By Mike Colpitts
Homeowners are fed-up and they are protesting by the way they are paying their bills. A growing volume of homeowners are paying credit card bills before making payments on their mortgages, according to a new study by Trans Union credit reporting agency. It’s a trend that has been widely reported over the last three years as homeowners’ protest being used as pawns by banks, mortgage companies and Wall Street.
A growing number of mortgage holders feel they were taken advantage of by banks and mortgage companies selling them poor mortgage products to only reap record profits and grow corporate profit margins.
“This just confirms what we have seen among our clients,” said attorney Steve Stark of New Horizon Credit Counseling service, a nonprofit debt management firm that has been offering aid to consumers since 1978. “They would prefer to default on their over-leveraged mortgages in favor of paying off their credit card balance.”
Trans Union found that the pattern of protest has become increasingly popular among consumers. The number of homeowners who are delinquent on their mortgages and current on credit card payments has risen to 7.4% as of the third quarter of 2010, the latest quarter available, according to Trans Union.
The percentage of homeowners delinquent on credit cards and current on their mortgages dropped to the lowest level on record at 3.03%. The reversal of trends is indicative of the public’s widespread acceptance of mortgage holders walking away from home mortgages they are no longer either able to afford or unwilling to pay.
Banks sold millions of consumers mortgages that lenders now say they never expected borrowers to be able to repay. More than 1 in 4 homes in the U.S. are worth less than what is owed on the mortgage balance.
Lender Processing Services, which tracks mortgage data for the lending industry showed a 23% rise in Option ARM foreclosures over the last six months as consumers with the lowest FICO scores defaulted on mortgages in increasing numbers. Adjustable rate Option ARM loans come with as many as six payment types to chose from, including dangerous negative amortization, which can be added to the principal of the mortgage amount to make the amount owed on a loan larger on a monthly basis.
Option ARM foreclosures now make up the highest number of foreclosures since the foreclosure crisis began more than four years ago, accounting for 18.8% of foreclosures in the pipeline, LPS data indicates. The shift in the volume of properties at risk of defaulting is also growing as consumers, concerned about the economy and their jobs hold back from making other purchases.