01 Sep Credit Cards vs. Mortgages: Be Careful What You Wish For
A recent Kathleen Howley post on www.bloomberg.com discusses the impact of the bankruptcy reform act on the subprime mortgage industry. The Act attempted to make it more difficult (it did) for folks to file Chapter 7 (it didn’t stop Chapter 7) and force folks into Chapter 13 in order to repay their unsecured debt (credit cards are unsecured debt).
Jay Westbrook, a professor of business law at University of Texas, points to the Act as being a prime factor in the new subprime mortgage crisis.
Greed overcame common sense: when folksdon’t think they canwalk away from credit cards, they continue to pay the cards and stop paying the mortgage.
They continue to pay the cards and stop paying for medication, repairs to the vehicles. The mortgage arrears then become so high that they can’t pay enough to stop the foreclosure.
Ms. Howley points out that even”as losses have mounted, banks have seen their credit card businesses improve” and that “In the same period, the dollar volume of repossessed homes owned by insured banks doubled to $4.2 billion”. This makes Capital One happy according to the article as Fairbanks, the CEO of Capital One Financial, points out that 70% of folks current on their credit cards are three months behind on their mortgages.
Of course, this is no problem for Capital One–they are a credit card bank. But Washington Mutual, HSBC, Bank of America, Citigroup (Citibank and Citimortgage are both members of that conglomerate)….ya gotta wonder….did the right hand know what the left hand was doing? Not surprisingly, at least Wamu and Bank of America declined to comment for Ms. Howley’s article.
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