Personal Credit Hammered by Late Payments

Dire predictions are circling about credit card woes in the future. When a payment, any payment, is reported late to the credit reporting companies, your credit card interest rate can jump to 28.9 percent or more. Your credit card may not be late, but if your home mortgage or car payment is late your credit card rate will reflect it.

So far, personal credit has not seen massive increases in defaults exhibited by sub-prime and subordinate mortgages. The number of personal accounts reported late are however creeping up and balances are higher. A source reported some people would refinance their home annually for cash out to pay credit card balances, buy new vehicles, or take an expensive vacation. Repeat customers would ask for him by name to process their new cash out refinance.

In booming areas, home prices were going up $10,000 a month. Even with maximum fees these repeat customers could potentially borrow enough to consolidate their outstanding debts into a new and larger mortgage with cash to spare. Not only once, but several times. Borrowers would rush in when prepayment penalties expired or on the anniversary of their mortgage. A few managed to run up their debt, consolidate, and start the cycle again 4 and 5 years in a row. It looked easy and it was.

Theoretically, under the Home Owners Equity Protection Act (HOEPA), the refinance must benefit the borrower. To qualify for the process value must be proved in the form of reduced combined monthly payments or lower interest rates. In the end the borrower pays for credit card purchases and up to 7 percent loan origination fees for every time the house is refinanced for 30 years or more. If borrowers anticipated starting the cycle again they will have a rude awakening. Lending standards are stricter and government regulations previously lax will be scrutinized and enforced.