Consumer Mood has Changed in Foreclosure Climate

The foreclosure climate has changed the mood of the consumers with more giving priority to credit card dues before mortgage payments. This is according to a new study conducted by TransUnion of Chicago.

This is indicative of the increased financial stress the people are under. Financial pressures are forcing the consumers to do this so as to make the best use of availability of cash flow.

The proportion of consumers lagging behind on mortgage dues but current on their credit cards increased to 6.6% during the 3rd quarter from 6.3% noted in the 2nd quarter and from 4.9% observed in the 3rd quarter of 2008. This trend was first noticed in the 1st quarter of 2008 when it was noted to be 4.3%.

This tendency could be indicative of higher because of increased defaults and delinquencies. It does not spell good news for the already embattled housing sector that is now extremely vulnerable to any sort of set back.

Sean Reardon of TransUnion said, “This goes against conventional wisdom and that has always been that, when faced with a financial crisis, consumers will pay their secured obligations first, specifically their mortgages.” He is the author of the recently released study.

The logic behind this move is that by paying a minimum payment towards credit card dues the householder gets a chance to go about his or her daily activities – this is especially so in the case of a job loss. Reardon quipped, “You cannot buy groceries with your house.”

The study of the report has been exclusively obtained by Reuters ahead of its official release. The survey was conducted on those who had the minimum of one credit card and one mortgage.

At the other end of the scale the proportion of consumers who were lagging behind on their credit card dues and those running on their mortgages fell to 3.6% during the 3rd quarter of 2009 from 4.1% during the 1st quarter of 2008.

Reardon explained, “The ‘flip’ in payment hierarchy in the lowest scoring segment was evident earlier during the fourth quarter of 2007, compared to the first quarter of 2008 for the total market.”

The proportion of consumes lagging behind on credit scores who were defaulting on their mortgages but running on credit cards during the last quarter of 2007 was 19.1%. It increased to 29% during the 3rd quarter of 2009.

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