As the foreclosure crisis reached epidemic proportions around 2009, borrowers were able to remain in their homes for a longer period of time -- up to three years, for some -- while lenders plodded through the swollen pipeline of cases.
During those stretches, when homeowners were not making payments but not yet evicted, many were able to use what money they had available to catch up on credit cards and other non-mortgage debt. Economists at the Philadelphia Fed analyzed more than 27,500 home loans, discovering that borrowers whose foreclosures were drawn out over a long period of time were more likely to pay off non-mortgage bills.
Although the reprieve may have allowed them to "cure" bad non-mortgage debt and improve their overall balance sheet, the researchers said the benefits did not last. "The results indicate that the foreclosed consumers are less able to stay current on all their credit cards as they have to start making mortgage payments again after the foreclosure ends. ... Overall, our results suggest that it is likely that credit card delinquency will rise for individuals after they leave their home as a result of foreclosure."