As they say in the Bud Light commercials, “Here we go!”
Now that the mortgage mess and its ensuing economic sinkhole have trashed the credit scores of lots of people — many of whom are pissed because they can’t go out and borrow like they used to — we’re going to be deluged with calls for more credit-reporting regulation. Here’s the latest missive I could find:
NY Times: Credit Score is the Tyrant in Lending
Allow me to state here my whole and undying support for credit “tightness,” to use Federal Reserve terminology. I get almost giddy whenever I read, as in the article above, how the lending industry has become draconian in its insistence on minimum credit scores for certain products.
What? Mary Sue couldn’t get a mortgage because her FICO was a 619, and Fannie/Freddie require a minimum of 620 just to get the computers off standby?
Good. That is fan-freaking-tastic news. Mary Sue does not meet the lenders’ qualifications. Therefore, she gets to remain a renter OR continue living in mom’s basement. This is as it should be.
From the article:
Spare me the “Credit scores are unfair!” and “Lenders won’t lend and it’s hurting the recovery!” whining that is, day by day, getting ever more prevalent. These folks who think credit ought to be thrown at anyone who can cast a shadow or write his name almost legibly … well, they can bite me. They got to roll around in financial frolic and tomfoolery earlier this decade.
That time’s gone — for now. But because people never learn, and because today’s collapse inevitably sets the stage for tomorrow’s bubble, you can bet we’ll go full circle at some point.
Payback and “Sound Underwriting”
I, for one, relish these little stories of payback I’m seeing. Of course credit scores aren’t infallible — credit-reporting agencies aren’t in the business of getting it right. They’re in the business of getting it, getting it compiled, and then getting paid.
Because Fannie and Freddie are practically the only entities willing to buy and securitize mortgages, they have enormous clout; most lenders simply won’t make a loan if Fannie or Freddie won’t buy it. Their bottom line number is 620 — the company will buy mortgages only if the borrower has a credit score of 620 or above. Which means, given the current state of the mortgage market, that anyone with a score below 620 can’t get a mortgage. Even if that score is 619.
But the difference between a 620 score and a 619 is utterly meaningless.
So’s the difference between 420 and 419. What’s your point?
There’s money at risk here, Joe, you dolt. Lots of it. Lines have to be drawn somewhere — unless, of course, you really do think that everybody ought to have all same access to all the same stuff, regardless of what abilities and resources they bring to the table.
If that’s what you want, well, that record got played from 2003 to 2006. It didn’t finish up so well.
Anyhow, these days, borrowers and brokers know the situation going in. Right now the line happens to be at 620. Deal with it.
It doesn’t. “Sound underwriting” would be when that prospective borrower got laughed out of the office the moment he presented a credit score that started with a 6-handle. Had he sauntered in with, say, a 720, THEN you can talk to me about moving further into a “sound underwriting” process. That is, you know, where the crazy stuff happens. Where income gets verified … proof of employment is provided … along with several years of tax returns … and proof of capacity for down payment and all related expenses.
WAY OUT THERE underwriting.
The kind they did when credit wasn’t poured out like cheap candy.
When it didn’t go to children who threw tantrums because they didn’t get it.
When we didn’t reside in an economic and financial system so debt-gorged and credit-reliant that it locked smooth up without it.
We all have our little fears. One of mine, oddly enough, has to do with reaching the end of a discount superstore checkout line:
As much as I love ING Direct, where my household’s money is concerned, I’m going to veer away from the orange guys for a while.
