False Assumption 2: existing systems of risk management, such as FICO scores and credit rating agencies are adequate.
To a large extent, the current slowdown in the housing market is the result of an exceptionally lax lending standards that ample liquidity environment has created a housing bubble. The bursting of the bubble once the unsustainable and artificially inflated prices erode affordability and the economic downturn caused many borrowers with low credit quality to default on their mortgage payments. The problem with the housing market is a reflection of the systematic failure of the credit system that overemphasized certain elements of risk management, such as FICO risk scores and models for assessing credit and ignored other factors that determine the ability of borrowers to finance their mortgage obligations.
Before the bubble burst, many mortgage lenders focused on quantitative indicators of risk, such as FICO scores when making their lending decisions.Yet they have failed to adequately account for other factors that influence the ability of borrowers to meet their mortgages, such as deposits, revenues or future interest rates, and all current local variables, which represent the flow of businesses, jobs, people and capital, which have influenced the evolution and future price movements that directly affect the local market and credit risks. Exposing the limitations of FICO scores, a recent study by Fair Isaac and the credit rating agency DBRS noted that the obligations of the borrower with a high credit rating is just as likely to default on a no-money-mortgage is as a low score borrower who poses as much as 40%. And it is mainly because if the future movements of prices to trend lower, the borrower will be upside down very quickly. Once the inadequate management of risks for credit rating is added to that pile of lending practices wrong, it becomes clear why the credit markets collapsed, sending mortgage arrears and Charge-offs at the highest level in nearly two decades.
Vortex Interlude Music Screensaver 1.0.0 download These lending practices proven to be inadequate to make prudent decisions on loans.They have ignored the various risks that affect the creditworthiness of borrowers, which, however, have an impact on the ability of borrowers to service debt and therefore the risk of default. Unlike these models, the Home Predictor value takes into account various economic factors such as future interest rates, local employment and income growth of households, by making predictions on trends in house prices .
For more information, visit www.HomeValuePredictor.com and click on the link to buy my book The missing keys to prosperity in a real estate business.
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