Housing Policy

How Much Does Society Owe to People Who Don't Pay Their Debts?

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Why isn't the government making this house fly?

One regular feature in media coverage of the mortgage loan modification process is people who either default or threaten to default, get into a loan modification program, then bellyache that doing so has lowered their credit scores.

Maybe that shouldn't be surprising in this post-shame age, but as is often the case when you look at the landscape of bad borrowing, the penalties for defaulting are not particularly onerous. In fact, you could make the case that they're not onerous enough.

Smarter people seeking loan mods are wary, with good reason, of how the process will impact their credit scores. Banks do take note when you try to change to the terms of your mortgage. But the bulk of the credit damage comes when borrowers stop paying in order to get leverage over the bank. The actual damage to the credit score based on the loan mod is modest and often temporary.

The frequent complaint about FICO damage is that since the HAMP program was set up, at a cost to the taxpayers of hundreds of billions of dollars, to "help" bad borrowers, it's not fair to keep a record of a borrower's non-payment history.

Without defending the cockamamie system of determining credit scores (in which even a default and foreclosure can end up dinging your credit history only a little bit more than a late payment on a store credit card), one thing needs to be clear: The purpose of a credit report is not to decide whether your problems are your own fault or whether you're a good person. It's to give lenders a sense of the probability that if they lend you money, you will pay it back according to the terms you agreed to before God, country and family. The loan modification's federal imprimatur does not change the fact that you are getting away with not honoring the terms of your agreement.

Leave aside that preventing a proven bad borrower from going further into debt is probably the best thing you can do for that person. Exactly how "fair" is it to the vast majority of borrowers, who make their payments on time and on the money, to allow bad borrowers to make consequence-free changes to their mortgages? The credit consequence of deadbeating is already minor considering the gravity of a mortgage default. Debt forgiven under a loan mod is already going untaxed. Hundreds of thousands of mortgage scofflaws are already enjoying years of payment-free living just because banks don't want to foreclose. Should there be no penalty at all for going bad on a loan?

And that's even if you consider a low FICO score a penalty. It's not. It's a number derived from your demonstrated behavior. If a good credit history is that important to you—and there are plenty of good arguments that it shouldn't be—all you have to do is change your behavior.

NEXT: Stephen Hawking: Damn All Aliens!

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  1. The “it’s not fair” yahoo finance link doesn’t work.

    FWIW,I have no idea what my credit score is. It costs money to find out, right?

    1. No, you can get yours once a year for free. Go to the Consumer Reports website and search, they’ll link you to the right site.

      1. The free credit report sites only give you access to your credit report from each of the 3 CRAs, which shows everything in your file from the last 7 years… To get the actual score, I think you have to pay.

      2. I’ve got the credit reports from Equifax etc. but no score was offered

        1. Indeed — you can see the ‘report’, which is the series of open, closed, etc., accounts, but not the actual derived score, for free. The derived score, apparently, is derived from all this on a proprietary formula.

          1. You mean we’re a scam?

            1. No, just a marketing ploy.

            2. No, you’re not offering me for free, you’re offering the report for free… provided people unknowingly subscribe to your monthly monitoring service.

              So you’re a scam, just not in the way you’re asking.

              1. You get one report from each bureau free once a year. The FICO score is different it will always cost to get it.

                1. If I could just add to this, as a former mortgage broker, any credit scores you pay for will not be your actual FICO scores. They are some sort of approximation.

                  Having poured over thousands of credit reports in my life, I can assure you that the scores you pay for will be 30 to 50 points higher than the scores that banks use to determine your creditworthiness.

                  So do not be fooled by overly optimistic credit scores as delivered by one of the three big agencies. Only Fair Isaac can deliver your true credit score.

  2. Question that I am too lazy to look up:
    Does a loan modification just help avoid foreclosure, or does it actually enable people to gain equity in the property for less money?

