Thursday, June 21, 2007

Credit cards of higher importance over mortgages to subprime borrowers

Experian Subprime Lending Study Shows Consumers Are More Likely to Pay Bankcard Debt Before Mortgage Debt

“According to the latest Experian study on the subprime lending market, subprime consumers -- those with an Experian credit score of 620 or lower -- are more likely to be 30 days or more late on their mortgage payments than on their unsecured bankcard obligations. As consumers have historically paid mortgage debt over bankcard debt, this finding represents a significant departure from conventional behavior.”

From Businessweek: “The significance? One explanation could be that many recent subprime homebuyers simply aren't that worried about losing their homes because they don't have much to lose. Most put down small or zero down payments. If prices have fallen since they bought, they may actually owe more than the house is worth, making it an easy choice to walk away.’”

“At the same time, keeping access to their credit cards has become more important than ever, says Stan Oliai, vice-president of decision sciences for Experian Decision Analytics. ‘People are using credit cards for everyday items like gasoline and groceries, and to tide themselves over from paycheck to paycheck,’ says Oliai.”

“According to Experian's research, prime borrowers have exhibited more conventional behavior than subprime ones, perhaps because they have more to lose from a home foreclosure and aren't quite as reliant on credit cards to get them through the month. Experian's study shows that they remain less likely to be late on their mortgages than on their credit cards.”

“Many subprime mortgage borrowers ‘don't have much skin in the game," says Douglas Duncan, chief economist of the Mortgage Bankers Assn. Subprime loans that originated in 2004 and 2005—which account for a big share of those now entering delinquency—involved extremely small down payments, Duncan says. ‘Some people said, 'Let's roll the dice and see if we can get a house. And if it doesn't stick, we've still got to have the credit card to keep going and we've got to have the car to get to work.’” read more >>

About Experian
Experian(R) is a global leader in providing analytical and information services to organizations and consumers to help manage the risk and reward of commercial and financial decisions.



Anonymous said...

Also, there are often no consequences for not paying your mortgage. It takes a while for the officials to come and kick you out, often slower than landlords attempting to evict you.

Anonymous said...


Dimitris said...

"there are often no consequences for not paying your mortgage. It takes a while for the officials to come and kick you out, often slower than landlords attempting to evict you."

During the boom there were stories of people who couldn't get into rentals because of their credit history but were approved by banks to buy a house.

Unbelievable is right.

W.C. Varones said...

Ah, the beauty of Put-option ARMs!

CreditSwam said...

Which is more if you don't pay back your bankcard debt you can damage your credit history which is quite difficult to improve.

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