As lenders Foreclose the Credit Scores of Borrowers Get Battered

Posted on October 1, 2009
Filed Under Foreclosure Homes | 3 Comments

As lenders quicken their foreclosure activities the credit scores of borrowers are getting battered. Even after the economy recovers for a long time afterwards millions will be pulling along a grim legacy of the worst recession since decades. The credit scores will be damaged. This in turn will make it next to impossible for them to start life anew by getting new loans and credit.
As soon as one group of consumers is trimming down their debt liability another group is falling back in their mortgage payments and courting foreclosures. Unemployment is also hurting their credit card dues.

The activities of the lenders are affecting even those with prime credit. Lenders are shutting down accounts of credit card holders and bringing down the limits for millions. This is affecting ordinary consumers as well as businessmen. Even those who have been always been current are now being negatively impacted by the attitude of the lenders. Consumer scores are being affected making it impossible for the victims to get back on their tracks.
Lenders are now experimenting with a new scoring systems that the industry thinks is better tuned to predict risks. This could push the consumer ratings by over 20 points either way – upwards or downwards. FICO is the most widely used credit score and it ranges from the lowest which is 300 for the poorest to the excellence of 850. In general those who have 750 scores are qualified to avail of the lowest mortgage rates.

John Ulzheimer of Credit.com said, “The credit environment has a whole lot of moving parts that weren’t there three years ago. Consumers can’t just sit still and expect all is well.Starting from the third quarter of 2006 and continuing up to the second quarter of 2009 the “deep sub-prime†consumers with low credit numbers increased from 34.4% to touch 39.8% as per the findings of Experian Credit Buerau and Oliver Wyman dealing with credit consultancy. Having such low scores they can avail of loans having high interest only. Simultaneously the number of those qualifying for the lowest convenient rates dipped considerably. Most of them cleared their bills later than usual.

The foreclosure dominated crisis has made lenders very cautious about taking risks – and hence the necessity of these steps. Some of them are worried about the overall impact but they say that determination of the scores are not in their hands.

Caludia Callaway of Katten Muchin Rosenman – a firm representing the lenders, said, “Banks have no motivation to take an action that will impair someone’s ability to obtain credit.

Popularity: 4% [?]

Related Tags

Nobody landed on this page from a search engine, yet!

Comments