Experian Report Reveals Surprises About Sub Prime Borrowers

It is said that “once sub-prime, always sub-prime.” Well…maybe not in those exact words. But you may have heard it argued that people with lousy credit don’t change their habits. If that’s true, the sub prime 2/28 loan is a mortgage death sentence.

In my experience, many people become sub prime borrowers because of illness, injury or divorce. Those people often do return to the ranks of prime borrowers. But then there are those those whose problems seem chronic, whose excuses seem endless, or whose attitude seems cavalier.

In a recent analysis of consumer payment behavior, Experian came to some startling conclusions.

Historically, home owners will protect their homes by prioritizing mortgage payments over consumer debt. This just makes sense. Mortgage debt is tied to a valuable asset. Consumer debt is tied only to the intangible asset of one’s credit.

What Experian Found

In a surprising and disturbing departure from this historical pattern, Experian found that sub-prime borrowers (those with Fico scores under 620) are increasingly delinquent on their mortgage payments more often than they are on unsecured bank card debt. This cuts across all geographic regions of the U.S. but it is consistent among those with credit scores under 620. Prime borrowers continue to prioritize debt payments along more traditional lines.

Additionally, during the past four years, credit card delinquencies for this group have actually declined even as mortgage delinquencies have increased 13.2 percent during the past four years. This is despite the fact that while sub-prime mortgage lending increased 58% during that time, sub-prime bank card lending increased 137%.

So what gives? What does this trend mean? Is this because so many people have not put any of their own cash into the deal? Is it because homes are no longer shelter but merely a path to quick profits? I’m not sure what I think. What about you?

I want your opinion. Don’t be a silent minority. Please weigh in with your thoughts and comments. And thanks in advance.