The unemployed and credit scores

[Richard]

The question is, what of those who've been unemployed for 6 month, 12 months, or longer? What difficulties will they have in financing a car or even their child's tuition?

I ask because it is literally millions who are on extended unemployment and how this would be a sizeable lump to effect the total population.

 

[SCCutler]

Probably an impact roughly equivalent to the diminished ability to service the debt they might secure, as a result of their paucity of funds and cash flow?

 

[sba55]

Unfortunately, being unemployed has no direct impact on your ability to borrow as long as your credit score is above the really low values (often 620).

I say unfortunately because it is precisely those people who might be tempted to buy a car they can't afford - they'll be able to buy the car and get some temporary relief, but it's only going to hurt them in the long-run. I think it's remarkable that you can walk into a dealership, claim some fictional income, and buy a $100k car....

-Felix

 

[Dr. O]

I recently did one of those free credit reports online... Laughed until I almost wet myself... According to them I am barely able to borrow - which is really good because we do not need to borrow money, own everything outright, and have cash in hand...

One of my professional colleagues, who I know is in debt to his ears, seems to have zero problems trading up to a new Mercedes every year, the country club, vacations in countries I cannot even pronounce, fancy suits, etc... Obviously his credit is way way better than mine...

denny-o

 

[SCCutler]

To expand on what I wrote above - too many people seem to think that borrowing money is a "must-do" all the time. Guy I know, always on edge of financial ruin, had a 10-year-old SUV "not worth fixing" (which, loosely translated, meant "got a hundred thousand miles, runs like a champ, everything works, needs $600 worth of front-end work"), so he bought a new $30k truck to replace it. Now he has a car payment and has to carry collision and comprehensive.

There are exceptions, but generally, mostly volunteers, not victims.

 

[taters]

To expand on what I wrote above - too many people seem to think that borrowing money is a "must-do" all the time. Guy I know, always on edge of financial ruin, had a 10-year-old SUV "not worth fixing" (which, loosely translated, meant "got a hundred thousand miles, runs like a champ, everything works, needs $600 worth of front-end work"), so he bought a new $30k truck to replace it. Now he has a car payment and has to carry collision and comprehensive.

There are exceptions, but generally, mostly volunteers, not victims.

Tell him to read Total Money Makeover by Dave Ramsey

 

[wsuffa]

And now, thanks to the Financial Reform Bill there will be a statutory prohibition against lending to the unemployed instead of leaving it as a business judgement of the lender.

(Stop there to avoid Spin Zone).

 

[dpk1nba]

I recently did one of those free credit reports online... Laughed until I almost wet myself... According to them I am barely able to borrow - which is really good because we do not need to borrow money, own everything outright, and have cash in hand...

One of my professional colleagues, who I know is in debt to his ears, seems to have zero problems trading up to a new Mercedes every year, the country club, vacations in countries I cannot even pronounce, fancy suits, etc... Obviously his credit is way way better than mine...

denny-o

That is because no credit history = low credit score..It doesn't matter if you are financially stable or a millionare. no history = bad score, bad score = no credit acceptance according them.

 

[AdamZ]

I just saw on the news boob today that 25% of Americans now have a score under 577 or something in that neighborhood.

 

[mikea]

I just saw on the news boob today that 25% of Americans now have a score under 577 or something in that neighborhood.

Two reasons 1) the credit card companies all lowered credit limits and raised rates after the crash and prior to the financial reform so where you might have had a balance of 50% of your credit limit (good(?), it's now 80% or more (bad) Higher rates meant higher payments - besides which the minimum payments were raised by law, supposedly to help consumers- and some couldn't make it. 2) the numbers were and are as phony as the AAA bond ratings on mortgage backed securities.

I continue to be disgusted enough that I'm going to stop playing.

I just called to refi and was told my credit number isn't any higher even though I paid off over half of the outstanding balances. I may sit pat and just pay the existing mortgage off like quick.

