Are we foolish to trust the credit reporting agencies?
Posted in Credit on 06/07/2008 01:37 pm by admin
Joe in texas asked:
Since they do not use debt/equity ratios or income amounts to calculate credit risk.
The credit rating agencies gave a high rating to institutions with bad loans given to unworthy borrowers in the sub-prime mortgage mess. Are the consumer credit rating agencies creating a bigger disaster with their voodoo credit rating system?
Since they do not use debt/equity ratios or income amounts to calculate credit risk.
The credit rating agencies gave a high rating to institutions with bad loans given to unworthy borrowers in the sub-prime mortgage mess. Are the consumer credit rating agencies creating a bigger disaster with their voodoo credit rating system?
Credit rating agencies are now under scrutiny for giving investment-grade ratings to securitization transactions (CDOs and MBSs) based on subprime mortgage loans.
Is concumer credit the next crisis?
IRWIN
06/08/2008 at 2:09 am
Trust isn’t the right word.
The sub-prime mess came about from fico score lending. They lent people money based on a stupid score and not looking at the person behind the number.
Building credit is the biggest joke of the 21st century.
It will bring nothing but debt.
We have enough Government in our lives.
The Government is not gonna fix you. You are.
06/08/2008 at 3:17 am
The credit reporting agency’s are just that reporting agency’s they can only report the information that is reported to them.
The problem with the sub-prime housing was due to several things.
1. Banks loaning money to people without verifying their income.
2. Consumers buying seasoned trade lines to up their score so they could qualify for loans that they really did not qualify for.
3. Appraisers saying homes were worth more then they actually were so people could get 100% financing.
4. Greedy consumers thinking the market would always go up and that they could flip their homes before their ARM adjusted.
5. Housing market falling on it’s face and people not being able to pay their house payments or refinance because now they owe more on their homes then they are worth.
Put all of these together and this is what caused the sub-prime housing problems that we are seeing now and will see for several years to come.
Now there is nothing the credit bureaus could have done about any of this so how is it their fault?
As much as I **** to agree with Bulldog, I give credit when it’s due and he’s right the last thing we need is more Government intervention in our lives.
06/11/2008 at 12:47 pm
I would LOVE to see more government intervention in how the credit bureaus operate.
06/12/2008 at 3:46 pm
I think you are confusing two separate rating systems. Investment ratings come from a whole different world. Investment analysts are usually treated like royalty when visiting a company.
Consumer credit reporting agencies using FICO score basics assess risk based on how you compare to other consumers. Consumers that do A, B, C, D and E are more likely to pay their bills on time than consumers that do only A, B and C.
The mortgage crisis was caused by greedy mortgage companies who decided to make subprime loans to consumers who did on A and B. They did not prepare for taking additional risks and it came back to bite them.
You and I buy insurance to protect us in case of something happening in an unknown future. The mortgage companies failed to insure themselves against such a problem.
Who would have expected a presidential administration to do nothing as gas prices rose at a record pace and knowing that it would affect all lines of the food chain from the grower to the distributor to the seller and eventually the consumer?
As costs kept going up and up in consumer necessities (gas, food, utilities, etc.) it became harder and harder to pay bills. Then it became almost unimaginable to purchase a home living in the current economy. Hence, home prices dropped. People who were living in a world of high prices lost the equity in their homes.
The government administration, however, made it more difficult for these people to seek relief through Chapter 13 bankruptcy, which usually means those home loans get paid.
It’s very hard to blame the crisis of 2008 on credit reporting companies which the federal government played such a large role.
06/15/2008 at 3:13 pm
The credit rating agencies have always frustrated me along with any other computer profiling programs. The programs are not human and can not value human experience or factor reality issues to be reliable.
Our founding fathers made great progress communicating, managing and forecasting both personal and business worth, They took risks when presented opportunity and shared enthusiasm, neither of these valuable qualities are data that can be input into a computer. Neither is the competence of the data programmer who assumes no responsibility or accountability for their text entries. How do I write in this post my own integrity to warrant your respect? Shall I recite my own conclusion, that in my opinion, computer programs destroyed many successful businesses that staffed professionals who’s livelihoods depended on their extraordinary ability to communicate one on one and as a team effort. Montgomery Wards, Sear Roebuck, Woolworth, J C Penney were businesses that had it all and give their all until computers were activated and told them they could no longer afford their operations. Computers did not factor in that these companies were representing strong, creative and professional human beings, “Americans” who could afford to buy American products. The misrepresentation of computer data is showing itself again as we continue to allow computers to profile human beings, Americans who have extrodinary abilities yet are being rated by second rate companies who activate “only” their computers for data processing without responsibility or accountability for the text that they enter.
The value of a person or business entity being graded by a computer in my opinion is a hidious concept and misrepresentation of human beings. This is not how our great country was founded. Americans are awesome and yet less and less value is being afforded them. Possibly the opposite has happened in our economy, credit reporting is denying credit when credit needs to be extended. Opportunity offers enthusiasm. Will this post extend me a 800 score?