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Thread: weekend commentary - creditworthiness standards tightening drastically

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    Banned Melonie's Avatar
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    Default weekend commentary - creditworthiness standards tightening drastically

    this may be of particular interest to dancers, since most banks do not consider dancing earnings to be 'regular' income ...

    (snip)"At this point the banking system is stopping and taking a look at the subprime lending problem. Many are tightening lending standards drastically.

    One of smokey's employers, a retired teacher who makes $12,000 per year, as been buying and selling houses for twenty years or so. Since she has been rather successful in this endeavor she has never had a problem getting a loan to purchase property.

    Not so anymore. Smokey got an email from her yesterday complaining that the bank told her he had to put 35% down on a casita she wants to buy and the interest rate was 8%.

    They would not include the $45,000 profit she made on a sale last year in her income. They only allowed the $12K pension payments.

    The banks are returning to responsible lending because the CDO/MBS market has frozen. No one is buying this crap."(snip)


    This is the result of this past week's shakedown in the CDO market. Previously, banks and credit unions could 'afford' to write loans and mortgages to people with less than perfect creditworthiness because the banks and credit unions could buy CDO's which would act as 'insurance' should the loans and mortgages go belly-up. However, banks and credit unions now must face the fact that their 'insurance coverage' is only as good as the financial institution that writes the CDO !!!

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    Default Re: weekend commentary - creditworthiness standards tightening drastically

    Damn. I have been working so hard on my credit. It sound like another assault on the middle class


    MANY MEN WANTED TO LAY ME DOWN, BUT FEW WANTED TO LIFT ME UP

    -Eartha Kitt

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    Banned Melonie's Avatar
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    Default Re: weekend commentary - creditworthiness standards tightening drastically

    IMHO this is strictly based on banks and credit unions now having to assess the actual 'risk' associated with approving new loans instead of simply shuffling off that risk via purchasing a derivative as 'insurance' against loan default. To the degree that this will apply to 'middle class' people, some financial realities will finally come home to roost ...

    #1 - most 'middle class' Americans already have so much outstanding debt that they have a sub-zero net worth in terms of liquid assets. Remember that a US court ruled that 401k's & retirement funds cannot be included in bankruptcy proceedings, thus these funds also cannot be used as collateral for future loans !

    #2 - most 'middle class' Americans have declining after-tax incomes, because their incomes are stagnant while there state and local (and soon federal) taxes are rising

    #3 - many 'middle class' Americans have very little they can count on in the way of long term job security, due to the distinct possibility that their 'employer' can suddenly close up shop in the USA and start up a new shop overseas, outsource professional services, go bankrupt etc.

    #4 - many 'middle class' Americans jobs rely on providing services to the Rich in one form or another. Thus if the Rich are motivated to move themselves and/or their assets elsewhere those service jobs will evaporate.

    #5 - 'independent contractor' businesses will be hit extremely hard in regard to the amount of business earnings that banks and credit unions will classify as 'dependable regular income'. This will be even worse for 'independent contractor' businesses who have no brick and mortar facilities and whose entire business assets fit into a suitcase. This will be worse still for 'independent contractor' businesses in the adult sector, whose incomes can be potentially cut in half at any time by the stroke of a legislator's pen


    In the short term at least, this translates into banks and credit unions starting to require SUBSTANTIAL down payments to cover market value declines / depreciation, plus charging an interest rate that is several points above 'prime' in order to build a loan loss reserve sufficient to fund the expected percentage of mortgage/loan defaults among customers of similar creditworthiness.

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