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Expert: Property values behind Americans' focusing debt payments on credit cards over mortgages

Apr 02, 2012 Sean Albert

TransUnion's Consumer Credit Risk Index seems to have tapered off in recent months after swelling during the recession. But Americans' debt priorities appear to have remained relatively the same as they were before the recession, even as home foreclosures skyrocketed and the ability to pay off mortgages became increasingly difficult. But why is that? Haven't Americans learned anything about where and how they should pay off debts in the post-recession economy? While the data may suggest they haven't, it belies a general frugality that has emerged nationwide. When mortgage delinquency rates soared in 2008, the equivalent rate on credit card balances fell, contrasting sharply with historical trends that had Americans paying off home dues overall auto loans, student debts and credit cards. "That's the reverse of the traditional payment hierarchy," Charlie Wise, research director at TransUnion, told Fox Business. "Now they're paying their bank cards first and their mortgages last." Analysts point to the dramatic decline in real estate prices - not to mention housing demand - as being behind this trend. With such cheap home prices, Americans are less concerned with preserving their home mortgages than with maintaining their lines of credit, reports Gail Buckner for the source. This is especially true in regions hit particularly hard by the housing crisis (Florida, Nevada, California, Arizona). The perception of home values has shifted from an asset to a liability. "On the other hand, stung by writedowns of bad accounts, banks froze or cancelled cards, raised their credit standards and virtually stopped extending credit to all but prime customers," Buckner adds. For debt collection agencies, this may allude to a spike in demand in coming months, as banks may hire specialists to recover payments on delinquent mortgages. In regards to credit cards, however, consumers appear to be acting more wisely - a trend that may drive card companies to issue even more lines of credit in an attempt to stimulate spending. "Consumers are acting more conservatively when it comes to using their credit cards," Buckner points out. "Faced with the current uncertain economy and high unemployment, most of us are making the rational decision to reduce what we owe on our credit cards so we have credit available to tap into if and when we need it."