American Banker ran an interesting story today (subscription required) about the emergence of credit card payments as an option for settling borrowers' monthly mortgage payments -- a story that I'd first blogged about way back in May when American Express was piloting a credit card payment program of its own with American Home and Indymac. Back then, I'd questioned the wisdom of allowing borrowers to trade secured debt for unsecured debt -- which is essentially what's being done when a mortgage payment is made via credit card. American Express' answer was to limit its payment program to prime borrowers with excellent credit only. Which brings us to today's American Banker story:
... a new company called CardIt LLC also said Thursday that it would begin processing monthly mortgage payments made with credit cards. CardIt believes it can serve a market that has been untapped because lenders are uninterested and sometimes legally prevented from accepting mortgage payments online ... "Previously, with a credit card you could buy a television or clothing, but you couldn't pay for your house," Mr. Mikal said. The company charges borrowers a fee of $19.94 plus 2.94% of the transaction.
Here is the CardIt press release from last week; click here if you want to see the company's Web site and which lenders they process payments for. Most of the usual suspects are there. From what I can tell, there is no such restriction on whether a borrower is prime or subprime in terms of their use and access to the CardIt service. I exchanged an email today with company co-founder Philip Mikal, and among other questions asked him about controlling what would appear to be a strong incentive for troubled borrowers to push their mortgage payments to a credit card. Here's what he had to say:
"I expect that yes, some consumers in a troubled financial position will use our service - some to their benefit, some not. Overall, it's not good for our business or that of our partners and extended ecosystem to have consumers taking on credit they can't manage. It's an issue we take seriously and are doing what we feel is appropriate to address and encourage the responsible use of credit; especially with services like CardIt. Our plans include consumer education and proprietary financial modeling."
Here's the thing -- the transaction fees for those using the service are hefty here, and that's likely done because most servicers wouldn't participate if they had to bear the burden of paying 3 percent on every payment they receive (a complaint I'd heard about the AmEx pilot). But that also means that borrowers with other means to pay their own mortgage will likely choose to do so. If the credit card industry was looking for a way to bring the subprime mortgage mess into their lap, they might have just found it.