ANOTHER DRAG ON THE ECONOMY?? AN UNTOLD STORY. The Loss of Consumer Credit.

By
Real Estate Agent with Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate 303829;0225082372

WHAT'S WRONG WITH THIS?

     The American consumers are offered an individual "WORK-OUT". 

     The Wall Street investment giants are offered a group "BAIL-OUT".

No matter what the cause of the American consumer's real estate financing problems, it will probably have a negative effect on their credit report and credit score.  Many mortgage banks will not entertain a short sale for a property until the home owner was in arrears on their mortgage payment. 

Fact:  Foreclosure will be on a credit report for about 10 years.

Fact:  Mortgage arrears:  30 days, 60 days, 90 days, 120 days, will be on a credit report for many years.

Fact:  Bankruptcy will be on a credit report for 7-10 years. 

Fact:  The cost of automobile financing will be high.   What's the interest rate on a "sub-prime auto loan?"

Fact:  The loss of consumer credit will affect the economy and value of stocks, 401Ks, etc. 

Fact:  Many employers now review credit reports in the hiring process.

All of the above will result in a reduction of credit score. 

WALL STREET vs. MAIN STREET.  Once negative information is on a credit report, it often takes years, many years, for the negative information to work it's way off, even after the debt is paid. 

A late mortgage payment is going to be on a consumer's credit report for years.  When a Wall Street executive leaves a company, he gets a severance package of many $Millions of Dollars even if the company has lost $Billions under his leadership. 

The consumer pays over and over for credit impairment.  The Wall Street executive is PAID for his failure.

CREDIT SCORE 500?  WHAT CAN A CONSUMER DO WITH THAT??  WHAT WILL THE CREDIT COST BE FOR THE CONSUMER??  How many years will it last?

LOST CREDIT.  A secondary casualty of the mortgage mess.  Little has been written about the lost credit and the lost opportunity for many American home owners for years to come. 

LOST OPPORTUNITIES.  What about the lost credit of so many American consumers??  Many of the "workout" schemes foisted on home owners won't even touch a home owner until they have effectively ruined their credit for many years.

This affects the consumer is so many ways. 

  • They may not be able to get home owners insurance except in pools.
  • They may not be able to get automobile insurance except in pools.
  • They may not be able to get consumer credit except at usury rates or secured credit cards.
  • They may not be able to use credit to co-sign student loans.
  • They may not be able to get a Real Estate Broker license in some states.  (MD requires a credit report).
  • They may not be able to get checking accounts at some banks.  BankOfAmerica pulls credit report.

Most financial transactions in the U.S. require a credit review. 

I wonder if Secretary Paulson pulled the credit report for the Wall Street Giants he wants to bail out.

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.  Real estate talk.

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Comments (76)

Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

David.  Don't leave us hanging.  Or else what. . . . . ?

Sep 27, 2008 07:03 AM
Anonymous
Anonymous

I wonder sometimes if the ones who filed bankruptcy or the ones who got foreclosed on are going to be the big winners in all this.  They no longer have any debt obligations to worry about, unlike myself who is in debt and will lose thousands just to sell my now worthless house.  I guess my generation (late 30's) don't see bankruptcy as that big a deal anymore.  It sure seems like everyone I know is doing it to get out from under all the payments.  In a strange way I kind of envy them.  Isn't it sad that our once great country is now on the verge of collapse.  Then again I guess everyone of us will be in the same boat, hungry, homeless and broke . 

Sep 27, 2008 07:18 AM
#59
Frank & Jodi Orlando
Frank & Jodi Orlando Get Us A Home Realty Atlanta Homes Sale - Cumming, GA

Lenn, we have a second on a rental property, they froze the account even though our credit is excellant (we never used any of the funds). We know of a couple folks whose equity lines have been frozen, also good credit standing. Kinda PO'd that losers get money, citizens do not. Shoot, you better have ar least a 720 score nowadays...

Sep 27, 2008 07:25 AM
Alan Barker
Boomerang Leads - Smithfield, UT

All the more reason to learn to live within your means and have savings....