 

[wsuffa]

I just called to refi and was told my credit number isn't any higher even though I paid off over half of the outstanding balances. I may sit pat and just pay the existing mortgage off like quick.

You're not the only one. There was an article in WSJ over the past few days - they cited an example of a guy who couldn't refi because he took a loss on a very small investment. He decided to cash-in some investments and pay off the mortgage.

When stuff like that happens, the entire mortgage pool gets riskier as the "good risk" borrowers say screw-it and pay off early.

From the same article:

Recently, Mr. Berg arranged a refinancing for a borrower with a very high credit score and lots of home equity and debt payments totaling just 19% of pretax income. But Mr. Berg said the lender was worried about a credit report showing a $14 missed payment to a credit-card company in 2001. The lender insisted on proof the money had been paid, which Mr. Berg said was impossible to get.

"Who cares?" he said. "It's nine years ago, and it's $14." He appeased the lender by having the borrower write a $14 check, though no one knew where to send it.

It's in the WSJ online edition, but requires subscription.

 

[TangoWhiskey]

Two reasons 1) the credit card companies all lowered credit limits and raised rates after the crash and prior to the financial reform so where you might have had a balance of50% of yoru crteit limit (good(?), it's now 80% or more (bad) Higher rates meant higher payments - besides which the minimum payments were raised by law, supposedly to help consumers- and some couldn't make it. 2) the numbers were and are as phony as the AAA bond ratings on mortgage backed securities.

Spot on!

I just called to refi and was told my credit number isn't any higher even though I paid off over half of the outstanding balances.

How long did you wait between paying off those balances and then calling to refi? You generally need to wait a week past the statement cycling date for the revised figures from the card to hit the bureau. I use TrueCredit.com to monitor those updates, and myFico.com to monitor my score.

 

[Trapper John]

You're not the only one. There was an article in WSJ over the past few days - they cited an example of a guy who couldn't refi because he took a loss on a very small investment. He decided to cash-in some investments and pay off the mortgage.

When stuff like that happens, the entire mortgage pool gets riskier as the "good risk" borrowers say screw-it and pay off early.

From the same article:


It's in the WSJ online edition, but requires subscription.

Can't legislate intelligent underwriting, I guess.

 

[mikea]

How long did you wait between paying off those balances and then calling to refi? You generally need to wait a week past the statement cycling date for the revised figures from the card to hit the bureau. I use TrueCredit.com to monitor those updates, and myFico.com to monitor my score.

She told me what they saw on credit report and it was months behind, which might mean I'll have her take a look again in a month or two.

My credit score didn't affect what I wanted to do as much as me figuring that I'll pay as much in costs as I'll save on interest.

 

[wsuffa]

Can't legislate intelligent underwriting, I guess.

When did that stop Congress from trying?

The law of unintended consequences still applies.

Mark my words: it's going to be worse once the Fin Reg bill passes as lots of stuff will get legislated (meaning lender has NO latitude for exceptional circumstances).

 

[Trapper John]

Like they say, a privilege abused is a privilege lost. This is what we get when WaMu and others' underwriting consisted of, "Fog a mirror, get a loan."

 

[wsuffa]

Like they say, a privilege abused is a privilege lost. This is what we get when WaMu and others' underwriting consisted of, "Fog a mirror, get a loan."

The analogy may be "the beatings will continue 'till morale improves".

Problem is that the ones who get punished are the customers, not the banks. There's that silly law of unintended consequences again.

Banks won't care: easy for them to push off denials to the government edict, or loan up to the legal limit. It's the customer with "non-standard" circumstances that gets hurt (the Sub-S small business owner, the partner in a firm, the guy who has to move in order to take a new job while out of work, the folks who take time off for FMLA, etc.) Folks who work in standard 9-5 jobs in the bowels of a large company will see essentially no difference.

