Should they let people give up their homes without dinging their credit?
Filed under: Debt, Real Estate
I'm continually encouraged by the quality of some of the comments we get here on WalletPop (To the guy who keeps spamming us with links to obscene stuff: I'm not referring to you!). In response to a post I wrote about bailouts for distressed homeowners, one reader had an interesting suggestion:
To me, the fairest solution would be simply to not record foreclosures from the evicted persons' credit reports, if the risks of the associated loan were not disclosed to the buyer and the buyer purchased for living, not speculative, reasons. If homeowners have to again become renters, I have to say, it won't be so bad and, when prices fall again, they'll be able to get back into the market with much more confidence, because it will be affordable.
The logistics of it aside -- not sure how you could convince lenders/the credit bureaus to expunge bad stuff from people's credit reports -- the concept is intriguing. It would be a way to let people get out of bad situations without having their credit hit so badly that they won't be able to by a home for years without using a subprime lender which, I seem to recall, was one of the causes of this problem in the first place.
I'm sure this will never happen and, if it did, it would severely damage the credibility of credit reports/FICO scores. Still interesting to think about.
To me, the fairest solution would be simply to not record foreclosures from the evicted persons' credit reports, if the risks of the associated loan were not disclosed to the buyer and the buyer purchased for living, not speculative, reasons. If homeowners have to again become renters, I have to say, it won't be so bad and, when prices fall again, they'll be able to get back into the market with much more confidence, because it will be affordable.
The logistics of it aside -- not sure how you could convince lenders/the credit bureaus to expunge bad stuff from people's credit reports -- the concept is intriguing. It would be a way to let people get out of bad situations without having their credit hit so badly that they won't be able to by a home for years without using a subprime lender which, I seem to recall, was one of the causes of this problem in the first place.
I'm sure this will never happen and, if it did, it would severely damage the credibility of credit reports/FICO scores. Still interesting to think about.
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Reader Comments (Page 1 of 1)
4-14-2008 @ 3:05PM
Erwos said...
First, like you said, your solution is essentially unworkable, because it relies on information that you can't really obtain reliably. If I'm buying a house for living, but expect to sell it in five years for a 50% profit, is that speculative or not? How can you know whether my broker adequately described the risks of an ARM?
Second, it makes the assumption that these people will be good credit risks in the future. They got fooled once, why not again? It clearly shows that they can't do math, are too trusting, can't read a contract, and/or don't think with their brains and not their hearts, because if they could do those things, they wouldn't have landed in this mess.
Ultimately, your credit hit only sticks around for ten years or so. That's a long time, but then again, you made a pretty huge mistake somewhere along the line, too.
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4-14-2008 @ 10:16PM
LampByTheSea said...
Investors are holding the big part of the defrauding mortgage crunch- and in reality- I'm not sympathetic of the single mom who had to live in the half a million dollar neighborhood. Them irresponsibly buying over their budget and over priced houses these last 5 years, have kept the prices in most neighborhoods driven to an unrealistic height, thus keeping people like my working husband and I, with three kids and 17 years of marriage under out belt- in a sense "HOMELESSNESS" without renting. Is it fair that they'll stay in the housing market as their undamaged credit will allow- now that housing prices are finally becoming realistic and affordable to many other middle class families finally able to buy? Or will we be outbid by a buyer yet again, who finally will be looking in a realistic range, whose credit will be bullet proof while mine will look virgin and even scarier for banks? Just a thought.
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