Really it's all perception...

This Sunday Morning I absorbed an article in the Real Estate section of our local paper that described more fun and excitement coming our way from our friends and Fannie and Freddie relative to 'risked based' pricing adjustments. I find that as I continue on this journey of life, my sense of humor seems to gain cynicism with nearly each passing day. Seems the mortgage oracle's know as Fannie and Freddie have finally figured our who is entitled to the best possible mortgage prices and who is not. Thankfully, they have this wonderful resource know as the Credit Score to draw these conclusions from. Our scores will now be the be all and end all to the pricing of our mortgage loans as well as the fee's we will or will not pay. Hallelujah! The mortgage industry is saved!!! Past errors can now be totally eliminated by simple adjustments to pricing based on a concise, totally accurate and non-questionable gage know as the Credit Score. Happy days are here again...... (Ya gotta love Joe Franklin! He always had such talent on his shows!)

Or are they? It wasn't too long ago that Credit Score's were a guide to lending money of any type. Mortgages, personal loans, credit cards, card loans were all granted using credit scores as a tool by which to make a credit decision. In fact, as recently as 20 years or less, while scores were available, declining an applicant based solely on scores may have been a violation of the ECOA. The spin doctors had to find another reason to decline an applicant, should they choose to do so. And they did! I was one of them. 

So here we are in 2008. There is no such thing as a local credit bureau. No place where an individual can get in their car and go to handle issues relative to their credit file with a service representative face to face. Tending to your credit file can be an absolute nightmare! Just try to get a representative from Equifax on the phone. I dare you. Though it can be a struggle, tending to and managing your file is essential these days since your credit score impacts so many portions of your life. Credit Scores aren't just for obtaining credit anymore either. Your 'score' may impact your car and homeowners insurance. Gazing into a crystal ball, one can see your 'score' impacting security deposits for basic utilities, perhaps even your health insurance. Can the price of fuel, health care and daily staples be far behind? Perhaps seating at concerts and sporting events will be organized by 'score' sections. 760 and above here, 720 and above here, etc. If your scores lower than a 680, you might want to bring your binoculars because your seats are going to be the worst in the house.

So let me get this straight. A third party gathers information and makes it available, for a fee, to lenders, insurance companies, etc. This 3rd party establishes a means by which to quantify all the data reported translating that into a 'Credit Score'. The formula for this score is hidden somewhere in a 'mayonnaise jar under  Funken-Wagnels porch', unseen and not published for public consumption. In fact, few if any people legitimately understand the formula. Explanations for the scores are always peppered with words like, usually, generally, should, may etc. Should data be inaccurate, it is the responsibility of the person about whom the information is gathered to dispute and / or correct the data with the appropriate credit bureau. In the mean time, the inaccurate information may be preventing that person from receiving the best possible rates, terms and prices. In other words, costing them money. Whats wrong with this picture??? I'll tell you whats wrong! Credit Bureau's were a tool, simply companies providing information that cpmpleted a piece of the lending process. They provided only 1 of the 4 C's traditionally used in determining credit worthiness. The other c's, character, capacity, and collateral don't seem to matter as much as they used to. How many times have you heard, "If LP or DU accepts the application, your good to go." I've heard it way too much. Yet nobody can explain to me how these engines measure character and collateral. Heck, capacity for that matters doesn't seem to matter either. I've seen loans closed in the last year with debt ratios of over 55%. That's against gross income! Leaves an applicant 15% of their net to live on. These examples alone exemplify what Credit Scores are actually doing. They are driving our business, pure and simple. What was a tool, is now King. That's sad. 

The shame of it is, I have no real solution to offer for this problem. I fear the situation may be too far gone. Many times in social conversations I tell folks that I feel incredibly lucky to have been born when I was. I got to see the best rock and roll acts in the history of our country come alive, develop and in some cases cease to be. The 60's and 70's gave birth to music that has had remarkable staying power. Just as lucky as I feel about being front and center to the birth and development of music. I feel the exact opposite about being front and center to the development of the industry of credit reporting. The major agencies are appearing to be larger than life. The service they provide those who's very lives they are impacting is mediocre to say the least. Contact with them is mostly difficult, if not impossible. Yet, it seems the the Oracle's have absolutely no problem reaching out and interacting with them.

A few notes - 1) The only comedy here is Dana Carveys stand up which involves the Regan Oracle, hence the politics's reference in the title. Sorry for the bait! 2) I would love to meet the guy or gal who sold the Credit Score idea to the bureaus. Now that person has got to be better than Zig Zigler any day! Or, maybe it was the Zigmiester himself.....