Guess where most innovation takes place. Hint: it ain't in the bowels of a big company.

 

[woodstock]

Like they say, a privilege abused is a privilege lost. This is what we get when WaMu and others' underwriting consisted of, "Fog a mirror, get a loan."

+500 zackly what I was gonna say. Thing is, there is no such thing as self policing bc they figure as long as they can get away w it they are hone free. Free market rulz.

 

[Dave Siciliano]

For those that haven't put 2+2 together yet, this economic downturn will be analogous in many ways to the Great Depression in that many consumers will be hurt badly and expectations will change.

Folks felt entitled to things before, whether they could afford them or not; they were sold on monthly payments which keep on keepin on. Folks are finally figuring out the payments are still due, even if the income isn't. There was a discussion on MSNBC where a major accounting firm polled shoppers and found many felt foolish for the extravagant manner in which they spent before. Consumer debt levels are falling and the savings rate is increasing--very fundamental changes in attitude.

In our society, this is how financial discipline is sometimes driven home. The Great Depression made my Dad very cautions of borrowing. He did it at times, but carefully because he had lived through the consequences early in life. There are few folks around that still remember that lesson: it's being driven home again in very painful terms to those that entered into payment commitments they cannot now meet; even if it's for circumstances they couldn't control.

I've been there. Lost everything in the late 80s: job, home, etc. Didn't ever want that to happen again. It changed the manner in which I did things. Those lessons served me well in the current down-turn.

There will be very painful adjustments in a lot of areas. Government programs must also change. The government shouldn't be backing things that have market risk and have nothing to do with the proper functioning of governments; entitlement programs are very over done, etc.

Best,

Dave

Best,

Dave

 

[wsuffa]

+500 zackly what I was gonna say. Thing is, there is no such thing as self policing bc they figure as long as they can get away w it they are hone free. Free market rulz.

Better to force the risk on the banks than prohibit something outright. This so-called "privilege lost" is no privilege lost to the bank, it's a privilege lost by the borrower. Those of us (and yes, I've done "non-standard" home borrowing) who are responsible are the ones that are hurt.

But never mind, we can just live in the street.

If one doesn't trust the banks now, why would one ever believe that they won't make the poor customer pay on this, too? Or do the folks that support this kind of statutory prohibition believe the the only homeowners should be folks indentured to big companies that pay steady salaries?

I can tell you this: I've started a couple of businesses, taken the risk, hired multiple employees (new jobs) and been rewarded, while at the same time being able to purchase property. The likelihood of me taking the risk to start a business again is much less likely given this and some of the other costly regulations that are in effect or coming. Not a scare tactic or sermon, just a cost-benefit analysis.

 

[Dave Siciliano]

Bill: You and I are very much alike. At one time, I had borrowings in my small development company of near eight figures: personally liable, substantial equity invested. Most banks are balance sheet lenders; I found an asset oriented bank that believed in a project, my experience, good location and builders. Paid the bank back on time until they went under!
Then, I had to refinance with a new bank (this was my third transaction with the former bank) and they wanted crazy collateral, guarantees and money in CDs to secure my obligations. Now, I'm two lots from having them and my equity back out ahead of pro forma.

Point is, some folks kinna know what they're doing, have been careful and have always paid lenders back, but now, that doesn't matter. We're all being painted with the same broad brush. RE developer--no new loans (not that I've found anything that works, but I may.) Many banks simply don't have the equity to make loans; most are scared to death of RE and regulators are still being hard on RE loans.

The bad actors hurt us all. Some folks tried hard and got caught up in a very difficult market, but to those of us that have pride in ownership, most deals I saw being done at the top of the market simply didn't make sense, and I didn't do them. At the top of the market, many tradesmen decided they could be a developer; had a dentist from a small town near here try his hand, etc. They're all getting washed out. Can't believe some of the loans that were made. Every lender I've talked to thinks they make good loans; feel like I'm peeing on their leg if I share insight about market value today and what was done incorrectly when developed.

