2k a month, they may feel that $2k used to pay off credit cards every month is a better gamble..and if they don't owe a ton of money, they could even have a "nest-egg" to help them move somewhere else.

With so many people in foreclosure, and so many people leaving areas to find work, many places are not as strict when it comes to renting, IF the people have a large enough sum of cash to put down.. Landlords are in the business of renting their places.

Years ago when my son was first starting out as a renter, he was about to be turned down for a cool apartment he wanted, but I called the landlord and offered to pay 6 months advance rent and the usual deposits...in cash.., and there was no more problem.. As a young guy starting out, he had NO credit, since he had never had a car payment and he did not have any credit cards.

[David Zephyr]

3. Won't a foreclosure hurt your credit rating and push your cc interest rates even higher?

?

[Kurt_and_Hunter]

4. Yes, and if you're in a position to think 3 months ahead...

Assuming these folks are on the edge this behavior is rational because you can buy food and gas with a credit card.

Until the credit card company cancels your card because you defaulted on your mortgage, but that's down the road..

As the saying goes, nobody eats in the long run.

[David Zephyr]

7. Of course, you are right in this.

But I'd read an article in the LA Times several weeks back along the same line, but where families with double incomes were doing this same thing, skipping on their mortgage, saving the dough and paying off their credit cards. I guess that is the demographic I was speaking about. When their credit cards rates hit the ceiling, that will be almost as punative.

This whole friggin' mess is simply lousy.

President Obama should tell the banks, listen if you don't start lending to the people at lower rates on their homes and help them refi, then the government will...just as he has now done with student loans.

The banks are killing the American people.

[Kurt_and_Hunter]

8. I've read that also

I've pondered that because I know people in that position and I tell them, "Put a dollar value on your credit rating... I don't know what it's worth to you but we know it can't be infinity."

Even if you can afford to pay the mortgage if it's enough underwater that you know you'll walk away from it eventually it's rational to stop paying into it right away.

The hit to your credit will happen either way--sooner or later. If you can bank six mortgage payments on the way out that's better than protecting your credit for six months.

(Plenty of time to default on the credit cards later.)

[AllentownJake]

6. A credit card company can take $30 to keep the account in good standing

a month. and keep the charge off of their financial statements for a quarter. They would rather not charge off the loan and take a hit financially in the quarter or year since that is what all bonuses are based on.

You can't do that with a mortgage on an underwater house.

[BR_Parkway]

10. Considering the number of debt accounts in default now as well as

projected - I don't think credit ratings are going to be such a big deal in the near future. People who want to do business with others are going to wind up looking for things like employed, cash flow, job stability - if they bank the house payment and keep the cc's current, then they can have money to use as a deposit for a house or apartment (both of which are getting hammered on vacancies right now as well, so landlords will have to loosen up some). Once they've been in the rental 6 months, they can get a letter from the landlord showing they pay on time. Rebuilding credit won't be as tough as some make it out to be.

The flip side - if they have no other debt and money saved up by not paying the mortgage while waiting on the foreclosure and eviction - they will be in a position to save more money and not need credit.

My daughter wanted a new car and swore she'd be able to cover the payments plus everything else that goes along with that (older one was paid for and in good shape). I told her to make the "payment" to her savings account for a year, then she'd know for sure she could afford it. 2 years later, she's still putting her "payment" in the bank and driving the old car. Has decided that she likes knowing that she could skip that 'payment' some month if she had to - so she's going to keep making it until she can just pay cash for the car she wants.

[David Zephyr]

13. Great advice.

I told my daughter and her husband: if you can't pay for it, don't buy it.

[TwixVoy]

14. No they can't not raise your interest rate

After this month.... part of the CARD legislation. At least on existing balances....

[upi402]

5. starting over in a van

down by the river

[zipplewrath]

9. Can make sense if you're under water

If you owe more than your house will be worth for a decade or more, there is a certain logic to paying off short term debt and defaulting on your mortgage.

Truth is, there's always a chance one could negotiate with their mortgage company for new terms, but that usually doesn't kick in until some payments are missed.

It's why they should have pursued "cram downs" so that people could have started saving and spending again. It makes little sense for many to throw good money after bad on a house they'll never own, which they can't refinance, and in which they'll never build equity because it's worth 60% of what they owe on it.

[me b zola]

12. Screw that.

But I say that as someone who is no where close to being underwater on the mortgage. A home is the greatest wealth that most Americans will ever own, so for us when we went through a financial crisis the mortgage was the one thing that got paid on time, every month, no matter what. Truth is that a lot of people that are losing their homes will never again qualify for home ownership. After we were back on our feet, the credit card companies offered to consider our debt paid if we paid a fraction of it all at once. We still had enough of a credit line on the house, so we paid off the cc companies and now have that loan almost completely paid off. The interest rate for the line of credit was much lower than what the cc companies were charging.

[the other one]

15. Exactly the wrong thing to do

Credit cards are unsecured - if you don't pay they can't do much except chase you. If you don't pay your mortgage you lose your house. Unless you are terminally underwater it would be better to keep the house and scrap the card.