Forget the mortgage, consumers pay car loan first

With the length of time that the foreclosure process can draw out I can understand why people would pay off other liabilities such as car loans and credit card debt first before their mortgage.  We have touched on the "shadow economy" previously when gas was nearing $4 and consumers were still spending.


Living mortgage free could sure boost any one's discretionary spending and help people buy Apple computers or just about any good on Amazon.  Paying off your auto loan provides your access to maintaining your income by getting you to your job each day.  Paying off your credit cards gives you additional access to money your might not have if you chose to pay your mortgage first.


Full piece here from MarketWatch

• According to the latest analysis of open loans by TransUnion, the credit-ratings agency, nearly 40% of some 4 million consumers tracked last year fell behind on their mortgage payments, while keeping both their auto loans and credit-card balances in check.
• The national delinquency-rate average of those behind on their mortgages stands at 6%, compared with 0.78% who are 90 days late on credit cards and an even lower 0.46% (a historic trough) who haven’t made a car payment in 60 days.
• TransUnion refers to this as the “payment hierarchy,” which first shifted away from covering the mortgage as the No. 1 household priority in 2008, at the onset of the recession. The thinking then was that credit-card payments were far more important than mortgage payments because many consumers were using plastic to buy necessities like food and clothing.
• TransUnion attributes that to regional economics and consumer penchants. “The preference for paying auto loans was more pronounced in states like Florida and Michigan, which have seen severe drops in house prices and may have strong consumer affinities for autos,” according to Becker.
• It’s not likely that consumers will return to the so-called traditional payment hierarchy of covering the mortgage first, until the housing market shows some signs of stabilization and then recovery. Add better job gains to that as well, said Matt Komos, a TransUnion consultant who co-authored the study.