Mortgage v. Credit Card Delinquency Rates
I read some recent reports indicating that default rates on mortgages, especially “sub-prime” mortgages have jumped in the face of the slowing housing market. Credit card delinquencies, on the other hand, have not increased, as some had predicted. Defaults on credit card payments during the 4th Quarter of 2006 remained steady at 4.56%, as compared to 4.57% in the third quarter. In comparison, credit card default rates were around 5% back in June 2005.
This is interesting because usually people will struggle to make their mortgage payments at the expense of their payments to credit card companies. Logically, it would seem that credit card default rates would increase before mortgage default rates. That doesn’t appear to be what is happening right now.
I have also read news reports about mortgage companies tightening their money policies. In other words, it’s not as easy these days to get a mortgage or second mortgage as it used to just a year or two ago. I would think eventually we will start to see credit card default rates increasing because equity loans and equity lines of credit won’t be so readily available as an option to pay off unsecured debt, like credit cards. But, that doesn’t appear to be the case as of yet. I suspect it might have to do with the huge push in advertising of credit counseling firms touting debt management plans and debt settlements. I have no statistical data to support my opinion, but it just seems to me that I’m hearing a lot more commercials for these “not-for-profit” credit counseling agencies than I heard in years past. Unfortunately for consumers who need help paying debt, I don’t think these are good solutions. I’ve blogged before about reports from the credit counseling agencies that only approximately 25% of debt management plans complete. In my opinion a 25% completion rate doesn’t sound like success.
