July 19th, 2010 12:52 PM by Christopher Terry
Sub-prime lending maybe the only way out of this housing crisis. New data released from FICO Inc. shows that 25.5% of consumers now have credit scores of 599 or less. That's more than 43 million people and it's growing everyday thanks to unemployment levels that appear will remain high for the next 5 years. Historically less than 15% of consumers had credit scores of 600 or lower. It's a growing market and without sub-prime lending, which is all but dead, are we prepared as a country to say to a full quarter of the population that there simply does not exist a way for them to obtain mortgage financing to purchase a home? What happens when it reaches 30% or more?
Ok, we all know that sub-prime was the trigger that started the meltdown, but sub-prime had been around for years and years without creating problems for the entire economy. Yes defaults were higher with sub-prime, but lenders off set the risk with greater fees and higher rates, it was normal checks and balances. That is until economic and market forces created an unsustainable housing bubble. But still sub-prime does have its place and there is a need.
Now we (the U.S. consumer) are facing another possible hit. The new financial reform bill. Jamie Dimon, CEO of Chace, says that he beleives that the finance reform bill could cost his company up to 11% of its profits. He says; "If you own a restaurant and you can't charge for the soda, you're going to charge MORE for the burgers." What's that mean? Banks are going to charge us more to offset the costs of financial reform. Financial reform which could make it harder to qualify for a mortgage and could lead to higher interest rates. Here's an article written by Gibran Nicholas, Chairman of the CMPS Institute, that reviews two features of the financial reform bill that will effect home buyers and sellers.
Ahh, our fearless leaders hard at work! More government ultimately being financed by us.