patrick.net

Hi Patrick,

I’ve been following your website with some interest. I am just curious about something. Will credit scoring finally be scrutinized as one of the primary causes of this problem with a host of loans now going bad? Everything from Fannie Mae to Freddie Mac to Subprime to Alt A and even Home Equity etc., was all primarily facilitated with the use of the “statistically significant” credit score, whereas such common sense practices as actually cash flowing the borrower to see if they could actually service this debt was abandoned or ignored altogether. Is anyone looking at this to bring this to light? I think people like Fair Isaac have a lot to answer for for getting all this in motion in the first place.

To me this is no different than Moody’s taking significant fees to assign AAA ratings to Subprime mortgage-backed pools of securities that were on their way to being worthless because again, cash flow underlying the ability to service those mortgages was not even considered. Clearly this was a conflict of interest at the time by Moody’s but the fox was already in the henhouse and nobody seemed to care. Now the common taxpayer (who still doesn’t understand this) will have to ultimately bail out entities like Bear Sterns, Countrywide and ultimately the Fed plus who knows how many more because proper cash flow analysis was ignored that if done properly would have never allowed these loans to get on the books in the first place.

Is anybody even looking at this as a core cause (ie, the fact that credit scoring is very much also to blame for this) or are they just looking at other stuff? It seems like someone should bring this point to the forefront and get the Fed looking at it, or Congress, or somebody for gosh sakes.

Just a thought.

Best regards and keep up the good work!

Dave Smith

#housing