FICO Scoring is Flawed

[marty56]

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@Anonymous wrote:

As far as the rules being simple. Well, I covered that in my statement concerning myFICO.com's score simulator which when I used it to simulate the result of the refinance it told me my score would wind up 760 (+60). Did it? Nope. It went down. The author of FICO scoring can't even accurately predict what the score will be.

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IMHO the FICO score simulator isn't very usefull.  By design it will not give you your accurate FICO score based on simulated actions.  That would help people to reverse engineer the formula.

[Anonymous]

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@marty56 wrote:

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@Anonymous wrote:

I agree.  It is just too simplistic to say never exchange unsecured for secured debt.  Were that the case, HELOCs would be DOA.

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For many years in Texas, a strong homestead law prevented the seizure of your home for most debt, other than the non-payment of the mortgage and taxes.  Several years ago they started to allow HELOCs, which I was against, since it weakend the law.  It now quite possible to loose your home to the same bank that you formally had CC debt with by converting it to a HELOC.  Also the odds are not in your favour by converting CC debt to a HELOC since most people just run the CCs up again.

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The odds might not be in your favor, but they certainly are in mine.  Unless one can say 100% of the people just run up their CC balances again, you can not say it is never a good idea to pay of a CC with a HELOC.

Everybody is different.  Some people make a wise move by using their HELOC to pay off their higher interest debt.  Some do not.  But saying "never" is irresponsible and, obviously, inaccurate. 

[marty56]

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@Anonymous wrote:

Everybody is different.  Some people make a wise move by using their HELOC to pay off their higher interest debt.  Some do not.  But saying "never" is irresponsible and, obviously, inaccurate. 

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Not irresponsible, just trying to help people protect their home in an environment of job loss and declining home prices.  Why gamble in most cases your most valuable possession when there are better ways to deal with high interest CC debt like a DMP or possibly even BK to protect the home.  I would also ask people who are in a situation of high CC debt to be honest with themselves in looking at how they got there in the first place and if they really have a secure enough job, home prices and are strong enough to not run up their cards again to use their home as an ATM machine.

[marty56]

From a professional on CCs, HELOC and other issues:

http://biz.yahoo.com/pfg/e32credit/

I like the refi at a lower interest rate, reducing your mortgage payment and using the left over money to pay down debt.

[Anonymous]

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@marty56 wrote:

From a professional on CCs, HELOC and other issues:

http://biz.yahoo.com/pfg/e32credit/

I like the refi at a lower interest rate, reducing your mortgage payment and using the left over money to pay down debt.

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I guess if you could always use this option then we could just eliminate the <Rebuilding Your Credit> forum as totally unnecessary. 

Borrowing against your 401(k) might be as close to a "never" scenario as you can get, but, again, it is irresponsible to state that one should never use a HELOC to pay down unsecured debt. 

See, people need to use their brain, basic math skills and self-understanding and then apply them to their personal financial circumstances.  It's all well and good to read what others with a bit more experience have to say, but to follow blindly one or more so-called professionals borders on extreme foolishness.  Wasn't it Suze that stated, "You should make minimum payments on your credit cards so you can amass an emergency fund", advice which many financial experts criticized as potentially laughable?  Or recommended buying disability insurance from a company which had been out of that line of business for over ten years?

Obviously we can not say always do what Suze says.  Just as we can not say never use your HELOC to trade unsecured for secured debt. 

[Anonymous]

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@marty56 wrote:

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@Anonymous wrote:

Everybody is different.  Some people make a wise move by using their HELOC to pay off their higher interest debt.  Some do not.  But saying "never" is irresponsible and, obviously, inaccurate. 

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Not irresponsible, just trying to help people protect their home in an environment of job loss and declining home prices.  Why gamble in most cases your most valuable possession when there are better ways to deal with high interest CC debt like a DMP or possibly even BK to protect the home.  I would also ask people who are in a situation of high CC debt to be honest with themselves in looking at how they got there in the first place and if they really have a secure enough job, home prices and are strong enough to not run up their cards again to use their home as an ATM machine.

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Are you saying that filing bankruptcy means people can always keep their home?

[marty56]

There are situations where BK can protect the home but not allways. 

[MarineVietVet]

I will say that in Texas the homestead laws exempt your house from BK proceedings. Unless it's changed since I filed (1993).

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[chasmith]

There are some time limits added, essentially to prevent a person from taking all their cash, buying a home in a strong homestead state, then filing shortly after...  There were some high profile incidents involving Florida real estate around the time Enron was collapsing.  But in general the state homestead laws drive the state exemptions under BK, and in Texas, other than a recent purchase, the homestead exmption remains.

A homestead exemption doesn't protect against a valid security interest.  In Texas that would be purchase money mortgage, or a refinance / HELOC as long as requirements such as a maximum 80% loan-to-value are met.

[Anonymous]

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@chasmith wrote:

There are some time limits added, essentially to prevent a person from taking all their cash, buying a home in a strong homestead state, then filing shortly after...  There were some high profile incidents involving Florida real estate around the time Enron was collapsing.  But in general the state homestead laws drive the state exemptions under BK, and in Texas, other than a recent purchase, the homestead exmption remains.

A homestead exemption doesn't protect against a valid security interest.  In Texas that would be purchase money mortgage, or a refinance / HELOC as long as requirements such as a maximum 80% loan-to-value are met.

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Basically, but it's a lot more complex than that.

Lien stripping can be effective, but a lot depends on how much equity one has in their home / home's appraised value / homestead exemptions.  If conditions are right, it can wipe out any HELOC security interests and sometimes even 1st mortgages.