Best,

Dave

 

[RotorAndWing]

For those that haven't put 2+2 together yet, this economic downturn will be analogous in many ways to the Great Depression in that many consumers will be hurt badly and expectations will change.

Folks felt entitled to things before, whether they could afford them or not; they were sold on monthly payments which keep on keepin on. Folks are finally figuring out the payments are still due, even if the income isn't. There was a discussion on MSNBC where a major accounting firm polled shoppers and found many felt foolish for the extravagant manner in which they spent before. Consumer debt levels are falling and the savings rate is increasing--very fundamental changes in attitude.

In our society, this is how financial discipline is sometimes driven home. The Great Depression made my Dad very cautions of borrowing. He did it at times, but carefully because he had lived through the consequences early in life. There are few folks around that still remember that lesson: it's being driven home again in very painful terms to those that entered into payment commitments they cannot now meet; even if it's for circumstances they couldn't control.

I've been there. Lost everything in the late 80s: job, home, etc. Didn't ever want that to happen again. It changed the manner in which I did things. Those lessons served me well in the current down-turn.

There will be very painful adjustments in a lot of areas. Government programs must also change. The government shouldn't be backing things that have market risk and have nothing to do with the proper functioning of governments; entitlement programs are very over done, etc.

Best,

Dave

Best,

Dave

Excellent.

 

[wsuffa]

Bill: You and I are very much alike. At one time, I had borrowings in my small development company of near eight figures: personally liable, substantial equity invested. Most banks are balance sheet lenders; I found an asset oriented bank that believed in a project, my experience, good location and builders. Paid the bank back on time until they went under!
Then, I had to refinance with a new bank (this was my third transaction with the former bank) and they wanted crazy collateral, guarantees and money in CDs to secure my obligations. Now, I'm two lots from having them and my equity back out ahead of pro forma.

Point is, some folks kinna know what they're doing, have been careful and have always paid lenders back, but now, that doesn't matter. We're all being painted with the same broad brush. RE developer--no new loans (not that I've found anything that works, but I may.) Many banks simply don't have the equity to make loans; most are scared to death of RE and regulators are still being hard on RE loans.

The bad actors hurt us all. Some folks tried hard and got caught up in a very difficult market, but to those of us that have pride in ownership, most deals I saw being done at the top of the market simply didn't make sense, and I didn't do them. At the top of the market, many tradesmen decided they could be a developer; had a dentist from a small town near here try his hand, etc. They're all getting washed out. Can't believe some of the loans that were made. Every lender I've talked to thinks they make good loans; feel like I'm peeing on their leg if I share insight about market value today and what was done incorrectly when developed.

Best,

Dave

Exactly.

I don't want to go into details here, but I have only one debt (the mortgage) and outstanding credit.

What's in my craw is making the requirement statutory, while still leaving little risk on the lender. All it hurts is borrowers, 'cause the financial institutions sell nearly all the debt into secondary (and the reason many sell the debt is unintended consequences of other banking regulations).

Tried talking to my congressional office... it was like talking to the hand. They think they're "making banks responsible" and it's no big deal that some borrowers get hurt because maybe we shouldn't borrow anyway. But unless you look at the individual situation you'll never know whether someone is responsible or not. Only thing that got their attention was when I pointed out that I wouldn't be a constituent and wouldn't have created jobs had the proposed rules been in effect.

 

[Dave Siciliano]

For the most part, our elected officials don't have the in depth business knowledge you do; of course, they can't have in depth knowledge in all areas. They are responding to a very angry public that votes for or against them.

One of our biggest problems is folks pass laws to 'fix' things without knowing the full consequences of the new actions. The current administration is hiring very few people with 'hands on' operating experience in the areas they over see.

