Saturday, March 20, 2010

Credit Scores and Correlations, with a little Politics

Yahoo News has a story about loans and credit scores. It starts with the typical hook of misstating the case and then appeal to pity:
WASHINGTON (AP) -- Some homeowners who sign up for the government's mortgage assistance program are getting a nasty surprise: Lower credit scores. For borrowers who are making their payments on time but are on the verge of default, the Obama administration's loan modification program can reduce their credit score as much as 100 points. That makes it harder to get a loan and can present a problem when applying for a new job. Housing counselors say it's unfair, especially because the news often comes as a surprise to homeowners.
Doesn't anyone notice that the whole idea of credit score is Character, Capital, Capacity? If you need the credit modification, you are implying that you are having trouble paying off your current obligations. If so, why would you expect that your credit score wouldn't reflect that? If your capacity isn't up to your current loans, why is anyone surprised that the credit rating drops to reflect that and make it harder for you to borrow even more?

Here's the "correlation does not imply causation" part:
"Why should people's credit be hurt even worse when they're trying to do the right thing?" said Eileen Anderson,

And many homeowners are angry that a program designed to help carries such a penalty, said Kathy Conley. "It's a feeling of being duped,"
Interesting how the President's program is blamed for the drop, not the credit agencies who change the score or the homeowner whose financial situation does not warrant a high credit rating.

Dude wanted a car.
"[he] had to apply for the loan. He was shocked to learn that, after signing up for the Obama plan, he was denied. "I should have been told," that this might happen, Owens said. "Without credit, you can't do a whole lot in life."
Dude is a moron.

1 comment:

  1. Well, at least maybe that kept Dude off the streets!