For countless Americans struggling to make their mortgage payments, the problems have just begun.
Although a loan modification or foreclosure might let them put their housing problems behind them, millions will be dogged for years by a credit score so tarnished by the housing debacle that lenders will want to avoid them. If they are able to obtain loans, high interest rates are likely to strain their budgets.
The effects may well be a drag on the nation’s consumption, and the economy as a whole, for a decade or more.
Changes are in the works in the way credit scores are calculated and applied that could dramatically affect all Americans’ ability to borrow. Many bankers say the overreliance on a simple credit score did not work well for lenders or consumers.
“Industrywide, we’ve had a colossal failure” in properly managing lending, Kenneth Phelan, the chief risk officer of mortgage finance giant Fannie Mae, told bankers focused on cutting their risk exposure at the Risk Management Association’s annual conference this month.
Even as Americans work off their debt, their future spending will be dogged by their past.
Credit scores zapped
In the case of foreclosures, for example, a person who had a solid credit score before her housing nightmare could see it fall more than 15 percent under the system used by VantageScore, a …
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Tags: Budget, Business, consumer, debt, Economy, finance, Interest Rates, loans, mortgage, pay, Personal Finance
