The first of every month is always a day of joy, salaries are credited to accounts and plans to spend it in the most constructive manner are always a hot topic. But the reality is; we never spend on what we always hope for, there are always credit card bills, mortgages and debts to pay-off.
Since long we have set out priorities. Mortgages always come first, next come credit card payments, and why not? A roof over one’s head is much more important than losing the ability to spend more than what is in your bank account.
At the present time, people, in a bad way, are paying their credit card standings before clearing off mortgage payments. The biggest reason for this awkward customers’ credit behavior is the falling housing prices, loan-modification programs and restricted credit. Nowadays, ‘property being the largest asset ‘ is just an extinct statement. According to the February 2009 Halifax House Price Index, property prices have fallen by 17.7% over the last 12 months and about 20% of all homeowners owe more than their house is worth.
The loan modification program has also contributed towards this reshuffling of priorities. It allows people to hold back their houses even if they miss one or two payments. While on the other hand, banks are constantly tightening their credit policies. Low credit card limits, several penalties and fear of getting a card cancellation if behind on payments has created a see-saw situation, where ‘see’ is lenient and ‘saw’ is severe.
Some experts say that this trend change may lead to a circumstance where home loans may be put to one side while people will repair their credit to start again with a new mortgage plan. What is your say? What should come first; credit card payments or mortgages? Will the US housing market continue to decline? How can the Financial Institutions modify their policies to counter these threats and stabilize the housing market?
Reference Links:
http://www.time.com/time/business/article/0,8599,1969017,00.html
The financial crunch gulped down a large number of companies, leaving many out of work and unable to pay debts. Many well known banks incurred large debts and huge liabilities, so large that even the Government was unable to give them a helping hand. Chances of getting a loan with a good credit standing plummeted down to somewhere near impossible, leaving no room for those who had their figures less than 650 at the Credit Ratings Scale.
The government’s mortgage relief plan, announced by President Barrack Obama a year ago, has helped only about 12 percent of the borrowers. Since its initiation, around 1 million homeowners started the process, but only 116,000 completed the application process and had their loan payments reduced permanently. More than 61,000 applications were rejected, either because the homeowners failed to make payments or didn’t return the necessary paperwork.