More borrowers than ever before are choosing to pay down credit card debt over making mortgage payments.
The share of borrowers who are delinquent on their mortgages but current on their credit cards rose to 6.6% as of Q309 (from 4.3% in Q108), according to national credit bureau TransUnion.
At the same time, the share of borrowers that are delinquent on credit cards but current on their mortgages slipped to 3.6% from 4.1%.
This switch first appeared in early 2008, when TransUnion reported the share of borrowers current on credit cards and delinquent on mortgages surpassed the share of borrowers current on mortgage payments and behind on credit cards. Since then, the shift of borrower behavior in paying down debt is growing.
“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, author of the TransUnion study on the changing payment hierarchy from Q208 through Q309.
“The implosion of the mortgage industry over the last 24 months, the resetting of adjustable-rate mortgages and the weak job market have all come together to redefine how consumers are managing their finances and meeting (or not meeting) their credit obligations,” said Ezra Becker, director of consulting and strategy in the TransUnion financial services business unit.
Another national credit bureau, Equifax, recently released analysis that indicates home equity lines of credit (HELOCs) represent a significant portion of borrowers’ revolving debt and, thus, a huge driver of default.