    1. It depends. The three loan mod types are: interest rate change; extension of the loan duration; and principle reduction. The last of these does get you free equity in the house. Understandably, this type is vigorously opposed by banks, economists, and everybody else except Elizabeth Warren, who is constantly advocating for principle cramdowns. According to Warren’s logic, if the taxpayers pour an infinite amount of money down the deadbeat hole, the rate of redefaults on already modified loans will stop going up someday.

      1. And don’t those cram-downs do wonders for bank balance sheets?

        1. Nah, they have no net effect, since we just bail out the banks more to compensate.

      2. Thanks. So if I understand this correctly, the third type of loan mod will effectively change the price the purchaser pays for the house long after it has been sold? Is it the bank or the taxpayer that takes the loss?

        1. Again, it depends. Banks do, in a vanishingly small number of cases, do principle forgiveness on their own. But this number is so slight that it’s not really worth counting.

          Because (as you might expect) principle cramdown mods have slightly better performance in terms of redefault rates, the government has been putting a lot of focus on, and pouring a lot of your money into, paying down principle — 20 percent in some cases.

          Right now, in basically all cases, principle reductions are being paid for entirely or almost entirely by you.

          1. And of course, that should principal, not principle.

          2. Thanks for the second response. Above and beyond the call of duty for a Sunday night.

            I would be slightly less mad if the government put a lien on the property equal to the amount of the principal “cramdown” bill footed by the taxpayer. Only lightly less mad, though.

            I need to start rattling cages for a student loan modification program with a principal cramdown option. It would be great if my wife’s private law school tuition suddenly cost as much as a state school. Thanks in advance, Barry O!

  3. I swear I’m the country’s biggest sap: I buy less house than I can afford, make all my payments on time, pay all my credit cards off monthly, pay down my single car loan ahead of schedule and put 20% of my net earnings into savings so my kids don’t need GSLs to get through college and I don’t need Social Security to retire. If I had an ounce of sense, I’d be blowing every nickle I earn, running up my plastic and defaulting on my mortgage…then blaming it all on “society” and bitching that my credit’s not pristine.

    This country is so fucked up.

    1. You probably pay for movies, music and porn too!

      1. I do, actually. I don’t mind IP owners making a few pennies off me. Now, if I was to, say, mail-order a couple thousand cigars, I might allegedly neglect to pay the combined 150% state and local taxes on them. Allegedly. Not saying I would actually do anything like that. I would allegedly not feel any trace of guilt over it, either.

    2. Got ya’ beat Jeff’.

      I don’t use a credit card or have car loan. I double up my mortgage payments every month, and will have no debt in two years.

      Wasn’t cool to live that way in my 20s or 30s, but approaching 40, my friends are jobless and broke and consider me “lucky”.

      1. It is completely unfair that you should enjoy those luck while others are at risk of being foreclosed from the giant houses they could never afford. That is why you are being taxed and that money is going to pay those people’s mortgages.

      2. You had every opportunity when you were younger to go drinking every weekend and eat out on credit and buy too much car and YOU CHOSE not to do that. Why should your friends be punished because you didn’t do what you were supposed to when you were younger?

        You’re not lucky, you’re heartless and mean.

    3. So Jeffersonian has been fortunate enough to earn a good living without having a loss of job or major illness throw him into financial problems, yet he’s the victim?

      There’s the libertarian mindset right there.

      1. Tee Hee!

      2. I do similar things as Jeffersonian, yet I’ve been laid off. I’ve been out of work because of injury, yet I’ve managed to not have to foreclose on my house; I’ve managed to not declare bankruptcy. You see Dan, that’s what a savings acount and living within your means allows you to do: manage the financial crises of job loss and hospital emergencies.

        1. Same here. I was laid off from a well-paying (well, for me anyway) job in Feb 2008. I have been either unemployed or underemployed (making $10K+ less per year) since. My wife is in the same boat. Yet we’ve never missed a mortgage payment, because a)we didn’t buy the most expensive house we could get a loan for b)we generally live well within our means. We cut out unnecessary spending. No vacations. No cable TV. No dining out.

