Mortgage Market Reopens to Risky Borrowers

Those statements seem odd, as well. You can't really tell how many of either there are.

You're being a little imprecise with your terminology here, which may have contributed to folks thinking that this was not a comment which moved the discussion forward. The ratings agencies (Moodys et al) rate debt, including particular securitization pools and/or corporate borrowers, but not consumer borrowers. FICO produces an algorithm which lenders use to rate consumer borrowers based on records retained by credit reporting agencies (CRAs).

You, as a lender, can't call Equifax (a CRA) and say "Hey you said 690 but I think really 725." Their information says what it says regarding tradelines (the fact that they were delinquent on a CC 2 years ago is a fact on record that you can't alter), and you have no easy interface to modify that (though you can, and you do, encourage customers in marginal situations to do their own work on their credit).

You ask why don't banks defraud the GSEs on a retail level for marginal loans. The short and perhaps unsatisfactory reason is that if the GSE is dissatisfied with a particular loan they'll put it back on you (you have to repurchase rather than securitizing) and that if you make a practice of this you're going to go to jail.

Anecdotally, every time I look at my credit score I cringe The video game player in me understands that being told one has a score one wants to increase it, but, do you care about this number? Why? If you don't anticipate buying a house in the next 6 months it is all but irrelevant to you. If that is in your near term plans, then you have a fairly straightforward path to increasing it. (Stop paying off earlier than the reporting date, which can result in tradelines looking like they're dormant and therefore not counted towards your score.)

Furthermore, every time I've ever applied for credit I end up with scores (and offers of credit) far in excess of the numbers...

Yep, because the offers of credit are an actual fact about the world and the credit score is a point-in-time snapshot of a model which predicts a model that partially influences a decision that might be relevant to your interest. In the case where reality and your model differ, reality takes precedence, so why do you care what the model outputs?

If anyone have any sort of issue about his credit score or credit repair Cyberhack005 @gmail. Com is a life saver!! I'm a recent college grad, and like most other graduates I have student loans, but I have been persistent about paying my bills on time before time. Then my credit score dropped by 200, a major blow to my score, and my sanity. I had no idea why my credit score had made such a drastic change, had I overlooked something, had someone stolen my identity; I was upset and clueless. I retraced everything and still I had no answers. I was planning to apply for a loan few months ago but my scores doesn't meet up every credit lender requirement so I scoured the internet to find out who can help me with my poor credit score until i came across Cyber Hack, He helped my cleared all debt on my credit and remove every error and finally improved my score to excellence. since then I never had any issues on my credit, I applied for a loan few month and was granted. You can email him on the gmail aforementioned above or send him a text +1502-378-7817 if you need similar service he respond fast and his service is always available 24/7 Thank you!

I think the problem is more that most economists are innumerate. Economics meets virtually all of the definitions of a pseudo-science. Just because there are differential equations in a paper doesn't mean it's real science with proven predictive power.

(Anecdata, but why not?) In the run-up to 2008 I was having regular random conversations with non-technical people about the fact that the bubble was about to pop. It was obvious to them that valuations were divorced from all common sense.

But most expert economists and/or bankers were insisting the valuations were correct, and there was no cause for concern.

In this kind of context - and there's a very long history of it in finance and banking, so it's hardly a one-off - it seems a little strange to be picking on journalists for alleged innumeracy.

Put crudely, it isn't journalists who do the damage.

>It is safe to say that most people don’t understand algebra.

Yes, but most people are not entering legal agreements that require them to understand algebra. One would think, especially with the most uneducated and highest risk borrowers, it would be necessary to understand the initial payment under ARMs are temporary for 3/5 years (depending on the terms, but 3/5 year were the most common) and thereafter the monthly payments will go up (statistically by 75% - so your $1,000/month mortgage payment will go up to $1,750).

>In theory the banks didn’t put a proper interest rate on the loan

Yes, that was one part of the problem (obviously the most uneducated and riskiest borrowers should not have been eligible for these complex adjustable rate mortgages), why on Earth would the riskiest borrowers have gotten loans with temporary interest rates below prime? These were the most likely borrowers to not understand adjustable rates. Other major issues were of course stated income (no proof of income required) and 100% to even 103% financing (no downpayment, banks will even pay your closing costs).

>Although it doesn’t matter since the banks bundled the mortgages together, sold them to each other, and were bailed out.

That is exactly why it matters, because laws were passed to prevent these kinds of loans, and here we are full circle, and the banks are offering these loans again.