The answer increasingly has become the credit card. According to statistics from credit bureau TransUnion, the number of consumers who default on their mortgages but continue to pay their credit cards on time has remained well above normal even as the country has moved into an economic recovery. The steady climb — up from 37 percent before the recession to more than half at the end of last year — has some financial experts questioning whether the shift reflects a permanent change in how families manage their personal balance sheets.
“If you get into the mind-set of a person experiencing financial distress, this is a perfectly rational and logical response,” said Mark Cole, executive vice president of CredAbility, a nonprofit education and credit counseling firm. “They didn’t have enough in savings, and credit cards became the shock absorber.”
Under the new payment hierarchy, their homes have become a liability and the consequences of skipping a mortgage payment seem far away, especially as legal wrangling over foreclosure can stretch for months. A credit card, on the other hand, can help them satisfy the immediate demands of paying for food or keeping the lights on. In addition, lax lending standards allowed many to buy a home with little financial investment — now manifesting itself as a lack of emotional attachment as well.
Jeff Horton of Orlando stopped paying the mortgage on his home 19 months ago, and said he still hasn’t heard from his lender, Bank of America. He bought the home in 2007 for $265,000 only to find out that the value plunged to less than half that a year later. A condo he purchased in late 2005 for $140,000 is now worth $34,000, he said. Horton said he can’t even rent the properties at a price that would cover his mortgages.
“It’s absurd,” he said. “I’m completely bound to these properties. I can’t get rid of them.”
Horton said that his condo has gone through foreclosure, and that he knows it will take years to repair his credit. But he figures it could take even longer for the value of his home to recover.
As for his credit card, student loans and car note? “I pay all that stuff. I’m not behind on anything else. Never have been,” Horton said.
Financial advisers caution that the mortgage is still the most important debt to pay on time, and many Americans agree. A survey by the National Foundation of Credit Counselors last year showed that 91 percent of consumers said they would pay their mortgage before their credit card bill. Losing a home can result in financial and emotional upheaval that lasts long after the debt collectors stop calling.