Families paying credit card bills, skipping mortgages

Behind the mortgage crisis lurks some consumer behavior that, at first glance, at least, seems puzzling.

When faced with the possibility of falling behind on home loans, credit-card payments or car loans, borrowers are more likely to choose to let their mortgages slide than the other kinds of debt, according to a recent study conducted by Equifax, a major consumer-credit rating agency.

In the study, researchers looked at thousands of borrowers who had taken out mortgages in 2002 and 2005 and tracked their payment behavior over a 24-month period. Of those in the 2002 sample who missed two payments on their mortgages during the two years, 26 percent maintained a spotless credit-card payment history and 59 percent kept pace with car payments.

Mortgage payments continued to slide down the list of priorities a few years later. Of those in the 2005 sample who fell behind on their mortgages, 38 percent kept up with credit-card payments, and 62 percent made all of their car payments.

The results of the research, said Myra Hart, a senior vice president at Equifax, run counter to conventional wisdom.

"It's been sort of folklore in the industry that people always pay their mortgage or auto loan first," she said.

These borrowers did not lack financial sophistication, Hart added.

"The people who were delinquent on their mortgages but who paid their credit cards on time tended to have higher credit scores," she said.

The behavior was even more pronounced, Hart said, in states like Florida and Arizona, where some people had purchased homes as speculative investments.

But even those whose only mortgage is the family home will often push the housing payment aside.

"They know they have to make payments on their credit card because they need that," Hart said, "and they need their car to get to work."

Kisha Wright, a counselor for the Long Island Housing Partnership, a nonprofit affordable-housing group in Hauppauge, N.Y., agreed. Wright said many of her clients lack the monthly income to pay all their bills, so they pay the minimum amount necessary to keep credit cards.

"People are living off their credit cards — buying food, gas or even taking cash advances to pay their mortgages," she said.

This is especially true, Wright said, of those who took out adjustable-rate mortgages, only to see their monthly payments rise past the point of affordability.

"Of course, the mortgage should be the first priority," she said. "But how can you tell someone that, if they don't have food or heat or lights?"

Meanwhile, borrowers who neglect their mortgages could be doing so because they think banks or the government will help keep them in their homes.

But consumer-credit specialists say that one's credit score can suffer more from a late mortgage payment than a default on other common debts.

Jeanne Kelly, president of the Kelly Group, a credit-counseling service based in Danbury, Conn., said, "A late mortgage payment is probably more important than a late credit-card payment, but any 30-day late payment has a dramatic effect on your score. It can drop you up to 100 points."