Surprise! Many Decent People Default on Mortgages
The credit bureau TransUnion reports what many of us already know. Lots of mortgage defaults are caused by one-time, bad breaks affecting decent people. These events really don’t say much about those consumers’ basic creditworthiness.
- Credit monitoring giant says many defaults not linked to creditworthiness
- Job loss, illness, plain bad breaks make repayment impossible
- Who advises consumers about the risk of a credit transaction?
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Wanted: Advice for Prudent People about Credit Risk
Most defaulting mortgagors aren’t just deadbeats who rolled the dice and came up craps. People who took out mortgages during the housing bubble included outright frauds and incautious speculators for sure. But most borrowers simply needed or wanted to buy a home, and it got very easy to buy one with no money down and no stated income.
Obviously though credit risk has to consider not just how moral a person is, but also the person’s ability to repay a loan despite losing a job, or suffering a serious illness. I mean, we put the nations’ banks through just such "stress tests." It’s not news that illness and related health-care costs trigger a lot of personal bankruptcies. The point TransUnion is trying to make is that defaults of these kind shouldn’t unduly hurt a person’s ability to get future credit.
A company like TransUnion makes a business by rating or at least providing input on how much repayment risk a borrower poses to a lender. I’m not aware of any company making a business telling borrowers how much risk a credit transaction poses to them. Probably there’s no money in it. Maybe this is something the Consumer Financial Protection Bureau can look at when and if it ever gets going for real.
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