The C's of Good and Bad Credit Analysis

As competition increased between savings and loans, banks, and credit unions, banks were eager to attract loan applicants in order to increase revenue and compete with other financial institutions. Jack S. Light, the author of Increasing Competition between Financial Institutions, said in his book that “commercial banks are diversifying their assets toward higher percentages of mortgages and consumer loans, and thrift institutions are seeking authority to diversify their loan structures. Moreover, mounting pressures are working toward, and have partially succeeded in, changing the authority of thrifts to include third-party payment accounts similar to commercial bank demand deposits.” (Light) Because of this eagerness to bring in new clients, they were willing to give out loans without checking into the financial stability of the borrower or the business that was requesting the loan. Unfortunately since the banks didn 't look into their clients’ financials adequately, many clients defaulted on their loans because they could not afford the payments, especially when balloon payments started.

The financial crisis emerged because of an excessive deregulation of business operation of financial institutions and of abusing the securitization mechanism in the absence of clearly defined rules to regulate this area in the American mortgage market (Krstić, Jemović, & Radojičić, 2013). Deregulation gives larger banks the opportunity to loosen underwriting lender guidelines and generate increase opportunity for homeownership (Kroszner & Strahan, 2013). After deregulation, banks utilized many versions of mortgage loans. Mortgage loans such as subprime and Alternative-A paper loans became available for borrowers challenged to find mortgage lenders before deregulation (Elbarouki, 2016; Palmer, 2015). The housing market has been severely affected by fluctuating interest rates and the requirement of large down payment (Follain, & Giertz, 2013). The subprime lending crisis has taken a toll on the nation’s economy since 2007. Individuals who lacked sufficient credit ratings or down payments resorted to subprime mortgages to finance their homes Defaults on subprime and other mortgages precipitated the foreclosure crisis, which contributed to the recent recession and national financial crisis (Odetunde, 2015). Subprime mortgages were appropriate for borrowers with substandard credit and Alternate-A paper loans were

By observing a thorough interview of many borrowers who are already in a state of wage garnishment or tax offset, it dawns upon us that they don’t receive adequate notice or instructions on their options to get out of default. Such revelations can often be quite complex to deal with esp. when it comes to the audacious in lax front-end lending policies for borrowers with as many as 25 or more individual loans serviced by multiple loan servicers with different statements, due dates, and phone numbers.

In the time between the end of World War II and the early 2000s, the ways consumers used debt changed significantly. However, one thing remained clear, borrowing became the new lifestyle that most Americans adopted. Borrowing allowed the average working and middle class person to purchase homes and the items that filled their interiors. It also became the fuel to a resurrecting economy. The trust between borrowers and lenders has encouraged the stimulation of the economy. Because of this, debt has played a crucial role in American history.

Within the constructs of a mortgage lending plan, whether traditional or modified, there will be a clause that requires every consumer seeking a loan to pass a “Mortgage Loan and Foreclosure” course in order to receive a Consumer Intelligence Certification (C.I. CERT). The federal government will require, through oversight of the CFPA, that every bank includes this C.I. CERT within the lending process.

people's need for extra funding has led to the extension of credit to large segments of the population who were previously deemed unqualified. However, some lenders have tried

Five hundred and thirty-six. That number could represent the amount someone has in their bank account, or maybe a number of licks it takes to get to the center of a Tootsie roll lollipop, but if that number represents an individual’s credit score then they have an extensive and tedious road ahead of them. Credit scores have an uncanny ability to alter the way professionals view an individual in a professional environment, deny hardworking individuals from bettering their circumstances, and mainly hold a negative affect towards lower income individuals. A credit score is the utmost important number a person has because this one number determines how a person lives each day and is the last legal form of discrimination in America.

credit score. A few simple tips are all you need to know to understand the basic

First of all, the lower the interest payments on car loans, the lower the monthly payments, there is not mystery to that philosophy. However, consumers who shop around for low rates may stand a better chance of credit approval if they do qualify for the lower rates. Banks and lenders use what are known as compensating factors in their credit decisions. The factors include healthy assets, strong work histories, low debt-to-income ratios and solid incomes. Although a person’s credit scores may be low, good compensating factors help offset those scores allowing them to qualify for lower rates. Shopping for lower rates essentially increases a consumers chances for credit

Now remember, I said one minor credit mishap, but most of them are minor. But this isn't the real credit problems that most people face. The more serious problems are the ones where there are blatant patterns of credit problems that happen often and consistently. What are these problems you may ask?

With the hunger for yields driving down rates across the fixed income market, an increasing number of articles are coming out warning of lower underwriting standards and the danger in covenant-lite (cov-lite) investments. Covenants on high yield bonds and bank loans are loosening; however we are not observing the excesses of a late-cycle boom. It is easy to point to a few statistics and draw startling conclusions about the below investment grade market. While cov-lite loan issuance is increasing, these securities still provide protection to secured lenders. High Yield bond covenants have also been weakening. Issues are coming to market with investment grade style covenant packages that do not provide strong liens and change of control protections. While loan and bond covenants are getting leaner, credit fundamentals still remain robust.

This is a problem because now the banks have little incentive to give people loans that they can pay back. So they will just give them higher loans, because if they can’t pay them back, the bank doesn’t get hurt. Whoever originally gives out the money must be held accountable for its repayment; otherwise there is a serious conflict of interest.

Who does not want to gain a good reputation? If you wish to be approved on loans applied, then avoid the following:

It should be noted, prior to the crisis, there was already an increasing concern of economists and critics about the credit quality that was provided by the financial sector at the time when there was low interest rates that were applied by the government. There were also issues about the inappropriateness or ineffectiveness of the standards that were used in extending credit by the financial sector (Calvo, 171).

As technology improves, the wide use of “hard information”, such as the borrower’s credit history, reduces informational asymmetries. Therefore, long-distance small business lending is easier (Frame, Srinivasan, \& Woosley, 2001; Petersen \& Rajan, 2002). However, even with the use of credit score data, collecting ``soft information" still helps local lenders control risks to avoid delinquency (DeYoung, Glennon, \& Nigro, 2008) and provides informational advances in offering more favorable rates (Agarwal \& Hauswald, 2010).