Monday, October 29, 2007

Sub-prime Intelligence, revisted

Last week I shared with you the story of a company that basically rents the good credit history of individuals to people with less-than-perfect pay histories for the purposes of getting preferred interest rates on loans with artificially inflated FICO scores.

The owner of the company, Ted Stearns, CEO of TradeLines, called me the next day, wishing to explain what his company does.

We didn’t get to chat, but someone with TradeLines posted a rebuttal to my blog. Because the comments contained blatantly commercial material, I chose to not clear the posting.

Hey, this is my Blog, I am King, and I choose what appears.

However, I feel a responsibility to you, dear Reader, to give as fair and balanced a perspective as possible. So, I am sharing with you most of the comments from Tradelines below. And, because this is my Blog, I am taking the liberty of inserting comments where I deem necessary.

"Some people still don’t get it. Trade lines are not a way to LIE about your credit to get yourself to a place you don’t deserve. Brent Clanton at his blog not only has a serious problem with bettering someone’s credit through “credit piggybacking,” he also seriously misunderstands WHO is getting them and WHY.

"From his comfortable arm chair he expresses, “By allowing a person with flawed pay history to sign-on to an established account that shows no payment flaws does not remove the fact they’ve been poor credit risks in the past. It is basically lying to the lender considering the creditworthiness of the applicant.” What he doesn’t understand is that our business is not about peddling “credit worthiness” to the undeserving."

I must pause here to note that credit worthiness is not something that is deserved, but is earned through time and practical experience. I speak from such experience, both as a credit manager and buyer of commercial paper, but also having gone through rough financial times personally--and surviving, without bankruptcy or borrowing someone else's pay history. And yes, it is a comfortable armchair--burgundy leather Lazyboy. Paid cash for it.

"Most people who come to us to boost their credit scores are those who had excellent credit a year or two ago. They had excellent credit before they were talked into an Option ARM loan that has since adjusted through the roof. They can no longer make their payments and their credit has slid. By raising their credit 100 or 200 points in 30 days, they can refinance at a fixed low-interest rate and keep their homes."

...or they can go to the lender directly, and work out a custom arrangement that fits their unique situation. And it won't cost them hundreds of dollars to "buy" someone else's credit rating.

"That is who comes to us “ honest, hard-working Americans who have been raped by the greed of crooked lenders. Never in the history of our Nation have people been taken so advantage of. It’s reminiscent of The Carpetbaggers who ran to the South to take advantage of a broken people after the Civil War. This is greed at its peak and we are witnessing it again."

I will not argue that greed is the root problem in most financial fiascoes. Unlike the Carpetbaggers of the 1860's, however, the public today is a bit more discerning, and there is ample disclosure available on all mortgage loans. The comparison is ridiculous.

"Aside from those who had excellent credit, there are those who have had shaky credit and were also given poor loans that did nothing more than worsen their situation. Higher interest rates, pre-payment penalties and extra loan fees were given to those with shaky credit not to mention those who were discriminated against for ethnic, not financial reasons."

No one held a gun to anyone's head at the closing table. If there was any advantage taken at anytime in the process, it was willing borrowers being led down a primrose path paved by the optimistic futures painted by the sellers of easy credit. Again, there is more than enough disclosure to reveal the consequences of an ill-timed adjustable loan closed when rates were at historic lows.
C'mon, what did you expect those rates to do?

"Brent continues, “By allowing a person with flawed pay history to sign-on to an established account that shows no payment flaws does not remove the fact they’ve been poor credit risks in the past. It is basically lying to the lender considering the creditworthiness of the applicant. This is unconscionable. It may be legal, but it’s morally reprehensible. Guess some people just don’t get it.”

I stand by that statement.

"If that were the business we were in, yes it would be deplorable. But that is not who we are. We have a strict screening process and scrutinize every applicant’s credit history. People who have missed mortgage payments when they should not have, are not accepted. We are not providing a “get out of jail free” card to those who have never been financially responsible. We are helping those who have been taken advantage of to keep their homes and their dignity.

"We are about the American dream. We are about financially healthy families. We are about giving people hope in desperate times."

At this point, the posting turned into a commercial, and the comments were truncated by moi.

If you care to follow-up with this story, Ted Stearns is scheduled to be my guest in the morning (Tuesday 10/30) at 7:35a CDT.
Should prove interesting.
I'll see you in the morning on the Radio.

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