Borrowers Pay Credit Cards not Mortgages

The credit reporting agency Trans Union said today, borrowers, especially in California, continue to focus on their credit card payments and ignore their mortgages. This is the second study conducted by the company to show the same trend.

This is the first time that more consumers are on time with their credit cards and delinquent on their mortgage. The payment priorities are more pronounced int California and Florida, the biggest housing bubble states.

It could be that with a tight job market, homeowners are using their credit cards to stay afloat while looking for employment opportunities. Trans union Reported that 10.2% of delinquent loans had current credit cards. Up 4% from a year ago.

This adds pressure to the banks since the loss from the mortgage loans are much higher dollar values than the credit card exposure. The next 6 months will be the telling sign for banks. If unemployment is still hoovering at 10% there is greater exposure to loan losses and credit card defaults could rise as well.

This trend to pay your credit cards and not your mortgage sends a real powerful message to Wall Street. Homeowners prioritize their debts to survive these turbulent times, and now with home values plummeting homeowners figure their investment has now gone bad. No sense in spending good money after bad. In the meantime credit cards enable the homeowner to use credit for daily needs.

We'll see if this trend gets worse, but maybe Wall Street will start to feel whats happening on Main Street.