Dec 18 2010

Consumer Credit Delinquencies: Why Do Some Choose Credit Cards over Mortgages?


The stigma formerly associated with foreclosure is disappearing or, in locales hardest hit by the housing bust, completely gone. In this brief, Professor Ethan Cohen-Cole shows that the disappearing stigma is coupled with a rational consideration on the part of consumers to maintain liquidity in times of financial hardship.

Several fascinating facts emerge from a breakdown of delinquency data:

  • A large percentage of individuals choose delinquency on mortgages or credit cards, but not both. And a large fraction of that group chooses delinquency on mortgages while continuing payment on credit cards.
  • As delinquency rates have risen overall, the proportion of individuals choosing mortgage delinquency over credit card delinquency has risen.
  • Areas with large declines in home prices show stronger patterns of people trying to protect their cards.
  • Debt patterns before delinquency are dramatically different than before bankruptcy.
  • The tendency to protect credit cards is strongest among those with the least available credit, including the young, those with low credit scores, those with low income, and minority populations.
Report Number 222