Sep 27, 2008 08:17 AM
Rebecca Levinson, Real Estate Marketing and Online Advertising Consultant
Real Skillz-Clear Marketing for Your Real Estate Vision - Lake Geneva, WI

 

Great conversation here.  It's important that we talk these things out.  The solution comes in the understanding- there hasn't been a spotlight on clarity for years.

Interesting dialogue on Cartus and USAA's credit check and background check requirements.  I worked for Cartus as a relocation specialist back in 2001 when they had gone thru two mergers (PHH Home Equity and the other one escapes me at the moment).  They were Cendant in 2001.  They didn't do background or credit checks then...but you know, they are more corporate now than they ever were- and corporate America feeds off perception.

They did still want your 35% referral fee though:-)

Sep 27, 2008 08:19 AM
Michael Eisenberg
eXp Realty - Bellingham, WA
Bellingham Real Estate Guy

In 2007, Wall Street's five biggest firms - Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley - paid a record $39 billion in bonuses to themselves.

That's $10 billion more than the $29 billion loan taxpayers are making to J.P. Morgan to save Bear Stearns.

Those 2007 bonuses were paid even though the shareholders in those firms last year collectively lost about $74 billion in stock declines - their worst year since 2002.

Sep 27, 2008 08:23 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Frank and Jodi.  HA!  My HELOC was frozen 6 months ago.  "Lower valuation" they said.  Not a problem.  I never used the thing anyway.

Alan.  I agree completely.  Savings are good.

Rebecca.  I stopped taking referrals from relo companies in 1994.  Even as a broker, I wouldn't pay a 35% referral fee.


Michael.  Thanks for those numbers.  Just makes us want to scream.

Sep 27, 2008 08:48 AM
Charles Stallions
Charles Stallions Real Estate Services - Pensacola, FL
800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl.

We are all preaching to te choir here. We need to call our elected official or e-mail them our post and comments. I call mine then I post. I even have forward links to him. I told him he wanted to see the pulse of America he needs to join A/R. This whole thing was avoidable with just simple guidelines in place or leaving the ones that we had. The worst part is they ( congress ) doesn't care and we don't have time to voice our opinion and it is going to get a lot worse.

Sep 27, 2008 09:41 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Charles.  It appears that it is getting worse, as we speak.

 

Sep 27, 2008 10:02 AM
Fran Gaspari
Patriot Land Transfer, Inc. - Limerick, PA
"The Title Man" - Title Insurance - PA & NJ

Lenn,

Hopefully, this will breed a new generation of responsible consumers...who operate within a budget...and use resources thriftily and carefully...and not impulsively!!! Thanks,   Fran

Sep 27, 2008 10:30 AM
Esko Kiuru
Bethesda, MD

Lenn,

That's the irony of this bailout plan now being worked on in Washington that those who royally messed up the finance market are being helped become whole again. Fortunately the original plan met enough opposition so that the new one should balance things out better.

Sep 27, 2008 10:43 AM
Everard Korthals
---Preferred Lifestyle Advisors--- - Lancaster, PA
Mountain Realty

Lenn,

 

EXCELLENT ARTICLE. We're so glad you touched on this. This can't be more true, sadly. 

latest news = Wachovia is looking for buyers... Things are definetely getting worse. 

Protect your assets, don't invest in online markets and instead move them into treasuries or gold.

Be careful out there folks, this is a dangerous time.

Sep 27, 2008 10:55 AM
John MacArthur
Century 21 Redwood - Washington, DC
Licensed Maryland/DC Realtor, Metro DC Homes

Lenn - thank you for again taking the time to point out the obvious. I just think that the old saying ' buy new and wear it out...pay with cash or do without.........has a lot of merit that has been overlooked in the last 20 years.

Sep 27, 2008 12:11 PM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Lenn.... I haven't read any of the comments.... and this is one topic that I decided not to read about at all, until the dust settles. But you usually write interesting posts, so I decided to read yours. Yes, all of this can and will be a negative to the consumer. But I ignore most of what the gov't is trying to do... until they go after the CEOs and CFOs of these large companies that turned a blind eye, just to receive high bonuses, then our gov't is just as corrupt as the individuals that did a lot of this...  cooking the books, misleading Wall Street and investors about many loans that were actually poor performing loans, etc etc....  it's just starting to be uncovered now.

jeff belonger

Sep 27, 2008 01:39 PM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Fran.  Eeeek!  I'm an impulse shopper.  However, I am not an habitual shopper.

