A new study developed by ""TransUnion"":http://www.transunion.com confirms that the ""new"" payment hierarchy -- where consumers pay their credit cards prior to their mortgages -- is continuing, with the trend occurring more readily than ever before.
[IMAGE]""Conventional wisdom has always been that, when faced with a financial crisis, consumers will pay their secured obligations first, specifically their mortgages,"" said Sean Reardon, the author of the report and a consultant in TransUnion's analytics and decisioning services business unit.
But Reardon says TransUnion's analysts uncovered a shift beginning in the first three months of 2008 â€" the first time in history that the percentage of consumers current on credit cards and delinquent on mortgages surpassed those that were caught up on their house payments but had missed a payment on the plastic.
TransUnion says this ""flip"" is representative of the change in the conventional wisdom around the payment hierarchy. It's becoming much more common for the mortgage to take a backseat to credit cards, as more people rely on the cards for day-to-day living during this economic downturn, and homeowners are finding they owe more on their mortgage than the home is worth as property values continue to plummet.
[COLUMN_BREAK]Although many industry analysts believed that a reversion to the conventional payment hierarchy would ensue once the worst of the recession had passed, TransUnion says that has not, in fact, been the case.
To the contrary, the company's latest study found that the hierarchy reversal has become even more widespread, with the percentage of consumers who are delinquent on their mortgages and current on their credit cards rising to 6.6 percent in the third quarter of 2009, up from 4.3 percent in the first quarter of 2008.
The payment hierarchy shifts are even more pronounced in states such as California and Florida that experienced a more severe housing bubble effect.
Within California, the percentage of consumers delinquent on their mortgages but current on their credit cards increased 191 percent between the third quarter of 2007 and the third quarter of 2009. In Florida, this same variable increased 143 percent over the same time period. By comparison, the increase at the national level during this timeframe was 68 percent.
""The implosion of the mortgage industry over the last 24 months, the resetting of adjustable-rate mortgages, and the weak job market have all come together to redefine how consumers are managing their finances and meeting (or not meeting) their credit obligations,"" said Ezra Becker, director of consulting and strategy in TransUnion's financial services business unit.
""The insight gained through this analysis reveals a lot about changing consumer preferences. The financial services industry must recognize and adjust to the payment hierarchy shift,"" by modifying their business models, assessing new areas of risk, and revising account management strategies, he said.