Homeowner Rescue Alliance

There’s a great scene in the movie “Catch Me If You Can” where Frank Sr. (who plays Leonardo DiCaprio’s father in the film) is told by the bank that they cannot cash his check because they have no relationship with him.

It was during this time in the 60s when banks HAD to have a relationship with their depositors and borrowers in order to feel comfortable doing business with them. This acted like a “3^rd supervisor” over banking activities because the community felt like they had a vested interest in what went on with their savings deposits. Banks also fully understood the risk that they were taking on because they knew the borrowers, their families and all about their ability and reputation when it came to repayment.

The only downside came, as depicted in this movie, was when things went wrong bankers passed judgment negatively faster than they did positively and once your business was out in the streets, no banks would do business with you. You can see this in the movie as Frank’s family is forced to move out of their big home to a small apartment. The question I ask is, “how did one rebuild during these times?” How could you rebound from a bad situation if everyone passed judgment on you and second chances were hard to come by?

The other big problem was the exclusivity of banking. It was during this period in the 60s when race relations were boiling over and discrimination was standard operating procedure at our nation’s banks. If you look at your loan disclosures like Equal Credit Opportunity Act and Fair Lending, you’ll see the changes that had to take place in order to broaden the spectrum of qualified depositors and borrowers. Spielberg doesn’t deal with this in the movie at all, but you can see that relationship-based banking had its pluses and minuses.

Fast forward to the 1990s and you now had “risk based” banking and lending. Credit scores and automated underwriting systems now determined whether or not you were a good deposit or lending risk. This was great for opening up banking to a larger demographic, but somewhere in all of this we lost the banking relationship. Banks got disconnected from their borrowers and relied heavily on credit reports and computer models.

As millions of homeowners face late payments and foreclosures, I again as the question:

How does one rebuild?

How does your FICO score account for the fact that at a certain period of time between June 2007 and June 2010 our banking system shut down. Housing prices plummeted, forcing banks to stop lending to everyone. Businesses in turn, faced credit crunches and laid people off. People felt the hit in their pay cuts and watching their credit limits drop were unable to keep up with their payment obligations.

All of this craziness has had and will continue to have a major impact on credit scores for years to come. We will definitely be reevaluating the bank-community-consumer relationship and these events will force the big 3 credit bureaus (Experian, Equifax and Trans Union) to re-evaluate how they do business if they want to remain relevant.

My prediction: How you pay your “non debt” payments will have a big impact on Credit 2.0 version of the scoring system. I mean how you pay your phone bill, gas bill, rent, gym membership...all of the relationships that have been ignored over the years will need to be included in your financial evaluation in order to 1) get a better sense of the TRUE risk involved with lending you money and 2) give those who have been impacted by this a chance to rebuild.

There’ll be many more changes to our banking and credit systems in the years to come to deal with this crisis. In the meantime, make sure you pay everyone you can on time.

Good Luck

BTP

HRA Blogger