Esko.  I'm not so sure.  The original proposal was merely $700,000,000,000 to buy Wall Street's bad paper and unclog the credit lines.  Unfortunately, with time, Congress did what Congress does, made the bill larger and added the usual earmarks for cronies and money to further their social agenda, about $30,000,000,000 the last I heard. 

John.  Agreed.  Did I ever tell you about some home buyers who I knew were in trouble when they paid for their McDonalds breakfast with a credit card? 

Jeff.  Goodness, I thought that a mortgage industry representative would have written about this long before now.  The focus has been on the Wall Street moguls with their $Millions and $Billions.  My concern is the family that is now in trouble, doesn't matter why, who will suffer for many years, perhaps for the rest of their life due to loss of credit.  Loss of credit costs many American consumers continued grief and money for years and years. 

A late mortgage payment is going to be on a consumer's credit report for years.  When a Wall Street executive leaves a company, he gets a severance package of many $Millions of Dollars even if the company has lost $Billions under his leadership. 

The consumer pays over and over for credit impairment.  The Wall Street executive is PAID for his failure.

 

Sep 27, 2008 09:57 PM
Fran Gaspari
Patriot Land Transfer, Inc. - Limerick, PA
"The Title Man" - Title Insurance - PA & NJ

Lenn,

So am I, but I try to compensate for my impulse shopping by my discreet buying habits!!! LOL, Thanks,   Fran

Sep 28, 2008 12:23 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Lenn.... I would have written about it a while back.... but I much prefer writing educational pieces about FHA.... and not about our failing market and or economy. Some people such as yourself are better at this....  but I also want to get business from the consumer. Posts suchs as these and the one that I just wrote,

Stop pointing the finger !!!!! We screwed up !!!!

are usually boring to the average consumer. But I do hope some on Capital Hill read these..... just my opinion and .02.

jeff belonger

 

Sep 29, 2008 04:43 PM
Dale Terry
Yadkinville, NC

Lenn, I agree on your comments, but would like to add a couple.  Years ago the banks were running out of customers to lend to.  They had already made money on all the credit cards, personal loans, auto loans,etc.  So they went after mortgages.  They got a willing Congress to change time tested loan standards and the start of this mess began.  They pushed for credit scoring (there was a time without scores) because it allowed them to make loans without standards.  Now the scores are going to be used to punish the consumer even harder.  But once the banks get their pound of flesh, they will revert to the greed that got them and us to this point.  Some bright person will say that a credit score isn't indicative of a persons abilitiy to pay- and it will start all over.

Sep 29, 2008 11:38 PM
Maureen Megowan
Remax Estate Properties - - Palos Verdes Estates, CA
Palos Verdes Real Estate Blog

The media has got to stop calling the financial industry rescue bill a "bailout". This has such negative connotations, that I think that this has led to a lot of confusion as to what the bill actually does. I think that the biggest problem in getting this bill passed is that the administration has done a horrible job in marketing the bill to Congress and especially to the public. The public really has no idea as to the effect on their everyday lives that the financial crisis will have. Over 50% of the public have investments in stocks in their 401(k)s, most have most of their net worth tied up in the home equity, and others can not get credit for student loans, etc.

The important thing to understand is the critical lack of capital in the financial system. Without new capital, lenders are unable to extend new credit. This bill is designed to alleviate this log jam by providing fresh capital to make new loans. It is absolutely critical that this bill get passed in some form .

Oct 02, 2008 08:44 AM
Cathy Tishhouse
RE/MAX Showcase Homes - Royal Oak, MI
Royal Oak Real Estate

Well said - "work out" vs. "bail out".  I think consumers are being give a lot of wrong information.  I have a client who was in default, got scared and tried to "work it out" while going for a short sale.  We finally had an offer and the banks turned it down as they "were working it out" and now they are giving up and filing Chapter 13.  Their financial advisor/attorney said it was best and they are under the impression the impact will not be what you described above.

Oct 08, 2008 11:47 PM

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