The Downside of Synergy
This week, Bloomberg reported that the 2005 consumer bankruptcy amendments are a resounding success. It is indeed now harder for consumers to discharge their credit card debt in bankruptcy. So why are some major credit card companies concerned? The problem for some credit card companies is that they also are banks that hold consumer mortgages. By making it more difficult to get rid of credit card debt through bankruptcy, consumers are having a harder time keeping up with their mortgage payments - or are for some other reason choosing to pay their credit card bills ahead of their mortgages. Capital One's CEO reports in the article:
Of customers who are at least three months late on their mortgage payments, 70 percent are current on their credit cards
This is an astonishing figure. So the credit card department wins, but the mortgage department loses much more. How is this happening? Is this all the bankruptcy amendment? Are credit card debt collectors really that persuasive?
Comments (9)
What has not been discussed in the mortgage scandals is why some of the mortgages were taken out. Not all mortgages were for those buying new homes. I do not know the figures but many were to pay credit card debt and other bills.
I would ask did the banks use mortgage and house values to target those where behind in credit card payment to offer new mortgages to get the cards paid up? It is hard for me to not think this did not happen. The discussion has been about mortgages for new homes not refinancing existing homes to pay debts!
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Today, are we searching for I deals or Ideals?
-Thinking
November 10, 2007 4:56 PM | Reply | Permalink
Re: I would ask did the banks use mortgage and house values to target those where behind in credit card payment to offer new mortgages to get the cards paid up?
If you are asking did they very deliberately look up credit card holders who were behind, the answer is No. For one thing such people would be risky customers, with a good possibility of subsequently defaulting on their home equity loans later on. However it is true that banks touted home equity loans/credit lines as an excellent way to "get rid of" credit card debt, with lower interest rates and tax deductibility.
November 11, 2007 11:22 AM | Reply | Permalink
For one thing such people would be risky customers, with a good possibility of subsequently defaulting on their home equity loans later on.
The thing is they did not keep the mortgage loans they sold them to others.
Pay off the card and let someone else take the loss.
A game of musical chairs with the banks shifting all the risk!
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Today, are we searching for I deals or Ideals?
-Thinking
November 11, 2007 12:09 PM | Reply | Permalink
I would like to see some hard evidence to back-up these allegations. I have a hard time believing that the 2005 BAPCPA has anything to do with the mortgage mess. This sounds more like another excuse for the origination of hundreds of thousands of toxic mortgage loans.
November 11, 2007 3:22 PM | Reply | Permalink
We should remmeber that the 2005 bBackruptcy Act did not take effect until Oct of 2005. By then the Mortgage Bubble has already reached very nearly its full expansion, and soon began to fizzle. If anything it would be more reasonable to suppose that the effcet of the Act was to poip the bubble not expand it.
November 11, 2007 9:03 PM | Reply | Permalink
We should remmeber that the 2005 bBackruptcy Act did not take effect until Oct of 2005. By then the Mortgage Bubble has already reached very nearly its full expansion, and soon began to fizzle. If anything it would be more reasonable to suppose that the effcet of the Act was to poip the bubble not expand it.
November 11, 2007 9:06 PM | Reply | Permalink
Mortgage, Shmortgage. I already commented on this
but now have more to say because of the other
story I just got reading that talks about your
privacy etc. I call it 'veal calf finance'.
you have the financial institutions that
keep all their notes, then the government that
collects all their notes, and at the end of the
day, everyone's trying to collect money. From you. Like, a lot, and stuff. And, they call it
'the economy', when truth-in-advertising laws
if they still had any teeth would require it
to be renamed to 'the horse----' story.
So there you are, spinning away happily in the
Great Habitrail Wheel Of Life, when suddenly
you start getting notices about this or that,
money's kinda tight and you're doing like everyone else and making minimum+payments on
your cards and whatnot, and there's an extra
ten-dollar fee here and 5 bucks there, and
stuff gets a little more expensive over there,
your adjustable rate mortgage thing goes and
adjusts itself almost magically, and
then the fuel costs go up, when suddenly you
realize you're being blanking ROBBED. That's
all there is to it. Legitimized larceny that
claims hundreds of thousands of victims per
year, all we are is tools anymore and the
people ostensibly in charge of the oversight
of all of this a) don't give a damn and b)
don't listen to anyone but the lobbyists
anymore, because THEY know which side THEIR
bread is buttered on. Www.mafia.gov, or
just sheer incompetence? YOU decide...
November 12, 2007 3:38 PM | Reply | Permalink
For homeowners who have negative equity, it makes perfect sense to walk away. People typically fight and sacrifice to keep their home if they have substantial equity in it. Not so much when they owe more than the house is worth.
How ironic. Creative mortgages have given already high-risk borrowers even less incentive to repay the loan.
November 12, 2007 6:49 PM | Reply | Permalink
Yeah, but what are we going to do when the dollar
folds up like a cheap kite? 9 trillion, and counting...
Something else to add, it took me 3 years to
pay off and cancel all my credit cards. How
nice not to have them anymore...
November 24, 2007 1:36 AM | Reply | Permalink