For many reasons, more and more often I am talking to those wishing to become home buyers that simply ... and I'll be kind ... have challenging credit histories to work with. Whether through problems of their own making, or as a result of the housing and financing crisis, many people simply do not have credit scores that even begin to allow them to think about purchasing a home anytime soon.
And, if that is the case ... maybe, just maybe ... we need to start thinking about the long term ramifications of this situation for the individual ... and the country. If credit score
s are allowed to correct themselves in the current manner, we may be collectively suffering through a long and difficult time period in which fewer Americans are capable of home buying or buying anything that involves credit. Elongating this misery for so many just doesn't seem like the intelligent or right thing to do.
Because credit is so critical to what I do each day, the topic is obviously on my mind alot. To that end, I recently wrote an article here on ActiveRain entitled, "FICO SCORES ... How They're Arrived At ... How They're Affected by Short-Sales, Foreclosures, & Bankruptcies". And although I attempted to pass on some general concepts I had read and learned while searching for my own answers as to how credit scores (FICO) were equated ... I still think it is an un-exact science in application. I've never read or seen anything that writes about this topic with full clarity or speaks of an exact method. No one speaks of it with certainty, it's more round-a-bout.
We do know however, that a certain "pecking order" has become the known standard as it relates to distressed sales, foreclosures, bankruptcies, and late payments. There seems to be an accepted order that ranges from bad to severe to hopeless. Modifications are better than ... Short-Sales are promoted over ... Bankruptcy is ... Each option delivers its own depth of toll to a credit score. Each brings its own consequences to someone's credit future. Some actions will take longer to rectify, others more easily accomplished and in shorter time. But do not be lulled. Within the current credit structure, each is still severe.
So, if the numbers of those being affected by crisis is so high ... shouldn't we be DOING something that addresses this issue? It would seem to benefit us all ... and sooner if we do so.
Perhaps using the same theory of what got someone into their credit situation in the first place would be a good place to start with this new gauge or equation of scores. If you lost a home or car because you lost 
your employment ... should that not be viewed in a kinder, gentler way than if you lost it through poor monetary management or bad investment decisions?
It's a known fact that certain regions of our country were (and still are) harder hit by the housing crisis and job unemployment. Should that be a criteria that enters into the new equation also?
A huge number of families' credit is destroyed by catastrophic illness and the resulting medical bills. Prior to the current housing/financial recession, some experts reported this type of issue contributing to almost 50% of the poor credit ratings. Could this be another factor to consider?
When I started in the business eons ago (1975), the little savings and loan I worked for had its Board of Directors determining who and who did not get home loans. They were the standard you had to pass in order to receive your financing. Now this chore is accomplished in a large part, technologically. Sure, underwriters also contribute to the yes and no of receiving approval ... sort of like in the Roman Coliseum with the yay or nay of thumbs up or down ... but loan files don't even get that far unless the scores dictate so.
Maybe it is time that the rules ... and the methods ... are more "retro". A combination of our modern technology .. and old-fashioned human common sense. The problem is not going to rectify itself. The problem will not go away on its own. Justice and good health will not be totally restored to the public's lending and credit issues until these issues are addressed.
Maybe the time is now?
Gene Mundt, Sr. Vice President
Personal NMLS #216987
The Federal Savings Bank
1823 Centre Point Circle, Naperville, IL 60563
Skype! 630-219-1316
Very valid points made Gene. I agree.
Carol: Thank you for taking the time to tell me so! It's appreciated ..
Gene
Gene - AMEN!!! The time ks now but I strongly suspect that the process of determining someones ability to get a loan is going to get a lot worse before it gets better. As a matter of fact, the state of someone's credit score has now made it's way into the employment arena and now employers are making employment decisions and determining someone's ability to do a job based on what their credit score is.
The state of Oregon just passed a law which prohbits potential employers from using an applicants credit score and history in their screening process. Until more states start enacting this type of legislation, we will see the return of something similar to debtors prisons for those with poor credit. JMHO
Donne: I've seen this too .. and know that it's being bandied about in congress as well. We'll see what develops and how long it takes. They're looking for ways to take it out of the mix on insurance decisions possibly as well. Like I said, we'll see ...
Thanks for writing! Always good to hear from you ...
Gene
Another well written, valuable acticle for consumers, Gene. And very valid points. Something has to give or things are just going to continue to spiral down.
