Financial Inclusion

Mortgages Before Credit Cards? Consumers Say Yes

After the housing bubble burst several years ago, U.S. consumers began to default on their mortgages because they chose to instead make credit card payments, according to research from TransUnion. However, that trend has since reversed.

TransUnion recently released data that showed that the “normal payment hierarchy has returned.”

Steven Chaouki, a financial-services executive at TransUnion, explained to the Wall Street Journal that consumers are indeed opting to once again pay their mortgages ahead of credit card bills.

“When things are abnormal, everything becomes more risky,” and lenders’ natural reaction is to pull back from making loans, Chaouki said. “When you’re back to normalcy, it makes credit extension and management more predictable and manageable, which is exactly what you’re trying to do when you’re making loans.”

TransUnion’s research also showed a link between consumers’ payment behaviors and home values during the downturn by examining 40 different sets of borrowers. These consumers had been current on a car loan, a credit card, and a mortgage and had missed any payments over 12 months.

In every U.S. state, those that experienced greater home-price declines and higher unemployment rates saw more borrowers miss payments on mortgages while staying current on their credit cards.

Researchers explained that this trend originally occurred because borrowers realized that home foreclosures were not immediate, while missed credit card payments “could deprive consumers more immediately of a key source of liquidity.”

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