US Banker  |  February, 2010

By Glen Fest

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A new TransUnion study shows consumers are further lowering their priorities on mortgage payments – a sign that perhaps ever-higher rates of housing defaults may await the market.

Consumers have traditionally put mortgages above credit cards, autos and unsecured lines of credit in their hierarchy of payments. But since 2008, TransUnion has noted a reverse trend that consumers are instead putting their credit-card payments ahead of staying current on mortgage obligations.

“Although many industry analysts believed that a reversion to the conventional payment hierarchy would ensue once we had passed through the worst of the recession — that has not, in fact, been the case,” according to the TransUnion study. “To the contrary, this study found that the hierarchy reversal has become even more widespread.”

In the first quarter of 2008, the percentage of who were delinquent on the mortgage but current on credit cards was 4.3 percent. In the third-quarter 2009 TransUnion survey, that increased to 6.6 percent. For consumers on the reverse side — current on the mortgage, delinquent on credit cards — the numbers decreased from 4.1 percent to 3.6 percent.

People in the lowest credit-score segment had the most pronounced differences. Those delinquent on mortgages and current on cards rose from 19.1 percent to 29 percent between 2007 and 2009; those late on card payments but on time with mortgages went from 18.1 percent down to 14.5 percent.

"The implosion of the mortgage industry over the last 24 months, the resetting of adjustable-rate mortgages and the weak job market have all come together to redefine how consumers are managing their finances and meeting (or not meeting) their credit obligations," said Ezra Becker, director of consulting and strategy in TransUnion's financial services business unit. “The financial services industry must recognize and adjust to the payment hierarchy shift with judicious modifications to business models, new assessments of specific areas of risk, and by strategic revisions to acquisition and account management strategies."