Jane: I'm blushing! You're always so kind with your comments. Believe me, they're well received and so appreciated. I'm just trying to keep up with you! Food for thought here certainly. Hopefully it gets a conversation and some action going ...
Gene
Gene, I agree completely. I think that lending institutions will have to start looking at this time period in a different light. If they stay the current course, there will be no homes bought, cars sold, or credit card applications approved.
I agree, but it seems like such a system would be lawsuit city.
Damon: I agree with you. NOT doing something could only prolong the pain and slow down recovery. A good hard look is going to have to be taken .. and soon. Thanks for writing, Damon .. it's always good to hear from you!
Doug: Possibly ... but these changes may have to fly in the face of what we consider the "norm" as it exists. Things must be examined and considered soon.
Gene
Gene,
I think that we will see a change in how scores are calculated and the impact that certain events have in driving the scores. But, with all big changes that would be a benefit, IT WILL BE AWHILE.
Slow to react to put out the fire, slow to correct once the landscaped has been devastated and wiped clean....
Jenna: I agree. The wheels never move quickly with these things. But I do think something HAS to change ... and eventually will. We'll be better off for it when it finally occurs.
Thanks for writing, Jenna ...
Gene
I agree. As I am sure you are aware, the mortgage industry is using credit scores for loan officers to obtain National licensing. This is another instance where credit scores are entering into job security.
Gene, super post. I agree 100%. Have a great weekend.
Audrey: Oh yes, I know! It is of concern to many in our industry and many others. We'll see how this all plays out ... but I can't see how they can NOT address this issue and soon. Thanks for writing, Audrey. Hope business is improving for us all .. and going smoothly for you.
Ted: Friend ... thank you. It's an issue that will definitely effect us all, isn't it? You have a fantastic weekend too ...
Gene
I wish they would start teaching teenagers in school, how importnat their credit rating will be. If you learn early, it would make such a difference. (I know it would have helped me.)
Lesley: You're absolutely right ... but I've read that it needs to be even earlier than that! They're saying by the time your child is in elementary school (5-6 yrs.) they need to have a basic understanding of the importance of money ... and making promises financially that you keep/payoff on time. That .. I found .. staggering. Should we add it to their ABC's???
Great comment ...
Gene
I absolutely agree with you and have been saying for a while now that something needs to change. The changes with credit cards are not helping matters either. I have a family member who has always had spotless credit but her credit score has dropped due to changes to her credit cards imposed by the issuing banks. How many others has this happened to and what if they had borderline credit to begin with? Now through no fault of their own they are left unable to qualify for anything on credit.
I agree something will need to be done, I've also seen some that had lots of slow pays, yet they paid their bills but were punished more on their credit score than someone who had filed bankruptcy a short time ago.
Gene surely you're the expert on this versus me and while change may be needed, I don't see this happening (retro-style review and approval). Granted, some well deserving people will then be able to buy homes, but I'd be concerned about more bias towards the buyer and thereby making a decline in approvals appearing to be more personal.
Although this is not a good reason, I also don't see it happening because of the manpower that would be required to accomplish this worthy goal of case by case evaluation. I think your analysis has merit (far more than my limited view) afterall, you have the inside advantage. In the end, this is a worthy goal and someday when it comes to pass, I hope it will be with as little challenge as humanly possible.
NOTE: Thanks to Donne for directing me to this thought provoking post.
Kristy: I've often commented that Congress can't write bills that protect us fast enough to keep up with the credit card companies. They just think of new ways to gouge and charge. But you're absolutely right when you say something has to change with the scoring equation. It's time for a new review of the system ... and action. Thanks for writing ...
United Realty: Good intentions and attempts do not seem to be taken into account .. especially when most billing and scoring is now done by computer. The human element and common sense approach is taken out of it. It's sorely missing too ... agreed.
Charita: A system that combines the speed and benefits of computerization mixed with human empathy and common sense would seem to be the ideal solution to this problem. Total reliance on computerization doesn't seem to be the right solution ... but the opposite extreme of "all human" doesn't seem correct either. One thing is for sure, a new way must be found ... or the industry will have pro-longed suffering both financially regarding a recovery ... and for those wishing to re-enter the buying market. The debate must start soon ...
My thank-you's to Donne for her direction as well. Otherwise, we might not have had the opportunity to meet and have dialogue. I hope to hear often from you in the future ...
Gene