In a distressed sale each homeowner takes a different path, depending on the financial status of the property and the owner’s personal situation.

The original source of distressed sales was loans on houses that should not have been sold to sub-prime buyers who should not have borrowed. The blame game of responsibility among lenders, sales agents, appraisers and investment bankers has faded as the source of distressed sales has extended far beyond the original group.

As Citigroup continues to negotiate with the Securities and Exchange Commission on whether it misled investors by not properly disclosing the amount of troubled mortgage assets it held during the market decline, there is perhaps one other institutional group that should accept its contribution to the original wave of home foreclosures.

I would guess that most foreclosed homeowners made the decision to first default on their credit cards as they struggled to make their mortgage payment and hold on to their home.

It is these credit card providers who found a major source of profit by imposing increased interest rates, over-limit fees and penalties charged to delinquent borrowers. It is these same companies that are now bemoaning the lost income from the new credit card legislation that recently passed in Congress.

It is no surprise that homeowners under financial pressures could not catch up with added penalties and interest rate increases with yields that would be usurious in the private sector.

According to consultant Robert Hammer, “credit card companies are expected to impose $20.5 billion of penalty fees this year, up from $19.1 billion in 2008” and are expected to lose more than $10 billion in revenue under the new legislation.

Extending credit to subprime borrowers with credit scores under 660, these credit lenders understood the risk, but went ahead as “card companies tried to offset slower growth by extending credit to less creditworthy borrowers” according to the Wall Street Journal. Subprime customers represent nearly one third of card portfolios at Bank of America, Citigroup and Capital One.

The revenue created by delinquent penalties and non-disclosed rate increases was referred to as “cash cows for credit card issuers” by Robin Sidel of the Wall Street Journal. These banks, by knowingly extending credit to marginal customers, created an additional revenue source directly from borrowers’ inability to keep pace with rising account balances.

Of all that has been said, printed, reported and investigated, I have yet to see a study showing the portion of foreclosed homeowners that faced credit card default prior to losing their home.

The distressed sale today includes a far broader swath than just subprime borrowers. Job loss and lost financial investments have extended the financial profile of those struggling to hold on to their home far beyond subprime. Based on information revealed by credit card providers, leading to the new legislation, the anatomy of the distressed sale is worth further dissection.

Charles Bogue is a broker with Coldwell Banker Brokers of the Valley in Napa. He can be reached at 258-5221 or cbogue@cbnapavalley.com.