Look at the new head of the governmental group overseeing the BP spill. Bright fella, attorney, but NO, ABSOLUTELY NO business operating experience. No geological background, drilling, even engineering background. Put him in charge anyway and we all pay for OJT (on the job training). And since he has no expertise, to whom does he listen? It's endemic; people in charge don't feel they have to know how things actually work to regulate very complex businesses that others have taken years to fully understand and operate well.

The head of the FAA used to always be a pilot: no need now--right?

Best,

Dave

 

[steingar]

I have no doubt whatsoever that the folks who caused the meltdown are heavily involved in drafting the new legislation, this not only will it get harder to borrow money, but the "fix" won't prevent the same damn thing from happening again.

 

[mikea]

...Look at the new head of the governmental group overseeing the BP spill. Bright fella, attorney, but NO, ABSOLUTELY NO business operating experience. No geological background, drilling, even engineering background. Put him in charge anyway and we all pay for OJT (on the job training). And since he has no expertise, to whom does he listen? It's endemic; people in charge don't feel they have to know how things actually work to regulate very complex businesses that others

If you mean Kenneth Feinberg, he's not in charge of the BP oil spill. He's in charge of the BP compensation fund and there's nobody on the planet who has more experience with that or who has a better reputation. He got his OJT handling the 9/11 compensation. Then he handled the Virginia Tech compensation. Besides which, he has yet to be paid for any of his public service.

http://en.wikipedia.org/wiki/Kenneth_Feinberg

The Obama bashers have had the good sense to treat Feinberg as the third rail of criticism

 

[Dave Siciliano]

No, I meant the department in charge of oversight
http://www.cnn.com/2010/US/06/21/gulf.oil.disaster/index.html

New Orleans, Louisiana (CNN) -- The federal agency responsible for overseeing the oil industry has been renamed amid a massive reform effort following the BP oil disaster in the Gulf of Mexico, the Department of the Interior announced Monday.
The Minerals Management Service will be called the Bureau of Ocean Energy Management, Regulation and Enforcement, according to an order signed by Interior Secretary Ken Salazar requesting the name change.
The announcement coincided with the swearing-in of the bureau's new head, former Justice Department Inspector-General Michael Bromwich, who is tasked with overhauling the troubled government agency. Critics, including President Barack Obama, have said the MMS has too often catered to the interests of the industry it is responsible for policing.
========================================================

Please show me where Mr. Bromwich has one iota of experience in operations related to any of the major industries over which this department must regulate.


I deal with cities every day and must deal with folks that have never developed a subdivision, but regulate what I do. They have much to much power and much to little knowledge. When I make factual arguments, they argue with opinions that have no basis in fact. So, tell me, when two professional engineers with many years of experience disagree as to how something should be done, how will this gentlemen have any chance of figuring out what's right? He'll just go with how he feels and the tax payers will get to pay for all the mistakes. I realize he can't be expert in all areas, but how about some operating experience in the main business and others in the department with like experience in other areas?


Sorry for the vent; I'm tired of dealing with people with little or no operating experience that want to make decisions we all pay for when they are wrong. In my business, if I error, I pay for it. I have very strong incentives to know what I'm doing and fully understand the risk. If one of these folks errors, you and I pay for it and they get moved to another area; I seldom see them get fired. And if they do, the next person just comes in, takes over and says it wasn't me.


Best,


Dave

 

[wsuffa]

Sorry for the vent; I'm tired of dealing with people with little or no operating experience that want to make decisions we all pay for when they are wrong. In my business, if I error, I pay for it. I have very strong incentives to know what I'm doing and fully understand the risk. If one of these folks errors, you and I pay for it and they get moved to another area; I seldom see them get fired. And if they do, the next person just comes in, takes over and says it wasn't me.

Spot on, IME. And it applies to all kinds of agencies (here's where a gratitutous shot at the TSA would occur). Very few agencies either seek out or pay for the kind of experience required to be the "authority"... at any level, state, federal or local. It is one reason that lobbyists are so influential.