1. Credit-Score Whining

    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:

    In the aftermath of the bubble, credit scores have remained shorthand for a borrower’s creditworthiness — except that now borrowers need to have high credit scores instead of low ones. And yet, credit scores are no more accurate than any other risk model. There are people with low credit scores who are quite creditworthy. There are people with high scores who aren’t. Treating credit scores as if they were infallible — which is what the banking industry is now doing — is beyond foolish. It is hurting the recovery.

    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 the 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.

    Let’s go back again to that borrower trying to qualify for a loan that conforms to Fannie Mae’s criteria. Suppose one credit bureau has given him a score of 625 — which means he qualifies — and another gives him a score of 618, meaning he doesn’t. Then he doesn’t get the loan. Can someone explain how that constitutes sound underwriting?

    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.

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  2. 6 Responses to "Credit-Score Whining" ...

    1. On July 27, 2010 @ 9:26 am,
      Nicole wrote:


      Our local news does a talking point post on facebook each day. The other day it was a complaint about how interest rates are so low and yet “no one” can qualify for a mortgage right now. I thought that was weird since a few weeks ago we started talking to our mortgage guy about a refi and we close tomorrow – a totally smooth and painless process. Among all the whining on FB there were a few posts saying of course some people can get qualified right now. The producer replied to all the people who said that loans are out there to say that they were wrong – that she even knows someone with a score of 620 who can’t get a loan. And, of course there was a lot more whining after that about how unfair it all is and how the banks are out to get us.

      The whole thing just floored me. Since when is 620 such an exemplary credit score that they should be entitled to the lowest interest rate? It’s not like credit score rules are secret and everyone with a low score is a victim of “mean bankers.” How sad that “no one” is being allowed to borrow any more.

      To the whiners I wanted to ask – why not seek excellence rather than complaining about it?



    2. On July 27, 2010 @ 9:59 am,
      Michael wrote:

      To the whiners I wanted to ask – why not seek excellence rather than complaining about it?

      Because that would require taking responsibility, which is hard.

      Plus: Banks are mean. We’ve established that. They cut credit lines and stuff and deliberately make it so you can’t have everything you want, the moment you want it.

      Plus plus: No one could have seen this coming.




    3. On July 27, 2010 @ 10:06 am,
      Michael wrote:

      Oh yeah — also wanted to latch on this:

      The producer replied to all the people who said that loans are out there to say that they were wrong – that she even knows someone with a score of 620 who can’t get a loan.

      This is easily remedied. The producer, whose credit is of course stellar, can simply cosign on Mr./Ms. 620’s loan. At that point, I’m sure the mean bank would reconsider.

      What’s that? Producer wouldn’t be willing to go that far?

      Hmm. That’s odd.

      Very easy to insist that someone else take the risk, isn’t it?



    4. On August 9, 2010 @ 2:45 pm,
      Jill wrote:

      Oh I thought I was the only one happy to see the mortgage industry collapse. These whiners cry about “fair”? I was forced to buy my house 5 yrs ago at much higher than it was worth simply because they were practically handing out mortgages like candy back than and the market dictated my cost. And now, with the industry collapse, my home is worth LESS than I paid for it. It’s unfair that they can’t get a loan now? Boo hoo! I sayt it’s unfair that I’m at a loss because of all the spoiled brats out there who bought more house than they could truly afford!



    5. On August 25, 2011 @ 2:06 am,
      Shawna wrote:

      Not only are the applicants prevented from obtaining the loan, those with homes can not in some cases receive a modification. Banks don’t inform the applicants that based upon their credit score they must show a little more income just to qualify for a modification. I now inform applicants to ask,” How much more income will I need to qualify for this income?” In one instance, the homeowner only needed $172.00, and that was satisfied by a leter from a friend. The friend stated in writing that she would give the applicant $172.00 a month.

      It baffles me that the applicant would have been struggling to pay a mortgage $700 higher a month, and all they needed was $172.00 more a month to get a lower mortgage with a savings of $950?

      Goes back to the old saying you have to have money to make money.



    6. On August 25, 2011 @ 2:08 am,
      Shawna wrote:

      I meant,I have them ask, “How much more income must I have to qualify for this modification?”



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