I don't doubt what you're saying, but what kind of idiot pays off unsecured credit cards before he pays his mortgage? You got to have priorities.
What the gov't did was double everyone's minimum monthly payment. Which crunched a lot of people into choosing between mortgage and utilities versus credit card bills. Guess who loses out in that situation?
What kind of idiot pays off unsecured credit first?
The kind of idiot who knows that the laws will now come down on them harder for not paying the credit cards than for defaulting on the mortgage. Foreclosure takes time, a credit card company laying waste to your FICO score is nearly instant.
When I read the report this past March that highlighted the number of first month and early month defaults on sub-prime mortgages, that’s was my first inkling that these oh-so-smart bankers really didn’t do their homework. The mortgage lending industry was completely gob-smacked to find that people with low FICO scores were paying off their cards first, mortgage second. They bundled and sold vast tranches of this sub-prime debt on the assumption (there’s that word — ‘ass’ ‘u’ ‘me’) that the default rate would remain low as in past years.
They didn’t factor in the bankruptcy law changes in 2005, higher interest rates, etc.
The morons in the federal government who rewrote the bankruptcy laws are the idiots. Under Chapter 13, credit card debts get first dibs on payment. Mortgages got shoved to the back. So the court orders you, through congressional mandate, that you credit card debts are a higher priority for repayment than your mortgage debts.
What the gov't did was double everyone's minimum monthly payment. Which crunched a lot of people into choosing between mortgage and utilities versus credit card bills. Guess who loses out in that situation?
The problem is that under the new bankruptcy laws, the credit cards still need to be repaid, but if your home is foreclosed upon, you can get out of that debt. The changes in the laws were really, really stupid. It does not make any sense to have someone forced out of their home to pay credit card bills. The credit card companies could have saved themselves from a mess of their own creating by not extending credit to people who cannot afford to pay it back. Now, it s the mortgage companies that are getting screwed because they cannot get what is owed on property when they foreclose. The irony is that the these lenders are frequently one and the same. The problem is that the bankrupotcy laws, in a very unintended way, are screwing up the whole economy.