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FICO logo (Photo credit: Wikipedia)




It’s time to tame the FICO god to which the Dinosaurs of FANNIE MAE and FREDDY MAC  bow down, and at whose bidding the American mortgage industry has been tied up by silver ropes.

While I still hold the mortgage lenders greatly to blame for the financial misery of the last 7 years, I also accept their strong desire to make more and better loans now. However they are prevented from doing so by the restrictions required by the industry Overlords (FANNIE and FREDDY).

No matter your politics, our current mortgage system requires a Secondary Market Maker such as we already have with FANNIE and FREDDY. For the vast majority of cases If Bank “A” gives you a mortgage it is planning to sell it to one of these 2 entities.  They in turn will package it along with thousands loans more loans and sell them on to an Institutional investor (i.e. a Pension management Company) to become part of their long term portfolio.

The money they gave to Bank “A” is now available to make another mortgage for another QUALIFIED buyer NOTE the term QUALIFIED because this is where FICO comes into the story.

FANNIE and FREDDY will only buy the BANK “A” mortgage if it meets their qualifying guidelines. One of the most important is a sufficiently high FICO score.  Effectively this means they cannot make a mortgage loan to someone whose credit is excellent but is not reflected as such due to the out of date structures of the FICO score Providers, EQUIFAX, EPERIAN, and TRANSUNION.

These procedures go back to the 1980’s and simply do not reflect today’s society. Their inability to allow for alternate ways to measure financial stability (income self employed and Individual Contractors), Behavioral history, and other liquid assets means that approximately 25% of all qualified potential buyer are unable to get a mortgage. The Banks would love to be able to serve them but without an acceptable FICO score cannot do so.

We desperately need to bring FICO up to date and incorporate it in a Mark 2 version to include some of the other accredited Fair Credit Reporting tools freely available. A primary example is the VantageScore system designed for exactly this situation.

There’s no need to lower credit qualifying standards.

Just bring them into the 21st Century and give the locked out 25% the same home ownership opportunities as the rest of us.

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