Scrap FICO for Secured Loans
Posted in the Fair Grove Forum
Since: Aug 08
#1 Dec 31, 2009
Politicians and policy makers chatter on about fixing the economy. So far we haven’t been protected from being pummeled with higher unemployment, decreases in retail spending, plummeting stocks and more home foreclosures. Uncommon economic issues require us to find a commensurate solution that will really work.
The idea of removing the credit score rating from the lending equation for secured loans is an interesting one.
Many families today are struggling with their home mortgages. All of these families suffer greatly from the inability to borrow if they miss or delay payments. Policy makers from both parties step aside to avoid directly addressing this scenario. Why? It may be because of the inability to relate to the ordinary American truly in financial trouble. Policy makers will make the impotent comment; “we cannot reward bad decisions by homeowners”.“I have a hard time feeling sorry for the homeowner who borrowed more than he could ever hope to pay.” This is a favorite comeback to the foreclosure issue by politicians. It is also an amazing side step in logic by politicians since we've recently tried to bail out Bear Stearns, Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE), and AIG (NYSE: AIG), and Citibank with the homeowner’s tax dollars in spite of their enormously bad financial management. While foreclosed homeowners sit and wait for better times, the government will send more bail-out money to big bank and automaker executives so they can keep their homes and good credit standing. There appears to be a marked bias in their favor for preferential treatment.
Lending institutions can calculate the risk of a loan and then loan a safe amount of money, based on criteria other than credit score, such as collateral. The house or car or whatever you buy would have to have enough true fair market value to sustain a lending risk analysis in case of default.
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