Subprime Borrowers - Credit Card or Mortgage Payment
June 27th, 2007The Experian Group recently conducted a study where they found out that within recent years, people were more willing to pay their credit card bills on time as opposed to their monthly mortgage payments.
The main reason for this new trend may be due to the increasing number of subprime borrowers who are less worried about foreclosing on their homes. As you may know, during the “refi boom” of the last 5 years or so, many homeowners were put into loan programs with 100% financing. Others may have been placed into loan programs which they were probably under-qualified for.
What does this mean? It means that many subprime homeowners really don’t have much equity to lose should their home foreclose. In fact, a small percentage of homeowners are “upside” on their mortgage; meaning they owe more than what their property is actually worth.
According to Experian, the number of mortgage lates by subprime borrowers went up from about 32% at the beginning of 2003 to around 36% at the end of 2006. Interestingly, the number of late credit card payments fell from 32% to around 24% between early 2003 and late 2006.
It is believed that subprime borrowers value credit cards because it is something that they use on a daily basis. Also, many people live paycheck-to-paycheck, so it helps to have a source of emergency funds.
