Thursday, April 3, 2014

An Upside to Foreclosure

Here's an unexpected positive side to the foreclosure crisis: With so many American households going through drawn-out foreclosure processes, they were freed up to spend money on other things, like paying down other debts. The average foreclosure process lasted three years - meaning that many people weren't making any mortgage payments for that entire time.

The biggest benefit, according to new research from the Philadelphia office of the Federal Reserve, was that people paid down their credit cards. Credit card delinquencies for households in foreclosure declined during the recession, and card balances declined for six quarters while the foreclosures dragged on.

The Fed warns, however, that this is not likely to go on forever.The researchers expect that as people have to begin paying regular mortgages again, they won't be able to keep up with newly incurred credit card bills.

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