Banks used FICO scores to approve those loans --- without considering the consequences of the type of loan, the nature of the market, and whether or not there was a likelihood of the owner being able to make the future payments.
I disagree. I think a great many banks and CCCs understand the consequences all too well. They know that more consumers in default means more subprime borrowers. That is Cap One's end game. Latch onto and keep all the subprimes they can.
I suspect the motivation behind the changes to FICO scoring due out in September is to bring in more subprimes.
More subprimes brings about a plutocracy all that much sooner.
I can't see that. What I do see, in California is fewer efforts to market subprimes. When the market was high-flying they could sell them easily, new and refi. With the increase of foreclosures of them (and they say it will get worse as mire and mire are coming to their expiration dates), it's crazy to offer them --- crazier to take them.
As cor Cap One, I have a very uneasy feeling about lending institutions that advertise at the level that they do. It generally means they're fishing.
AMEX does a bunch of advertising for their cards, but it isn't easy to get their cards. They're looking for people who can always pay their monthly bills in full; although they do offer a time-payment card, they don't push it.
If I see one CapOne ad on TV, I see a dozen or more per day. The only ones that match them on TV are a couple of on-line stock trade companies. (Why do people think day-trading is so easy.) In direct mail, CapOne tops them all. I haven't seen an ad from JP Morgan in AGES.
If they change the FICO scoring to make loans easier, it's sort of like dumbing down the SATs. What have they done but make it easier for many less qualified people to get mortgages they can't afford because subprimes (as I believe) are waning. Changing the scoring mechanisms does not address the true problems: consistency of scoring among CRAs and consideration of the individual.
I don't doubt that you've learned a lot at JP Morgan --- it's a class act among investment institutions. If you're in NYC, visit the JP Morgan library.
But remember that you didn't learn it all at those other lending institutions and you are probably one of the exceptions as far as loan underwriters are concerned. Then again, how big were the loans they were asking for and for what purposes?
I've got an MBA in finance. My top courses were always things like investment analysis, portfolio management, statistics/risk analysis ...
Look at your 608. With all the charge-offs, the sore was still 608 despite all the stability, good recent credit history --- and it didn't hurt that they had several accounts with your bank. But this is what I am talking about --- other lenders will very often just look at the 608 and say that they're under their cut-off point. And I would suppose that those accounts with your bank made you look a little harder and more favorably. But most people don't have other accounts with these people.
Look at CapOne. I have NEVER seen a CapOne banking facility. Once in a while I get some direct mail about CapOne Internet accounts. But how many people are likely to do banking with an institution they can walk into and access their accounts instantly?
Moreover,at least in California, I don't see people going directly to banks to get mortgages. They get mortgage brokers. Many mortgage lenders aren't even banks, or they represent off-shore entities with local contacts. Then, they sell the mortgages as fast as possible. I did one refi several years ago. Within one year, I was on my third company as a holder of the mortgage. Talk about instability!!
And the mortgage brokers are far from honest. My fiance was looking at a refi and one of these subprime types was trying to sell her. She asked me to stop by and talk to this guy when he came to see her with papers. I basically told him to take a flying leap. His Truth in Lending statement was garbage --- later we got one from the lending institution that was truthful and didn't coincide with his at all. He never even mentioned negative amortization; increasing debt levels; etc. --- just how much less would be paid over five years and then, of course you could reapply for such a loan again (maybe, if they were still available) to keep payments down, but no mention of eroding equity. AND there are LOTS of these clowns.
As for your 720, I would agree with you, although the 720's future propects might be better depending on what he does, how old he is, etc etc etc. Were all his scores 720 or better?
You were right to look at them indiviually -- but most banks/lenders, I have found, will scan the Fannie Mae --- especially nonbank lenders. None care WHY you may have had credit problems. In my case, it was purely a long-term medical issue --- a condition not likely to recur. Nor do they care that since my recovery I have tried to put everything right. Until recently, my FICO scores sucked and, while they have improved, they are still well below 700 and stagnant for no other reason than those charge-offs I've paid or setled and despite a positive recent credit history.
Nope --- except for the few who actually do their job, FICO carries more weight. Remember, you can't get into trouble for saying "NO," but a yes can cost you. To take off on Johnny Cochrane --- "If the FICO is low, ya gotta say no."
BTW: You say you've worked for "various lenders" ove the past five years. How does that rank your stability? Does it really reflect your credit-worthiness?
The biggest financial problem in America today are people who want to live like they're making more than they actually are. That's what's driving credit card debt, fantasy mortgages (you know, people getting into a mortgage that they KNOW full well is going to increase well beyond their ability to pay), and the "house as personal ATM machine" fallacy.
How many millions of people out there on the fruited plains actually thought, in a country where real income has been flat since the Eighties, that their homes would magically appreciate 6 to 10% every year, forever?
But I don't just blame the people. Look at the example the GOVERNMENT sets!
- - - - in a credit-scoring postnuclear Stone Age...
There is no doubt that people live way beyond their means. California nickels and dimes you to death. people come out here; buy a big home; have a pool; keep up with the Jone's BMWs --- all figuring that they can make it looking at their budget. Then the hidden costs of living here hit and either they struggle or move out at the end of a year.
And Clifornia costs of living are 20% higher than the national average and something like 4% - 5% BELOW the national average.
However, for several years we did have 24% - 26% --- but one has to remember that this is all on paper until you cash in --- and taking money on a refi is NOT cashing in. it is Incurring more debt. Besides, such appreciation is never lasting. Growth rates here are nowhere near what they used to be. There's an increasng inventory on the market.
Debit cards are a pain. They make you think you have more money that you do --- most people have problems with their check books as it is.
I don't think what the government does with the deficit sets any example at all. What is the problem now is the immediate gratification syndrome that accompanies the sound-bite mentality and all the everybody-is-rich thing on TV shows. That has more influence than government example.
"I will agree that banks did lower their standards somewhat. Mortgage insurance (miracle mortgages) did a good deal to help make them complacent. Today, nobody will look at you with a FICO less than 660."
My experience has been a bit different than yours. I started the mortgage process for my first home back in mid-February (right when the subprime meltdown began). At that point, I had a 645 mid-FICO, and while my builder had to go to a secondary mortgage company (whose underwriter would accept my second job income), they came back with a very competitive offer (6.625 rate - 30 yr) and that was with only a 3% down payment planned. The way it looks now, I should close around Oct. 1, and as of June 1, I have moved my mid-FICO to 705 (mostly by lowering RC util., from ~40% to now <8%). The rate I end up paying won't be locked in until 60 days prior to close, so I'm hoping to keep it comfortably above 700 until then. Even with rates rising, unless the Fed really jumps in with another .25% hike, I should wind up well ahead, not to mention being in better shape for a refi down the road if needed.
Anyway, besides posting my own little success story, my main point here is that, especially with the depressed real estate market, loans for <660 FICO are out there, and at pretty competitive rates. After all, with so few homes being sold, the mortgage-lending beggars can't be choosers - or else they'll be out of business.