How Low Can It Go?
So, you’ve got auto loan defaults triple the “old average”. Mortgage foreclosures in never before seen numbers. I’m guessing that credit card companies are being stiffed left, right and center.
These average people who are so broke that they can’t pay their car loans, their credit cards, home loans, tuition loans – say the economy turns around, what will this do to their future credit rating? Hey, think about it for a minute. So many people all in the same boat at this same point in history, how will the credit reporting companies deal with this in the future?
Will all of these people have to wait five to ten years for this economy to fall off of their record? Will the credit companies give them a pass because defaults are driven more by this hard economy and less by simple deadbeats? Will we have a HUGE and disproportionate section of the consuming public that is not qualified to buy a home or a car, get a student loan, a personal loan, much less a credit card?
I know most of those people did not have any ability to pay once the economy turned. But what does this mean in the big picture in the future. Sure, they don’t worry so much now – no one can get credit now, even those with decent credit scores. I mean, I remember when a 675 score was considered OKish, now no one will even look at you under 780.
So now, in a very short period of time we will have a huge segment of society that are the new untouchables. Not everyone that loses their home, or defaults on their car couldn’t afford the payments when they made the purchases. Not everyone was a deadbeat helped out by a program doomed to self-destruct.
I know that underwriters can look at variables that distinguish between the deadbeats and those that did everything right and got ruined by the economy in spite of their best efforts. What I don’t know is, how is the coming tsunami of low credit scores going to impact a recovering middle America? Well, as that may be quite a long way off, it may be a slow trickle back to the loan officers desks.
But I do wonder. “Sorry Mr. Jones” “Although you paid your mortgage on time for eight years, had your auto loan seventy-five percent paid up before being, ahem, forced to default when your employer was restructured by the US Government and your whole plant was fired, the fact that you defaulted can’t be changed.” And can you imagine the interest rates these people will be facing because of the low credit scores? If a lender would even consider them, that is.
A whole big segment will hold off on making the major purchases out of fear that this may happen to them again, and because they face sky high interest rates when they try to reestablish themselves.
Insult on top of injury.