Study Shows Customers Late on Mortgage Payments

[Jul 13, 2007.]

A new study issued by a major credit reporting agency indicates that people are more likely to be on time with their credit card payments than with their mortgage payments.

The study, conducted by Experian, indicated that subprime consumers are more likely to be 30 days late on their mortgage payments than on their credit card payments. Subprime consumers are defined as those with Experian credit scores of less than 620.

The report may come as a surprise to those who think that consumers make sure their mortgage is paid before anything else. Interestingly enough, the study also indicated that, in the past four years, credit card lending to subprime customers has risen a whopping 137 percent, while mortgage lending to these same customers has jumped 58 percent.

It appears that consumers are opting to pay on high-interest credit card bills rather than mortgages, which carry a lower rate of interest. However, the strategy is risky because homeowners risk losing their houses if they fall behind on their mortgage payments.

The report also shows that, while mortgage lenders may be more cautious than they used to be in extending loans to customers, credit card companies are willing to assume more risk. As a result, credit card issuers are dealing with customers that mortgage brokers might not touch, given their credit histories and questionable ability to repay their debts.

Meanwhile, consumers also run the risk of contracting for cards that have confusing terms and conditions. Consequently, they may end up paying more in interest than they had expected. Congress has been looking into the issue of credit card terms, since many consumers appear to be baffled by them.

A number of major banks, such as Citi and Capital One, have now opted against universal default. With the federal government threatening to crack down on credit card companies, other financial institutions may follow suit.

Julie Ann Amos
July 13th 2007
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