          We’ve gotten a mortgage modification, which has helped. Has it lowered our credit score? Sure, probably. So what? It helps us keep our house. Right now, maintaining life’s essentials is what I’m worried about, not my fucking credit score.

      3. “So Jeffersonian has been fortunate enough to earn a good living without having a loss of job or major illness throw him into financial problems, yet he’s the victim?”

        Note how this guy assumes that making a living, health, job loss are matters of fortune, not primarily and overwhelmingly the result of lifestyle choices in our daily lives?

        That’s a mindset of some sort right there–the redistributionist mindset, where a decent outcome in life is a primarily dice rolling, not the product of planning and execution (mixed with a dash of fortune at no meteor strikes).

    4. Naaaah, you’re doin’ just fine. We all are going to the same place. Good to know there are still honorable men.

      When all is said and done, your kids will be proud of you, and all the other things we really “don’t need” in life will never measure up to their love and respect for their parents.

      By your example, you are raising “good children”. They are what you are going to leave to the world.

      Your family, wife and children, are really what is important. Their love and respect is important, not gaming a system which rewards deadbeats.

      Our Nation was built by men like you, Jeffersonian. You’re not alone!

    5. Yup, I concur. I guess I wasted my life working and paying bills…maybe it’s time I got over that “Shame” thing.

  4. Looks like the mortgage in the picture is about to go underwater.

    1. He’ll never be the head of a major corporation.

  5. The only reason I maintain a good credit score is precisely so that when I buy a house, I’ll be able to get the lowest interest rate possible.

    That’s pretty much the one big thing where your credit rating makes a big difference and can save you money.

    Otherwise, it just helps you get more credits cards, which …. sorta goes against the idea of paying off your balance every month.

    1. The only reason I maintain a good credit score is precisely so that when I buy a house, I’ll be able to get the lowest interest rate possible.

      But the bank only cares that someone pays the debt with interest, not necessarily you. The interest is their income and profit base. The bank has no incentive to give you a lower interest rate loan if it knows the same size loan made to a riskier borrower is just as likely to payed off by the government.

    2. Rent a crappy apartment until you can pay cash. F the banking system in this country.

    3. Otherwise, it just helps you get more credits cards, which …. sorta goes against the idea of paying off your balance every month.

      It can help you get cards with an absurdly good reward rate.

      I always pay my balance in full each month, but it would be silly for me not to take a 2% cash back on purchases.

      1. I have one of those. Or had, actually. Chase just reduced the reward rate.

  6. This whole discussion would be relevant if it were true that the banks loaned you their money.

    Nothing could be further from the truth. In this crazy fiat money system, you loan yourself the money.

    Yes, you create the money with your signature when you sign a credit application or a promissory note.

    Austrian economists like to talk about how the banks create money out of thin air but Austrian economics does not delve into how that thin air concept works.

    The banks are NOT lenders, they are brokers. When you ask for credit or a housing loan, they record your wet ink application/promissory note as an asset on their books. Then they turn around and give you the credit card or the mortgage and trust deed. They call the credit card “extending credit” and the mortgage amount “the principal” and charge you interest and they can take your property if you default!

    They are not more than brokers, not lenders, in the fiat money scam. Instead of paying $300,000 over the lifetime of a house in so called principal and interest, consumers should pay no more than a $25,000 brokers fee.

    1. Instead of paying $300,000 over the lifetime of a house in so called principal and interest, consumers should pay no more than a $25,000 brokers fee.

      So you’re setting up a business to do just this, right? You should be very successful and capture a lot of market share. No worries about being unprofitable, if your analysis is correct you’ll still make money on every sale and get amazing volume.

      Or perhaps you’re just ignorant.

      Lending money at interest occurred throughout history including on the gold standard, of course. Even if by signing the loan you’re the one “creating money out of thin air,” why you should have the right to devalue the currency everyone else ones without paying for it?

  7. “How Much Does Society Owe to People Who Don’t Pay Their Debts?”

    I’m not sure… We should have Chad calculate it.

    1. Zero.

      We should immediately adopt a full-recourse policy on mortgages, put severe restrictions on home equity loans, and boot people out of “their” homes after a third missed payment.

