As of April, 25% of Americans had fallen into the least-creditworthy category, garnering a rating of less than 600 from FICO, the main arbiter of consumer credit in the U.S. That compares to only 15% before the recession, according to data compiled by Deutsche Bank.
The main upshot is that, given the disappearance of subprime lending, one in four Americans won’t be able to borrow money to make a major purchase in the foreseeable future.
“given the disappearance of subprime lending”
???????!!!!!!!!!!!
When did that go away? What was the legislation that corrected the problem? Where was I that I missed the correction?
I’m serious – please help.
Don
There has been no legislation banning subprime lending, but from my perch as a banker (whose bank did not originate subprime loans), the industry has in and of itself drastically reduced subprime lending. Many of the subprime lenders went under, and many banks that sell mortgages on the secondary market have been unable to find companies to buy subprime loans. All of the government or quasi-government agencies (FHA, VA, Fannie Mae, Freddie Mac) have beefed up their underwriting requirements, and many correspondent investors have increased their minimum credit score requirements.
All of this has effectively made subprime lending difficult if not impossible.
Thank you, Charles.
So what you are saying is that industry solved the problem on its own without (or with minimal) government intervention? Now that is an eye-opener. And Fannie, et.al. have quietly bowed to reality as well. That, too, is an eye-opener.
But our government had no guts to actually fix the problem but has squandered our grandchildren’s inheritance on fake fixes. That is no eye-opener.
Don
I think that “minimal government intervention” is an accurate statement. The government and quasi-government institutions I mentioned did play a part in it, but the primary reason it has all but stopped is because banks that used to originate subprime loans were hurt badly (and often terminally) when these loans started defaulting. They are simply too risky and the market has adjusted. I suppose this is capitalism at its best?
I’m glad for the cutback in subprime lending, but just FYI, it’s not only subprime lending that’s been reduced.
I have a credit score of over 800 and a large asset base as a result of inheritances. But given my voluntary work overseas, I have little income apart from investment income.
I could not qualify for more than a VERY small mortgage when I was buying a house a few months ago due to debt/income ratio calculations. (I had NO problem in 2002 in the same circumstances). So, I ended up paying cash. I’m fortunate that I could do that, but not too many people can!
Credit is definitely hard to come by in a lot of circumstances these days.
Must note that the evidence is, Charles, that this is government meddling in capitalism devoid of leadership.
Karen, you obviously were working with a large bank. Give them up – they range from perverse to useless. I use a small bank that has continued to finance my stupid ideas and errors all through this thing. I never could get a loan from a big bank – I don’t fit their formulas. You are in that same situation. By the way, I have ALWAYS paid back my loans my entire life even though at one point I was stiffed with a contract and I could easily have avoided paying it by bankruptcy (or court) but I did pay the entire thing. To a good bank, that kind of client is worth more than Gold.
Don
I also experienced something similar to Karen with similar credit score and large assets from an inheritence but with good income because both the gartenherr and I work We refinanced our mortgage earlier this year. The first time we did it back in ’99 it was a breeze with very little paperwork. This time I had to send reems of paperwork…and all this for a paltry $60g mortgage. I wouldn’t want to be anyone with even a average credit score these days
If you are able you can almost always do the same thing as re-financing by prepaying the principal of the loan. Add an extra $100 or so to your monthly payment. Over time you will pay the principle more quickly and save a lot of interest. You don’t have to go through a new closing, pay points or whatever.
#4–Charels–I am glad there is a banker on this thread. I have a question. I used some savings to pay off several credit cards. I was was going to cancel the cards altogether, and was told if I do that it will LOWER my credit score. That makes no sense. I have a good income, steady employment, and other assets and credit. It looks like a conspiracy to me. Can you explain from a banker’s persprective why paying off debt is bad from a credit score standpoint?
#9 – David, I have heard that as well, but I’m unsure as to the mechanics of how credit scores are computed. You might try Google?
#10–Thanks. It seems quite crazy to me.
David #9, I don’t know the ins and outs of credit cards and credit scores, but I have learned that when you DO cancel a credit card, it is extremely important to make sure your card company puts “cancelled at request of user” on your credit record. You need to request that explicitly.