@Anonymous wrote:Good call. Great post!
My feeling is the trended data, if Vantage 4.0 is going to rely heavily on it, will be disadvantaageous to the borrowers who consistiently carry higher balances and strategically pay down balances before applying for new credit. Those of us who practice that, including myself, will be forced to abnadon that strategy and keep our balances low on a more constient basis. Again...this is all IF Vantage 4.0 is truly going to rely heavily on trended data to come up with a score. And it's also if lenders buy into what Vantage is selling.
The upside in forcing borrowers to maintain lower balances and less cards is lower interest payments for borrowers, and ideally that's better practice.
The strange thing is I'm not sure how lenders will feel about adopting a system where borrowers are utilizing less of their credit over longer periods of time. The essence of their business is to collect fees on our debt. And a meaningful dimension of our country's economy is managing debt and utilizing credit that is offered to us towards our advantage, and to the mutual benefit of the lenders.
I'm no economy major, but personally I don't like the smell of of V4.0's trended data idea. Obviously it's a gambit they hope will increse their value, but I feel it's detrimental to the spirit and essence of the whole idea of borrowing power.
People who are spending more than they are paying are an increased risk over someone who PIF's regularly every single month.
I don't know if that's even arguable 
. To be sure not every consumer falls into this, but someone who never misses a payment and never is racking up balances, that's about as good as it gets... whereas racking up balances is step one on the way to default, strategic mortgage defaults notwithstanding. To be clear not everyone who floats balances is going to default, but it's a necessary precursor to ones that do hence my comment regarding it's an increased risk marker.
Are you truly carrying balances on something other than 0%? That makes little sense even when the market is up like it has been recently (Russell 2000 gained 19.4% over 2016 for a salient example) but even that's less than some cards APR's, nor is that sustainable (I wish, I could walk away with my version of FU money in 10 years if it keeps up haha).
The elephant in the living room is with mortgage underwriting, as the consumer complaints have risen to the level that the GSE's were obliged to change their UW standards to make it more reported balances friendly for transactors (PIF after the statement date always crowd)... looking at the VS 4 press release, with the marketing equivalent of "Put me in coach!" regarding mortgage underwriting, there isn't much doubt where the push is coming from in my opinion.
FWIW I was surprised FICO 9 didn't use trended data except the GSE announcement was pretty recent: would not surprise me to see FICO resurrect a mortgage industry option that includes trended data just for this reason, or some non-traditional score, hard to say but the bureaus did get the jump on them for this category and the GSE's dominate the mortgage market, and that's the one that gets all the press: it would be a major, landmark win of epic proportions if they switched to Vantage from the bureaus perspective.
@Anonymous wrote:Good points.
Bank lenders should be more of a steady service, less of a risk/reward oriented business.
Post 2008-9 crash, MTG lending has been super tight. While their evaluation still depends on credit scores, it now leans very heavily on tax returns/verifiable proof of income and solvency and Loan to Value ratio. With very good reason. I still cannot believe how loose the lending was. It was tragic.
But the way to tighten it even more isn't with a trending feature via Vantage 4.0. Not in my opinion.
I think banks should require a minimum of 35-40% down, minimize their risk, wind up lending less on each MTG and lower their rates a hair. And also do away with the 5yr ARM. Minimum 10-15yr fixed, recomenned 20-30yr fixed.
It's a business model they haven't and will never try because it would drastically reduce their bottom line in the short game.
But over time they'd wind up in a safer and more stable business.
Yes -- it would hurt people who don't have that kind of down money, but it would also force them to buy a cheaper home, thus helping insure the mtg consumer is living within their means. For instance, there are plenty of folks who can put down 15-20% on a 500k home and prove a satisfactory current salary (they ask for 2 yrs of tax returns). But in todaqy's world betting that a consumer will maintain long term employment based on 2yrs tax returns is unwise.
That would absolutely kill the mortgage market, why would you want to do that? Given it's size and scale our economy (if not the world's) would quite probably fall apart: the debt would still be the same but we'd cut the valuation in what, half? Even I'd be looking at a strategic default at that point and by the end of this year I might be able to write a check for my residual mortgage balance if I had to: it'd make absolutely no sense for me to pay it off, though fortunately in Cali since I haven't done a cash-out refi I can just hand the keys to the bank and they can't even ding my credit report and I'd be doing that with a quickness.
There was a story on NPR that we've become a nation of renters recently with the number of SFH's available dwindling as investors snapped them up: now if only the investors have the financial assets to buy a home at all, that implies what for the rest of the consumer base? Keep in mind rents would go up too if the mortgages are flatly unaffordable... we'd obliterate the middle class.
We can debate the financial resources of the average consumer and how they might not be able to afford their mortgage and the fear that in the economy over the next twenty years more individuals are going to lose their livihoods (I'll be lucky if my wages stay as they are for that long, I'm already starting to learn new skills to transition to a new role which has a higher chance to being around so I'm aware of that impending change) but 40% would be an absolute nightmare economically.
@Anonymous wrote:
@Revelate wrote:We can debate the financial resources of the average consumer and how they might not be able to afford their mortgage and the fear that in the economy over the next twenty years more individuals are going to lose their livihoods (I'll be lucky if my wages stay as they are for that long, I'm already starting to learn new skills to transition to a new role which has a higher chance to being around so I'm aware of that impending change) but 40% would be an absolute nightmare economically.
I'm already exiting my main income within the next 18 months and I'm not 45 yet. I guarantee what I do will be replaced by bots and ais and offshore workers at 90% off what I charge, if not even cheaper. I was laughing with my accountant in March at how much I am overpaid for what I do and he told me don't be so cheery when the robots come to replace me. But I started planning for exited when I was in my mid-30s knowing full well that technology SHOULD nuke people like me from the workplace.
In 5 years or less I'll have my income replaced by renters, I think. Not prime renters, either because I went out of my way to find that magic unicorn who is better off than government welfare rent but too poor to get a mortgage and hold it. I found the neighborhood with what I think will be some of the last remaining laborers even in 50 years, I hope.
Even though my FICO is poor (and that is thanks to cosigning for an ex-business partner, oops), I don't need credit and the only reason I want my score in the mid-700s is so I can qualify for those 2.5%-3% cash back credit cards so I can make more money to sock into real estate and vacation.
I should mention that I dodged a super bullet in my teen years: I knew that college was a scam at 15 and instead of getting a $100,000 loan like all of my friends did, I got a piece of real estate and rented it out while I also lived in it. My neighbor's kid is 18 right now and a bright guy but he's going to get a $100,000 loan instead of buying a 3 bedroom home (his parents are giving him $50,000 for college, lol) and renting it to his friends who will be in college.
What a world it's going to be in 20 years when the bots come to replace us.
Out of curiosity what do you do? I'm currently in the IT operations / support side and I can see the writing on the wall even though I'm actually pretty good at what I do the fact is the number of jobs will go down, and even same number of people competing for fewer jobs is going to erode my wages. Finally biting the bullet and learning how to sling code, that should keep my income stream for a while and assuming my expense profile stays the same I'll make it to a livable retirement worst case.
I'd looked at building a bunch of rent capable spots just wasn't in the right spot to do so (Cali makes it a lot more expensive to get started); I may still do that though my current place where I'm living now would've been a great opportunity for that post collapse, not so great now. Live and learn I guess heh, but transitioning to a residual income model isn't a bad idea.