In a break from a traditional pattern, subprime borrowers are now more likely to be late paying mortgages than credit cards, according to Experian Information Solutions Inc.
A study by Experian released Tuesday found that delinquencies on subprime mortgages have increased 13.2% over the past four years, while card delinquencies have decreased by about the same amount. The delinquency rates were about even in both sectors at the beginning of 2003.
The Costa Mesa, Calif., credit bureau did not say why subprime borrowers have become more inclined to make card payments, except to say that better access to credit and consumer savvy about how to stretch out payments on mortgages (which Experian said take longer to default) likely played a role. "This increased awareness of how to float and how to make ends meet is potentially another factor," said Stan Oliai, Experian's vice president of decisions.
The bureau likewise found that bank-card lending to subprime borrowers grew 137% over the past four years, while mortgage lending for the same type of consumers increased 58%.
Ken Paterson, a credit analyst at Mercator Advisory Group Inc. of Waltham, Mass., said strapped subprime borrowers may have started to "walk away" from homes with little to no equity while remaining loyal to cards. He stopped short of calling the trend a major shift in consumer behavior, and said one would need to compare consumers who were subprime cardholders with subprime homebuyers to draw that conclusion.
"It's not fair to assume that these delinquency rates fully represent the same people," he said. However, "if these patterns held up … then that does begin to raise the question: Has there been a sea change in behavior away from paying a mortgage?"
Analysts typically expect late payments on cards to hover above mortgage delinquencies, on the logic that consumers value their homes more.
"When stressed, homeowners generally exhaust all means before defaulting on their mortgage, including defaulting on unsecured debt," Kevin St. Pierre of Sanford C. Bernstein & Co. LLC wrote last month. The gap between card and subprime mortgage delinquencies shows that one has little influence on the other, not that borrowers are choosing their cards over their homes, he wrote.