      Get these lazy bums out and let people like me, who lived responsibly and saved for their first home, reap the windfalls as prices fall. The bums can then move into my apartment.

      The market is stable enough now that it can handle more foreclosures. This may not have been the case a year and a half ago, but on the other hand, if dumbass libertarians had not stood in the way of sensible regulations (say, like this lefty Texans), this crap wouldn’t have happened in the first place.

      1. Yea, it’s a shame that the libertarians created the CRA, the American Dream Downpayment Act, below market interest rates through the Fed, Fannie Mae & Freddie Mac, and land use restriction laws.

      2. So, you oppose the Obama administration’s policies preventing foreclosures, and pushing up housing prices?

    2. Society owes individuals who default on their debts no more and no less than it owes companies which do the same f–king thing, viz the Peter Cooper Village defaults.

  8. This whole discussion would be relevant if it were true that the banks loaned you their money.

    Most banks do have their own money and assets and could loan you “their money”. But there is nothing wrong a bank loaning other people’s money. The premise behind having a savings account in a bank is that the bank will loan some of the money in your savings account to someone else who wants to buy a home, for example. The bank will make a secured loan with interest and give the savings account holder some of the interest that the borrower repays. This process is broken now. Bank savings accounts don’t pay any significant interest. Raise your hand if you more than $5k in a bank savings account. Heck, raise your hand if you a bank savings account at all.

    1. “””Most banks do have their own money and assets and could loan you “their money”. “””

      But how much of that money is not already being used in some way, either directly or as bond or guarantee for other things. That is why the bankers sold off much of their loans as soon as they made them since the fractional reserve banking the practice these days has such a small percentage of actual reserves and especially reserves that are free and clear of other obligations. Having assets that was not leveraged was considered to be bad business practice since they were not making money, but if they are being used for something else there is a good chance they won’t be available for an emergency

      Its no good if a bank has a billion in reserves when they have ten billion in obligations. They thought they would have no problem with some mortgages going bad but they did not take into account that the bad mortgages and economy would cause so many to go bad at once

      1. The bank usually retains 10% reserve. They create 90% of the loan out of thin air. This is why money (money & credit) can be destroyed so quickly in the economy right now. And yes I have 50K in my savings account. This means my bank can create 500K of loans on my savings deposit.

  9. Bring back debtor’s prison.

    1. If it can be made to apply to the heads of bailout-recieving institutions, too, then we may be on to something.

      Whatever little bit we might owe homeowners who don’t pay their debts, we owe businessmen with state-dependent, unsustainable business models that much less, since responsibility increases with intelligence and high position.

    2. And indentured servitude. “Yes, too bad you bought more house than you could possibly afford. Now go re-sod the yard.”

  10. Save or borrow, that is the question. If I save money in a savings account, like the one in the offer I just received from TD Bank, if I maintain a balance of $10,000, I’ll earn 1.4% annual. Below $10,000 is .05%. With annual price inflation being 2-3%, I will actually lose money by saving it. Don’t forget CPI inflation is by no means a true measure of the loss of purchasing power of the dollar due to monetary inflation. Plus, for every $100 I deposit, the bank can print and loan $800 on top of the $100 I deposited, which devalues my money even more.

    If I borrow money, I can pay off today’s loan with tomorrow’s lower value dollar. And, it seems, that if I play my cards right, I can have principle knocked off. And the bank doesn’t give a shit because they mark it at 100 cents until they sell it.

    It seems to me, that in this environment of creeping monetary inflation, fractional reserve lending, artificially low interest rates, and mark to myth, only a fool would actually save money.

  11. Because of fractional reserve banking, and the fact that the debtor is actually the creditor, the banks do not have any of their own money at risk!

    The banks treat alleged credit card debt AS IF it were a guaranteed purchase contract, but no such contract exists! If you take them to court, they will settle,if you ask the right questions, because they cannot produce a contract or an invoice!

