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Proposed credit law changes could be dangerous for lenders

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Mortgage Professional America | 26 Sep 2014, 08:01 AM Agree 0
Although proposed changes to the Fair Credit Reporting Act might mean well, they could undermine the credit-reporting process and cause big problems for lenders
  • David Kelsay | | 26 Sep 2014, 09:47 AM Agree 0
    Great. This will just make it even harder for borrowers to obtain credit - rates will be higher to offset increased risk of loss, terms will become more onerous, down payment requirements will increase, etc. For consumers, merchants, and lenders - bad news. For our society, however ironic and unintended it may be, this may lead to further deleveraging. Which may be a good thing.
  • | | 26 Sep 2014, 10:50 AM Agree 0
    Maxine Waters is stupid..........she should be put out to pasture for that reason alone. She is so blatantly racist and is doing this for the same reason that the HMDA reflects that 29% of minorities are rejected for Conventional mortgages. It has nothing to do with race, it has everything to do with poor pay history but she seeks to massage the credit profile so more poor credit risks can suggests she is keenly aware of the problem and overtly trying to change the way lending of any kind is done. She's an idiot!!!
  • alone officer | | 26 Sep 2014, 12:19 PM Agree 0
    The honorably mentioned in action here just youtube God help us
  • Ron Stuart | | 26 Sep 2014, 01:00 PM Agree 1
    Without getting into the merits (or downside, depending on your point of view) of Ms. Waters proposed changes, it is important for Ms. Becker to get the facts straight on some things. First of all, unpaid credit card debts do not (or at least aren't supposed to) stay on credit reports until they are paid. They are supposed to be deleted after seven years. That said, there is an abundance of evidence that third party collectors mis-report the original date of delinquency (ODD) on many accounts. Whether it's intentional or not, the end result is that credit scores can be hugely negatively impacted by not reporting that date correctly. The ODD is defined as the first missed payment which ultimately leads to the most negative status of the account (usually a charge-off or collection) without ever becoming current again. That is the date on which the seven year period is, by law, calculated from. That date applies not only to the original creditor, but any and all subsequent owners of the debt. The fact that there are so many cases of the ODD not reporting correctly is a major issue. Perhaps if we got creditors and third party collectors to report information accurately, a lot people would have much better credit scores. Ms. Waters position of requiring those reporting credit information to maintain adequate staff and resources to adequately investigate disputes of incorrect information is not such a bad thing.

    Secondly, the new FICO model does not ignore medical debt. It places less emphasis on it. You can debate the issue on this from a number of perspectives. If someone making $30,000 a year incurs a $500,000 medical debt, I would argue that it is unlikely it will ever be paid, and to think it should be is crazy. On the other hand, if that same person consciously doesn't pay a $200 co-pay, that to me is a totally different story. And therein lies the problem: credit scores are calculated by actions or inactions with no way to include intent. There are some people who have bad credit scores because they are deadbeats or can't manage money. Others are generally responsible people who went through a life-changing event - extended job loss, medical catastrophes, divorce, - to name a few. Unfortunately, a credit scoring algorithm cannot determine which is which. It simply knows if bills are paid or not, and if so, are they paid on time.

    RE: the new FICO model - it's FICO 09. Most lenders are still working with model 06. They haven't even adopted model 07 yet, which came out in 2008. So anyone who thinks mortgage lenders are going to buy into model 09 anytime soon is probably smoking something that's only legal in a few states.

    In the end, coming up with a reporting and scoring model that everyone agrees is a fair representation of an indicator of the risk that a borrower will pay their debts, and pay them on time, is going to be difficult at best. I do wonder, however, if Ms. Waters was the one lending the money if any of her proposed initiatives would change.

  • | | 29 Sep 2014, 08:52 PM Agree 0
    OK, so let all lending be "perfect". No defaults and lender guaranteed the interest rates from the client.
    But wait a minute. Wasn't it always, "Lending is a Risk and the Lendor Accepts that risk when doing so"? And the Lender "profits" from the interest paid?

    It's simple, make a mortgage, accept the risks based on a "Realistic Model" Everybody is an individual and not a statistic. And "naturally" expect loss's will occur. But with other performing mortgages doing well these loss's can be compensated for.

    Just common sense. Not much of that has gone around for many years.
  • | | 24 Sep 2015, 09:48 PM Agree 0
    I honestly think it's good idea for the simple fact is that family members ex etc your information get stolen or whatever think about it your stuck with all that bad debt not everyone is dead beats you have those that work hard to build their name and you put yourself in others shoe's also banks can charge what ever they want regardless of your credit it doesn't simply means cause you have perfect credit that your perfect that's exactly the reason why everyone that are lenders get screwed cause they think 850 is perfect but don't realize some don't even know how to pay a bill or or even write check let alone. Look everyone has their Think they when actually they know it's those that's never experienced life take those that's coming straight out of school credit card companies sending credit cards them when they never even been thought how to use them responseable So it actually goes both this will actually make lenders work hard and tougher we have dead beats and lenders to blame
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