Banks use of FICO Scores Contributes to Foreclosure Rate

In my opinion one of the biggest problems with our credit crunch and high foreclosure rate is bank reliance on FICO scores.  FICO scores do a good job of reporting an individuals past history of repayment of debt. The biggest problem is the scores do not forecast in my opinion the current position of the borrower. To read from Fair Isaac what goes into your FICO score click here. FICO scores miss two important things when considering giving someone a loan, assets and income.  Most people credit reports have misinformation that can help or hurt them. You could have two borrowers one with $200,000 in assets making $100,000 a year with a 560 fico score and one borrower with a 800 fico score that has  -0- assets and making $30,000 a year.

A year ago the buyer with a the 800 fico score was able to get a loan for $500,000 with no asset or income verification and in most cases with nothing down.  This happened frequently which is why we are so many foreclosures in the high price ranges. The rate of commercial foreclosures is at an all time low. Why? Because commercial banks looks the entire position of their customer. They look at each loan & property individually and not just a credit score. Commercial lenders always look at the market area of the property, not just when the economy is in a down turn. Looking at the individual property and borrower more carefully will help banks avoid foreclosure in the future.