    The only real function of banks is to act as a broker, to transfer your energy into negotiable instruments in the monopoly fiat money system. You create the credit on the credit card and the bank checks you use to buy a house with by your autograph on the credit and loan documents. The only legitimate charge for a credit card is the annual fee, for facilitating exchanges between you and the merchants. That is the function of a broker, not a lender.
    There is no money! There are no loans! There is no debt!

  12. Because of fractional reserve banking, and the fact that the debtor is actually the creditor, the banks do not have any of their own money at risk!

    The banks treat alleged credit card debt AS IF it were a guaranteed purchase contract, but no such contract exists! If you take them to court, they will settle,if you ask the right questions, because they cannot produce a contract or an invoice!

    The only real function of banks is to act as a broker, to transfer your energy into negotiable instruments in the monopoly fiat money system. You create the credit on the credit card and the bank checks you use to buy a house with by your autograph on the credit and loan documents. The only legitimate charge for a credit card is the annual fee, for facilitating exchanges between you and the merchants. That is the function of a broker, not a lender.
    There is no money! There are no loans! There is no debt!

    1. Brenden, if we got rid of fractional reserve banking, the money supply would be radically reduced and our standard of living along with it. Getting rid of fractional reserve banking would have about the same effect on the economy as banning loaning for interest. It would be for lack of a better term medieval.

      1. John, money is not wealth. Wealth are the goods that people produce and desire. By eliminating fiat currency, you remove the capability for politicians and oligarchs from artificially expanding and contracting wealth’s barometer – money.

        1. Wealth are the goods that people produce and desire. By eliminating fiat currency, you remove the capability for politicians and oligarchs from artificially expanding and contracting wealth’s barometer – money.

          By eliminating fractional reserve banking, you also remove much of the capability for businessmen and inventors to invest in producing goods that people desire.

          And I don’t understand your argument– would fractional reserve banking be okay on a gold standard? Also, you think that someone applying for a loan “creating money out of thin air with his signature,” and thus, by your view, decreases the value of the money owned by everyone else and creates inflation. And yet you don’t think that the person who is debasing the currency deserves to pay a percentage in interest?

      2. Yeah, these people are a bit odd. I’d be all for repealing legal tender laws and ending the Fed and all that, but I don’t see what’s wrong with letting the bank loan out most of my money.

      3. Anti-fractional reserve banking is anti-libertarian.

        Why shouldnt a business run on the fractional reserve model? It involves neither force nor fraud.

        1. I am fine with private fractional reserve banking as long as the bank gets charged with fraud if they run out of money and can’t pay their debts. Not paying a debt is the same as stealing.

          The present system is government giving protection to its own fraud and that of crony “private” banks

          1. Not paying a debt is the same as stealing.

            So you are opposed to bankruptcy too? Hey, its a consistent position, but I can generally distinguish between intentional acts and ones that arent.

          2. Not paying a debt is the same as stealing.

            So you seriously want debtors’ prisons brought back?

        2. Prohibiting it could be called a defensive measure against inevitable fraud.

          Think of it as corresponding to the way that keping convicted child molesters away from children is a defensive measure against inevitable force.

          1. Who are you Philip K Dick?

            The only legit means from keeping child mosters away from children is to keep them in jail. If they have done their time, they should be to travel/live anywhere they so choose.

            1. Ah, you’re childless then.

  13. With annual price inflation being 2-3%, I will actually lose money by saving it.

    SUCCESS!

  14. And don’t those cram-downs do wonders for bank balance sheets?

    It’s funny how little attention this gets, even in the “financial” press.

  15. A fool, or else someone who countenances the possibility that the future might be different than the present.

    1. Fuck it. This comment was intended as a reply to

      Brendan|4.26.10 @ 8:37AM|#

      This society owes me an end to tabbed browsing…

      1. What is wrong with tabbed browsing? Multi window browsing is clearly from satan.

  16. The writer from current.pic.tv is unfamiliar with credit. He wrote:
    “Credit card companies want you to be in debt.

