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Yeah, I know the average score is about a 670, so I would have thought that the range of, say, 650-680 represented at least half the population (bell curve style) and the rest were either on the bottom side or the top side of the curve....
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Whoa! According to Equifax, a 765 is the 50% mark. I don't buy it. 720+ is the top tier for financing (some lenders have a higher top tier). You wouldn't get the best available rates if your credit score represented the 'average'....
It's about 15 percent of the people who used to be able to buy a home but now can't and will be shut out of a mortgage but that's a tough percentage to swallow, in effect it's huge.
Imagine what would happen to car makers if tomorrow you removed 15% of the buyers, chaos and destruction.
But how many of that 15% were able to buy a home 5 years ago? The answer is probably close to zero. As credit tightens the number of buyers will shrink, and number of renters will increase. Mortgage financing will swing into the commercial and apartment market to satisfy the increased demand for affordable housing.
Just because one area of the market is hurting, doesn't mean that the whole market is going to crash. It just means that money is going to flow in a different direction.
The Shark
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But how many of that 15% were able to buy a home 5 years ago? The answer is probably close to zero. As credit tightens the number of buyers will shrink, and number of renters will increase. Mortgage financing will swing into the commercial and apartment market to satisfy the increased demand for affordable housing.
Just because one area of the market is hurting, doesn't mean that the whole market is going to crash. It just means that money is going to flow in a different direction.
The Shark
Ah but renters can't tap their landlords bank to spend money... consumers need cash to consume.
Renters don't spend like homeowners, they don't buy garden hoses, lawn mowers, washers usually or fridges, home improvement stuff, on and on.
It's all connected, yes apartment complexes will provide jobs for construction workers but it's not the same thing at all.
While the values are falling the money tap of current homeowners borrowing against their homes slows down, they in turn spend less, it contracts everything.
It's not like I'm predicting an end to life as we know it, just a slowing in it, more than most seem to think is all, I don't think we're going to see mushroom clouds because people get foreclosed on, just less stuff being sold that's all.
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At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.
~Abraham Lincoln Lyceum Address
Last edited by conraddobler; March 16th, 2007 at 12:46 PM.
Whoa! According to Equifax, a 765 is the 50% mark. I don't buy it. 720+ is the top tier for financing (some lenders have a higher top tier). You wouldn't get the best available rates if your credit score represented the 'average'....
Don't use the first link in that post, somehow I got the Canadian version.
The 50% mark, half higher half lower is 725.
Canadians have high scores.... good exotic dancers too... I wonder if there's a connection?
__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.
This is ironic, they make the mess Merrill is/was a huge driver of the subprime market by packaging these into bundles to sell off.
Dad, I messed up and set the car on fire, you can kill me now or you can spend your night putting it out and cleaning it up before it gets too bad, your choice but my buddy is picking me up I've got a movie to go to see ya later.
__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.
Honestly, the "magic number" should be at least 660, if not 680. I wish I knew the statistical breakdown of FICO ranges, but I'd suspect that 680+ only represents about 30% of the population, so loans would be very few and far between....
Well not really...that is about the magic number for unsecured lending. For secured lending....almost any FICO score is relevant and a good 1st position loan can be made. The key is the LTV. At less than 70% (or 80%) LTV almost any Real Estate Secured loan is good. Prior to getting into too much trouble most people can bail out and unload the house. Or if foreclosure is necessary, then there is sufficient equity to repay the loan.
It is the combination of low score and high LTV that is dangerous and is what is getting lenders in trouble.
What is the max credit score? I thought it was 850 but found that's not so true.
The Fair Issaac (FICO) scores max is 850. The minimum is like 450. There is a competing score that is coming out that has a different scale...I think up to 900, but not very many lenders use it currently. The scores are just a translation to a scale for a person's odds of going 90+ days past due on a loan.
Well not really...that is about the magic number for unsecured lending. For secured lending....almost any FICO score is relevant and a good 1st position loan can be made. The key is the LTV. At less than 70% (or 80%) LTV almost any Real Estate Secured loan is good. Prior to getting into too much trouble most people can bail out and unload the house. Or if foreclosure is necessary, then there is sufficient equity to repay the loan.
It is the combination of low score and high LTV that is dangerous and is what is getting lenders in trouble.
Secured or not, lenders are not in the business of acquiring and selling homes. The "magic number" SHOULD be 680, or so. LTV does matter, but honestly it should only matter in terms of getting a better rate with a lower LTV compared to the higher LTV. I still think a natural, sustainable lending market would rest at 680. LTV does not determine the likelihood of a borrower paying on the loan that is made. FICO score determines that. So, in that respect, I fully disagree with you....
The Fair Issaac (FICO) scores max is 850. The minimum is like 450. There is a competing score that is coming out that has a different scale...I think up to 900, but not very many lenders use it currently. The scores are just a translation to a scale for a person's odds of going 90+ days past due on a loan.
I often wonder how you'd get to 450? That would be a feat. You'd almost have to pull up a chair everyday at each creditors office and mock them to get that low.
The score though was originally developed by banks and I've argued for years that it's used oddly in mortgage lending.
I agree at higher LTV's it should come more into play but honestly it shouldn't matter at all at lower LTV's, I'd argue that if you can prove you pay your old mortgage well or your rent well that at a 70% ltv it's meaningless.
__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.
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