People pay car loans and credit cards before mortgages

While people used to always pay their mortgage first before other bills, priorities have definitely changed for some. Maintaining car payments appears to be the first priority, with credit cards second and mortgages last. That's the results of the third quarter trend data from TransUnion. The 60-day delinquency national average for auto loans was 0.81%. Credit cards national 90-day delinquency average was just a bit higher at 1.10%. Mortgages national 60-day delinquency rate was six times higher at 6.25%

F.J. Guarrera, VP of Sales Strategy/Thought Leadership for TransUnion concluded about the mortgage numbers: "Delinquency rates are rising and expected to peak at record levels. Until the housing market can consistently demonstrate several months of home value appreciation and the unemployment rate improves, mortgage delinquencies will likely continue to rise."

The people of North Dakota are the most reliable payers. Their delinquencies rates were just 0.35% on auto loans, 0.66% on credit cards and 1.74% on mortgages. So even the most reliable payers are putting autos first, credit cards second and mortgages last on the priority list.

The hardest hit state for delinquencies was Nevada. It's auto loan delinquency rate was 1.16%, it's credit card delinquency rate was 1.98% and its mortgage delinquency rate was 14.53%. Florida residents were next in line for the worst records with a mortgage delinquency rate of 13.34%, but their auto loan defaults were just 0.99% and their credit card delinquencies were just 1.47%

Ezra Becker, Director of Consulting and Strategy for TransUnion, concludes: "Consumers recognize that their credit cards are their primary purchasing vehicles in this economy." As more and more people face unemployment their credit cards are the only thing that they can use to pay for food, clothing and other necessities of life. Clearly the priority is being placed on keeping these cards active. They don't want to risk being cut off from this crucial lifeline.

So instead we are seeing mortgage delinquencies rise. Now that about one in four borrowers are underwater on their mortgages according to First American CoreLogic, it's not surprising they would put priority on saving their car so they can get to work and their credit card to buy food for their family. Many people don't have equity left in their homes and don't see the value of saving them.

Almost 5.3 million U.S. households have seen their home prices fall so far that they owe at least 20% more than their home is worth. How can these homeowners justify putting their mortgage first? While there is no breakdown in the Trans Union data for home value versus delinquency, I suspect that if someone were able to dig into the data they would find most of the delinquencies are homeowners with mortgages under water or mortgages where there is no equity left.

Yet most U.S. homeowners still have some equity. Nearly 24 million owner-occupied homes don't have any mortgage, according to the Census Bureau.

Unfortunately for those making the choice to pay car loans and credit cards before their mortgages, the possibility of owning a home after a foreclosure on their current home will become a far away dream. Maybe they don't care to ever own a home again, but they must remember that a foreclosure stays on one's record for seven years. Under today's strict standards most lenders will not even consider a home buyer with a foreclosure on his or her record. Even if you are able to get a loan sooner than that seven year period, it will be with a much higher interest rate.

Yet people I've talked with who just don't care about ever owning a home again, don't worry about their credit history. Right now until they can get steady work, their first priority is feeding their family and credit cards are their lifeline. It's not hard to understand why they've become the priority, especially for the unemployed, during this Great Recession.

Lita Epstein has written more than 25 books including "The Complete Idiot's Guide to Personal Bankruptcy" and "Working After Retirement for Dummies."
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