    “They collect the interest you pay while you get to reap benefits of “rewards” and still pay more. If you credit score is higher, you have access to more:
    rewards
    high balance limits
    low monthly payments
    “In a sense, the higher your credit score is, the easier access you have to being manipulated by credit card companies.”

    No, they don’t want you in debt. The higher credit score shows you know how to pay your debts you can be trusted to continue paying in the future. That’s why you can more credit. You’re a reliable customer. Flip the scenario around: if you were not offered more credit and wanted more.

    1. The credit scores are poorly designed to reflect ability to pay debt.

      A multi-billionaire with no debt history has a credit score of zero, when they should have a maxxed out score instead.

      1. It’s not intended to reflect your ability to repay debt, it’s intended to reflect your likelihood to repay debt based on your past record of repaying debt.

        In the abstract, though, you’re right. A person’s ability to repay is just as much a function of his wealth/income as his responsibility. This is why local banks used to have “loan officers” who treated customers as “people, not numbers” yadda yadda yadda, but with bank consolidation, etc etc, that business model has become obsolete. So instead of doing their jobs, bank officers today just pass the buck to a standardized score threshold and call it a day. This way deadbeat customers don’t “belong” to any one particular loan officer and he can just get a bonus every year instead of being evaluated against his actual job performance.

        Kind of a rambling answer, but you get the point. Banks aren’t run the way they used to be anymore.

        1. I agree…and thats the problem. But even so, its clear who the test scores are designed for…more for the credit card companies and other consumer debt (distinguishing from things like mortgage debt) pushing entities. That it is then used for things like determining insurance rates is amazingly stupid.

          That banks make more loaning via credit cards instead of mortgage/car loans these days is part of the problem or they would be interested in creating a more reasonable system.

          There are still some mortgage companies that do manual underwriting, but its pretty rare.

        2. This is why local banks used to have “loan officers” who treated customers as “people, not numbers” yadda yadda yadda, but with bank consolidation, etc etc, that business model has become obsolete.

          Also because it’s extremely difficult to demonstrate that you aren’t being racist or otherwise biased when treating people with similar numbers different. Companies need a safe harbor.

          Sure, eventually it would cost the company money to discriminate, but I think it’s reasonable to assume that some discrimination existed.

    2. “”No, they don’t want you in debt. The higher credit score shows you know how to pay your debts you can be trusted to continue paying in the future. “”

      My grandmother filed for bankruptcy a couple of decades ago. Her debt was wiped clean. I was surprised what happened next. She got all kinds of solicitations from credit card companies. Why? Because they knew she had no debt. It was obvious that they were not concerned with her inability to pay the debt she had, but they wanted her to have debt.

      1. Not just that, but she was then prevented from filing another bankrupcy for a period of years (7? 10? I forget).

  17. “I will gladly give you a chicken, Tuesday, for a tonsillectomy, today.”

  18. Save or borrow, that is the question. If I save money in a savings account, like the one in the offer I just received from TD Bank, if I maintain a balance of $10,000, I’ll earn 1.4% annual.

    Well, then, don’t keep more than your emergency fund in a savings account. I’ve got a year’s worth of bare-bones living in savings a account, and the rest invested (coservatively) through a brokerage account. Right now, I’m getting around 7%/year on the brokerage account.

    I could pay off my mortgage, but since my after-tax interest rate is around 3%, I’m happy with the arbitrage.

    John, money is not wealth. Wealth are the goods that people produce and desire.

    But, without functioning credit markets and freely circulating currency, wealth declines – not as many goods and services are produced or purchased. Its a balance, to be sure, but going to either extreme doesn’t produce good results.

  19. “””I will gladly give you a chicken, Tuesday, for a tonsillectomy, today.”””

    Deal.

    While I’m good a being hungry, I’m not very good with tonsillectomies. But what kind of quality do you expect for a chicken?

  20. Tim, I just want you to know this is, like, the first conversation of, like, three conversations that leads to you being gay defaulting. Like, there’s this and then in a year it’s like, “Oh, you know, I’m kinda gonna want to get back out there out of my house, but and I think I like guys renting,” and then there’s the big, “Oh, I’m… I’m… I’m a gay guy defaulting now.”

