Fair Isaac: Fair Or Unfair? By Bill Roberts
The Fair Isaac company rates everybody's credit.
They do it for the banks and mortgage companies.
It is called your FICO score. FICO stands for Fair Isaac COrporation.
Because of the turmoil in our economy many people are seeing their credit scores plummet.
Is that fair?
The banks can't manage their own affairs. A lot of them are BANKRUPT. Many more are in big trouble. They aren't credit worthy yet they have gotten over a TRILLION DOLLARS of credit from us. The U.S. Government (that's us) has bailed them out.
It is time for them (the banks) to ease up on credit requirements to get things going again.
Who are they to demand better credit from us in order to borrow money than they themselves have? Their credit stinks.
Such Arrogance
It is time that we demand Fair Isaac to shut down FICO.
If we are going to "forgive and forget" that the banks are not credit worthy, then they should do the same for us.
Our economy needs credit in order to function. We need to be able to buy cars, refrigerators, and houses. We need credit. We all need credit, not just those with 700 credit scores.
Those arrogant bastards will only lend to you if your credit is unblemished even though they themselves don't have unblemished credit.
America needs fairness in credit. We don't nee (or want) Fair Isaac.
Our credit mess wasn't caused by people buying houses without a good credit score.
Our credit mess is the result of our financial institutions behaving very badly and not taking into account what would happen if real estate prices fell.
Well, real estate prices did fall, and as they fell the housing speculators (the flippers) couldn't maintain their investments. They needed prices to go up in order for them to get back their purchase price, their holding costs, their transactions costs, and everything else that they paid.
When prices went down they couldn't get their money back. They bailed out of the market. Prices went down some more.
People who had bought on the upswing found themselves UPSIDE DOWN. They owed more than their house was worth.
As their adjustable rate mortgages (ARMs) reset or recast they found themselves unable (or unwilling) to make their payments. So they bailed out of their houses too.
Foreclosures were rampant. Prices were in FREE FALL.
Everybody has been affected by this situation.
See my posts:
Are Foreclosures Good For America? Part 4
Are Foreclosures Good For America? Part 3
Are Foreclosures Good For America? Part 2
Are Foreclosures Good For America?
Now it is the time to turn this around.
Easy Credit
What we need is EASY CREDIT, not tight credit.
If we can lend a TRILLION DOLLARS to the unworthy bankers without checking their credit, then they can lend to us without checking our credit.
Fair Is Fair
And to be fair we need to do away with FICO scores.
Fair Isaac is UNFAIR. They are paid by the lenders to rate our credit. These same lenders who can't keep their own credit good are asking us to have exemplary credit in order to borrow some of this money that we lent them IN SPITE of their credit.
Think about it, Is This Fair?
Our economy really needs to turn around. The manufacturing sector needs to go back to work. People need to buy cars, appliances, and other things. They need credit. They need EASY CREDIT.
The housing market needs to be stabilized. People need to be able to buy a house. They need mortgages. They need EASY MORTGAGES.
Wipe the Slate Clean
Let's start over. If the jobs come back then people can pay their mortgages. Give them a chance. Don't judge them by what has happened over the last three years.
Let's Look Ahead
Wouldn't it make more sense to let them buy a house without qualifying than it does to BULLDOZE that house because it has been foreclosed and there is nobody to sell it to? Talk about stupidity.
Everybody deserves a second chance. We gave the bankers a second chance. Now we need them to give us a second chance.
No more FICO scores. EASY CREDIT for everybody. Let's get America moving!
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I have been a real estate broker since 1975. I specialize in commercial real estate, business opportunities, and finance. I coach real estate investors and teach retirement strategies. DRE #00527512
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Isn't easy credit what got us into this mess? People buying homes that they couldn't afford because credit was easy. ARM loans. Interest only loans. No-doc loans. Liar-liar loans. Just a thought.
Russel, The simple answer is no. If you need to learn about just what happened I have written scores of articles on this subject. Here is a good place to start: Greenspan, The Evil Villain
You can explore through my blog for other articles. I wrote a lot about short sales and bad loans. They all touch on the problem. People buying a house to live in can't be made the scapegoat for this.
Bill Roberts
Bill,
I just knew you were a softie all along:-) Seriously, I have been guilty of my share of the blame game for people who have overextended but it is time to stop blaming each other and start problem solving. If we the taxpayers can bail out the million/billionaires, we can bailout mainstream America too.
'Becca. I'm glad to see you coming around. Please remember what JFK said, "a rising tide lifts all boats."
Bill Roberts
Hi Bill, Thanks for the great post! No it's not fair, but aren't we finding that there really isn't much that's fair in real estate, the economy, or the way in which our government conducts themselves.
"Fair Isaac: Fair Or Unfair?"
Definitely unfair!
But, defiantly uniform.
People with bad credit have low scores.
Unfortunately so do some people with spotless credit!
FICO credit scores and the automated underwriting it allows eliminate discrimination by eliminating common sense! The question is not is this good, it is. The question is, is it worth the harm it causes?
