Stressed borrowers use plastic to delay default

By Nick Carey

CHICAGO (Reuters) - This may be Johari Reeves' last chance to catch up on her mortgage payments. The credit cards, she'll worry about later.

"We fell behind (with the mortgage) and twice we agreed to new repayment schedules that didn't work out," said the 31-year-old, a compliance officer at a small bank on Chicago's blue-collar South Side. "It's been a lot of stress. But this time, if all goes well, we should be able catch up."

In August 2006, Reeves and her husband bought a $214,000 home with almost no money down, leaving them with a monthly payment of $1,636 -- higher than they planned on, especially with her husband's furniture sales job largely commission-based and business not good due to the U.S. housing slowdown.

An attempt this spring at refinancing with another lender fell through, leaving them behind on payments and struggling.

But as part of her efforts to avoid defaulting on the mortgage, Reeves said she has "maxed out" all her credit cards, spending to the limit on basic needs. "Now all I'm doing is making the minimum monthly payments."

According to nonprofit groups providing debt counseling to home owners, more Americans like Reeves risk being swept up by the next wave of home owners to default on their mortgages.

The reason? A second debt mountain on top of the first.

Rising mortgage payments and tighter lending standards for refinancing amid the subprime credit crisis have dried up once-easy access to home equity loans for many middle-income borrowers -- so desperate borrowers are using credit cards to cover basics while trying to keep up with home payments.