Mortgage on Plastic, Dangerous Path to Tread

Americans on the whole are spending more money and using their credit cards as a means of doing so. Between 1989 and 2006, the overall credit card debt of the country grew from $211 billion to $876 billion (2006 dollars), according to a recent report by Demos, a non-partisan public policy and research advocacy organization ("Americans are Borrowing More to Make Ends Meet, Report Says," Nov. 9). Now the latest innovation, letting customers make mortgage payments with their credit cards, has raised eyebrows as well as concerns.

Though outstanding debt alone, until it moves into a state of delinquency, only has the potential to impact business opportunities in the ARM industry, indicators seem to point to a continued increase in consumer bad debt. Considering we’re in the midst of a housing meltdown, with as much as $1.2 trillion in adjustable rate mortgages set to adjust for the year, a program allowing mortgage payments on your credit card seems to be a dangerous path to tread.

Once these mortgages reset on homeowners already stretched thin financially, the potential for credit default would inevitably increase with their now skyrocketing mortgage payments.

Whether financing a purchase or making your monthly mortgage payment on plastic, the consumer is creating an obligation, and this obligation must be repaid for the transaction to have made sense for the creditor. This is a very important consideration as the credit card industry has seen a doubling of customers incurring 60-day-or-more late payment penalties from 1989 to 2004. Whether such transactions will ultimately make sense for creditors will rely heavily on effective receivables management.

With the massive write-downs major banks have suffered from their exposure to the housing market, more then ever the importance of maintaining an efficient revenue cycle for their credit card operations will inevitably mean more opportunities for the ARM industry.