  21. General Motors was allowed to file for bankruptcy, not pay it’s creditors, not pay health/pension benefits to workers…AND IT’s ALLOWED TO MAKE A PROFIT AND KEEP THE PROFIT.

    So why not the little guy?

    1. The little guy just needs to hire some union workers, that’s all.

  22. Whatever happens, the same rules should apply to individuals who default as to businesses who default. Why is it okay for a business to legally defraud lenders and suppliers and employees by “reorganizing” but its immoral for an individual to stop paying debts so he can purchase food/medicine/shelter he needs to survive?

    In business if you lend to a company that goes bankrupt you are considered to blame because you didn’t do your “due dilligence”. Banks, credit card companies, department stores, etc. etc. have the same responsibility before they lend to people.

    Predatory lending is an old and well known practice used to prey on people experiencing misfortune by taking advantage of their ignorance of the consequences of compund interest.

  23. Somehow this conversation started about loan mods temporarily hurting credit scores and turned into people with loan mods are bad borrowers looking for handouts from taxpayers. Not the case. In some situations perhaps. But let’s try not to generalize here. Some folks really do need help. Loan mods are typically used to help people afford payments on their mortgage. This doesn’t make someone a bad borrower. Especially when a lot of these folks have lost their job and the ability to pay crazy interest rates and whatnot but can’t sell because the market is garbage. The bank shouldn’t have given them a loan, they shouldn’t have bought a house, the market shouldn’t have crashed, etc. How can you say who’s at fault when everyone is pointing fingers at someone else? I digress..

    Whether your score matters to you or not, you should know what’s on your credit report. And it’s actually free here: http://www.ftc.gov/freereports

  24. A couple of question. Is loan modification any different than refinancing with another lender at a lower rate? Doesn’t original lender get beat for the interest?
    If foreclosed the property reverts to the lender for resale. They received interest and got the property back. Isn’t this the buyer/seller agreement most mortgages contain?
    With fractional banking that most banks use to lend it only takes a few payments to recoup their out of pocket costs so aren’t claims of huge losses overstated?

  25. Yes, there are bad borrowers, but business is complicit too. A lot of the mortgages involved lenders lying to consumers, and lots of sneaky, hidden clauses that blew up later. In retrospect, interest rates were too low, regulators were asleep, and as many have already said, too much easy money made everyone stupid.

  26. Interesting question. I was wondering yesterday what I could tell my son about buying a home in a housing bubble. The old wisdom was to not buy more house than you can afford, but if the prices are all artificially increased should buy anything at all? Whatever you buy is bound to go “under water” in the next recession or whenever the housing bubble collapses again.

    Maybe buy some credit default swaps?

  27. An interesting article about 8 differences between Canada’s banking system and the US system is at the link below. A good Quote:

    “And this recent financial crisis isn’t the first time that Canada’s banking system showed greater signs of stability and less exposure to stress than U.S. banks. In the 1930s, when 9,000 U.S. banks failed during the Great Depression, not a single bank in Canada failed. When almost 3,000 American banks failed during the Savings and Loan (S&L) Crisis, only two small Canadian banks failed in 1985, and those were the first bank failures in Canada since 1923. And while almost 200 U.S. banks have failed since the start of the global recession in early 2008, Canada remains the only industrialized country in the world that has survived the last two years of financial and economic stress without a single bank failure.”

    Personally I don’t like number 4 or 5 on the list (no tax deductions for interest and higher pre-payment penalties). Number 4 would give a competitive advantage to people who rent their property and number 5 seems like it would be anti competitive. However I think just implementing number 1 and number 3 (full recourse mortgages and higher mortgage insurance rates) on the list would probably do our banking system a world of good.

    http://american.com/archive/20…..ing-system

  28. If you think that there is something wrong with your credit history report should you get one from one of the major credit bureaus? Or would you suggest finding a company that specializes in bad credit history repair?

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