Paying credit cards has been the latest consumer debt payment trend, notes TransUnion. (Photo Credit: CC BY-ND/Adjustable Rate Mortgage)

Debt payment patterns in the U.S. were changed drastically by the recession, and the shift to paying credits cards first, over mortgages, is a perfect example. Traditionally, this had never been the case. Yet when the subprime mortgage crisis put many homeowners underwater, addressing credit card debt seemed the more feasible choice, reports the Huffington Post.

TransUnion has tracked the disturbing trend

Mortgage delinquency is now viewed as almost acceptable in the current housing market, a trend that may have costly repercussions. According to credit bureau TransUnion, 7.24 percent of U.S. homeowners were late on their mortgage but current on their credit cards in the fourth quarter of 2010. In the previous quarter, it was 7.40 percent, but the drop can’t be viewed as good news, said TransUnion consultant Sean Reardon.

“(It is now) 72 percent higher than it was at the beginning of the Great Recession,” he told the Huffington Post.

By comparison, only 3.03 percent of U.S. consumers chose to fall behind on their credit cards in order to keep up with their upside down mortgages. This is the lowest known percentage for the category on record.

When the tide turned

Not coincidentally, TransUnion found that more U.S. consumers began to pay more attention to their credit cards than their mortgages just a few months after the financial collapse began in 2007. Booming unemployment and a poor housing market submerged scores of subprime borrowers as the country shifted toward an unhealthy dependency upon credit.

The growth in number of underwater mortgages is staggering. By the final quarter of 2010, 23 percent of U.S. homeowners had upside down mortgages, according to business data provider CoreLogic. That amounts to 11.1 million residential properties in negative equity, up from 10.8 million (22.5 percent) in the third quarter of 2010. Another 2.4 million homeowners have less than 5 percent equity, making the total percentage of negative and near-negative equity mortgages 27.9 percent nationwide. But it hasn’t just been subprime borrowers opting to pay their credit cards instead of their mortgages, notes Reardon.

“Initially it was,” he said, “but it spread across all risk segments. It’s now an issue at the national level.”

Sources

CoreLogic

Huffington Post

Refinance your mortgage and whittle down credit card debt

The Consumer Financial Protection Bureau isn't bankrupt, but its funding could be in jeopardy. (Photo Credit: CC BY-ND/Shirt Fight)

The conservative majority in the U.S. House of Representatives appears determined to rain on Elizabeth Warren and the Consumer Financial Protection Bureau, reports the Huffington Post. Dodd-Frank Act opponents Majority Whip Eric Cantor, Rep. Michele Bachmann and House Financial Services Chair Spencer Bachus have already voted to cut the Federal Reserve-funded budget of the CFPB from $143 million to $80 million. If the trend continues, the CFPB – which is scheduled to open on July 21, 2011 – will be the only federal bank regulator in the U.S. subject to political budget cuts.

The CFPB seeks to heal wounds of banking abuses

Harvard Law Prof. Elizabeth Warren, co-author of the book “Two-Income Trap,” has studied at great length how banking abuses have harmed U.S. families. The middle class sinks ever deeper into poverty, borrowing just to keep up with expanding bills and compensate for stagnant salaries. The Consumer Financial Protection Bureau’s goal is to unify the following seven federal agencies, per the Federal Register:

• Federal Reserve Board of Governors
• Federal Deposit Insurance Corporation
• Federal Trade Commissioned
• National Credit Union Administration
• Office of the Comptroller of the Currency
• Office of Thrift Supervision
• Department of Housing and Urban Development

Until now, none of these agencies had consumer protection as the primary agenda. Warren believes the middle class needs an advocate, and the Consumer Financial Protection Bureau will serve to help stem the tide of personal bankruptcies.

“The numbers are sobering,” Warren said at a Feb. 23 Chicago lecture. “Since the late 1970s, (personal) bankruptcy filings have doubled and doubled again. Women have been hit particularly hard. Over the course of 20 years, the number of women filing bankruptcy petitions increased by 662 percent. By the early 2000s, a woman was more likely to file for bankruptcy than to graduate from college.”

Support the Consumer Financial Protection Bureau

According to the Consumer Federation of America, the CFPB will play a major role in making sure that consumers are not abused by such things as subprime credit cards, which bear high rates and fees; bank overdraft loans, which have astronomical interest rates; military loan companies that attempt to operate outside the boundaries of federal regulation requiring a cap of 36 percent APR; and the most unscrupulous payday advance loan outlets, where fees can become excessive.

As John Wasik writes for Reuters’ Prism Money blog, consumers should be paying attention to what House Republicans are trying to do to the Consumer Financial Protection Bureau.

“I believe everyone with a credit card, bank loan or savings account needs to back Warren now,” writes Wasik. “Contact your senators and congressmen and urge them to leave the bureau’s funding alone, which is tied directly to the budget of the Federal Reserve.”

Sources

Consumer Federation of America

Federal Register

Huffington Post

Reuters

‘I’m not here to support criminal schemes,’ said Rep. Maxine Waters