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Credit Report
The Wall Street Journal has a good piece by IP and Hilsenrath, How Credit Got So Easy And Why It's Tightening. I'd focus a bit more on real factors rather than the Fed but they hit all the right points.
The Economist says it's A Good Time for a Squeeze but wisely they do not neglect to mention that being a credit snob is still a bad thing (yes, yours truly gets a nod.)
Posted by Alex Tabarrok on August 7, 2007 at 04:43 PM in Economics | Permalink
Comments
Dante is closer to the accurate presentation of the issue, but 7th circle? A bit harsh.
Posted by: Jane2 at Aug 7, 2007 5:52:52 PM
Nice to see some sensible reporting on the issue. MA's having a special election because of Marty stepping down, and the most 'progressive' of all the candidates has "fighting credit care usury" listed as one of his goals for national legislation. Credit can tighten without knee-jerk legislation...
Is it just me or does hearing self-labeled progressives talking about stamping out usury make me feel like we haven't 'progressed' as far as we think on some issues?
Posted by: Dan at Aug 8, 2007 12:47:29 AM
One thing that I would like to see explained is why lenders would ever load to people they don't have confidence will be able to pay them back in the first place.
Posted by: ficke at Aug 8, 2007 8:09:32 AM
ficke,
The lenders lent to people who had no capacity to repay the loan because the lender had no intention of keeping the loan on its books. The lowest quality loans made over the past few years all ended up being securitized, either into CMO's for mortgages or CLO's for high yield loans. By separating the underwriting of loans from the ultimate ownership of the loans, standards collapsed because the front end underwriter needed only write a loan good enough to sell, not to hold till maturity.
Posted by: joe at Aug 8, 2007 10:07:17 AM
Lenders can lend to people who can’t afford to repay the loan and pay for the necessities of life if they guarantee they will be paid first. That’s what payday lenders do. Somebody had posted a scenario where an unemployed person was get a loan to keep the utilities going and would pay it back with the new job he was just starting. This what payday lenders don’t do because you need to two pay stubs. I stopped by one and read the rules.
The center for responsible lending makes a number of recommendations for emergency loans
- A minimum loan term of 90 days to enable borrowers to
recover from financial emergencies;
– Repayment in installments (with no prepayment penalty) to
enable borrowers to get back on their feet incrementally;
– Full consideration of borrowers’ ability to repay the loan;
– No use of personal check (or electronic equivalent) as loan
collateral to stop punitive civil collection actions and
accumulation of bounced-check fees, and to remove fear of
criminal prosecution;
– Meaningful limits on rollovers, extensions, and back-to-back
transactions to stop loan flipping; and
– No mandatory arbitration clause.
The first three are definitely present in the South Africa example. I think it is almost certain that the fourth and fifth conditions were also meet.
Desiring regulation to protect poor people from predatory lending doesn’t make a person a credit snob who doesn’t think they can’t handle debt.
Posted by: sort_of_knowledgable at Aug 8, 2007 11:19:43 AM
This is going to be an interesting experiment.
From 1980 to 2000 home ownership in the US averaged about 65%,
after steadily increasing from a long term average of about 40% prior to WW II. The increase from 40% to 65% stemmed from several factors, both public and private that spread homeownership deep into the middle class.
As a result of the easy money and loosening standards for
mortgages home ownership rose to some 68% - 69% in 2003-05.
Now we are finding that maybe some of these new borrowers were not really good credit risk. Obviously, this cycle is not yet over, but it will be interesting to see how these easing of standards and increase in risk taking will survive the shake out
over the course of the cycle.
Will this end up with homeownership above the 65% level that
prevailed from 1980 to 2000 or will we find that there really was some 2% to 4% of the population that had been prevented from getting mortgages by credit snobs.
But as far as I can remember this is the first cycle in modern US history where we are seeing a significant increase in mortgage delinquencies while employment and income growth is still solid. Usually mortgage delinquencies are a lagging indicator but this time they seem to be a leading indicator.
Posted by: spencer at Aug 8, 2007 2:24:52 PM
There are a few items I call "credit report killers" that your clients should be aware of that can adversly affect their credit report and credit scores.
There really isn't too much room here to explain in detail but I have actually made a video about the top 10 credit report killers. This video was made form the .pdf version which I wrote.
In this video I answer the most common questions I get about information that appears on credit reports.
Specifically I cover information on Charge-offs, Collection Accounts, Judgments, Inquiries, Bankruptcies, Delinquencies,and more...
In the video Your clients will learn what each of these items are and how they can affect their credit report, as well as how long each item can remain on your credit report.
The video is very informative and is solid content for your readers and clients.
The Video is Free to Watch Here
The .pdf version you can download here Free
Sincerely
Credit Expert Frank Bruno
http://www.DisputeDemon.com
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