FICO eliminates discrimination with regard to the protected categories, but it discriminates against those that have succeeded differently. (Just how many accounts are to many, when you easily make your payments on time? Whats wrong with little or few accounts, if you don't need allot of credit? How can these thing be judged when FICO has no idea of your income?) In deed shouldn't a person be judged only by what they've done not by conforming to the "Norm?" Sorta like judging "by the content of his character!"
My suggestion: keep FICO scores, keep automatic under writing, but allow no turn downs or higher rates without a human review and signer!
While we're at it lets restrict information to what's relevant! Auto insurance should be based on your driving record not your credit, after all they get paid in advance, they don't extend credit!
Bill
Sandy, You have a perfect name for selling beach property. Who could forget your name?
We need change. Acceptance of the status quo and apathy hinder the process. If we don't speak up nothing will change.
Bill Roberts
Bill A, Everything you say is true, but that is what Alt A is all about.
What I am talking about are those of us that haven't managed things so well. We are being ground into the dust by the credit reporting industry while these bankers are getting a free pass.
Thanks for contributing here.
Bill Roberts
Bill - Our system - mortgage, definitely, but ALL credit underwriting, too - has turned the credit analyzing process into a cookie cutter system. We have to fit the mold in order to get the carrot... lower interest rates. Well, there is this four letter word out there called L*I*F*E that more often than not gets in the way of joining the herd. Those folks that have experienced L*I*F*E have had their private bankers, private investors and Sellers - relationships based on personal history with face to face contact - to turn to when they don't fit the mold. The herd has stampeded, scattering all over the place, hiding in the hills. The system has run with the convenience of automation, and here we are looking for a "do over". I don't know that easy credit is our solution, but understand your frustration with the double standards we're facing with the banks. I absolutely believe we need to bring the human aspect back in to our equation. Just my two cents...
Bill R.,
Cops speed and run red lights.
The power company in Las Vegas keeps every light in their office on and cool to 70, 24-7.
Doctors smoke, 9 out of 10 prefere Camels.
Your parents say "Do as I say, not as I do!"
I ignored the obvious!
Banks now have bad credit while demanding you have good credit!
What's your point?
Hypocrites are only one step above bureaucrats!
There's no legal way to exterminate eather of them. Damn it!
Bill
Bill,
I just flagged this post for feature. I think it is good to look at whether we want to blame or whether we want to improve the situation. We are distanced from our fellow neighbors when we start blaming each other for problems and not coming up with solutions.
It's a shame.....people need to help each other- distance and apathy will only further the problems. We need to empower each other for positive change.
I think investing in land is a good thing to hedge against current market conditions.
Taking Bill's good advice, I have been following a large piece of commercial property with potentially lucrative water resources but it is a little out of my reach.
You can see the property at www.oltiv.org I am looking for someone to work with me on this.
info@olashrine.com
Since there was a question posed, I'll answer it: Unfair.
Some of these systems that people set up at the strangest things, but to correct the system by establishing a competitor would be extremely hard unless one had the start-up capitalization of a Zillow.
Bill,
If we are going to "forgive and forget" that the banks are not credit worthy, then they should do the same for us. That's the best idea I've seen so far. You rock!
Mike in Tucson
Bill,
I do have a refrigerator for sale? I will give you credit to buy it.
Doug Pemberton
Bill, I love it, but why don't you tell us how you really feel. (LOL) I think something within the system does need to change. With 50% of all credit reports having errors on them, there needs to be a fundamental change in the system. Like you said the FICO score is there for the banks not for the people. If they make an error on your credit report, then it is your responsibility to fix it, not theirs. (THIS HAS TO CHANGE)
Nice article, Bill. I will go through and read the links later. I have had my issues with the whole credit rating system for years particularly since it apparently isn't able to keep up with the times.
Bill - interesting post and definately worth some thought. There is no doubt that this era will leave many with credit scores that do not relflect who they really are.
I understand Birthday wishes are in order- Happy Birthday Bill:-)
Thank you all who have left comments here. I'm sorry that it has taken me so long to get back to you.
Karen, A personal relationship with a lender is very difficult these days. We need to back up a few years in how we do things. I will soon be posting my ideas to improve lending in California. Other states could ilplement such a plan too.
Jim F, I'm not proposing a competitor to FICO but rather that we get away from it entirely. Some loan programs have always been available (such as FHA) that aren't credit score driven. If we as an industry refuse to market loan products requiring certain FICO scores we could have an impact.
Mike J, Your kind words are greatly appreciated.
Doug, Good luck with your sale, but I'll pass thank you.
Todd C, Change would be good.
Tchaka, We all have our "issues" with the current system or have friends, family, or clients who do.
Todd B, After you have those thoughts come back and share them with us.
'Becca, My birthday is in May, so I guess you just wanted to be first. Thank you very much. I don't know when yours is but I would like to extend my best wishes to you also.
Bill Roberts
Great Blog and good information. Look forward to reading your future blogs.
Very good info! Haven't seen you around much, I hope you are just busy and all is well :)
Hey Bill,
I stopped by to wish you a belated Merry Christmas. Hope it was enjoyable. C'mon back and start writing again. Your audience misses you!
Mike in Tucson