Apex, no I'm not that naive, I believe you have my theories backwards. I've written lengthy response twice to this post, but due to internet issues, lost in cyberspace, so I'll go to the quick version. No, noone who has purchased an AU will sue, that makes no sense. I agree that the first suit(s) would be from these examples. However, the suit would have to be brought against the credit lender/extender, not Fair Isaac. Fair Isaac is not exposed to the ECOA, as they do not "grant or extend credit", their disclaimer covers this aspect. Fair Isaacs BIGGER problem is the business model. Quickly, the core value of the FICO score is its accuracy in default risk prediction, AND its streamlining of the credit review and approval process. Now, to your example of the "denied credit", that "wife" could easily prove her "permitted to use" aspect of the ECOA. This means that the creditor now must perform a manual review of the credit report, AND verify "permitted to use" clauses of the ECOA. In effect, the FICO score "causes" the process to slow down! Next, this same example shows the deterioration of the "accuracy" of the FICO score, a double edged sword at its marketplace value! Actually, you could tell "actual from purchased", but again this falls upon the credit review process, and takes away the FICO model value. Again, Fair Isaac would not be violating the law of the ECOA, the credit extender/reviewer would be exposed; the thrust of the ECOA is based upon "information contained in a "consumer credit report", which a credit score is not. The real problem for Fair Isaac is the business impact; the comapny's SOLE product is losing most of its value, due to outside factos of some sharp entrepanuers, and a mortgage industry crisis. And how does Fair Isaac decide which customer base is more valuable? The "baby" or the "bathwater"? The commercial base is demanding these AUs be discounted, or somehow made accurate, the "personal consumer" base will lose confidence, and I am certain that Fair Isaac's customer base is nearly balanced now between commercial and personal, they have invested so many resources developing the personal end of the business. Well, if I were the CEO of Fair Isaac, there would be fist pounding on the boardroom table demanding these mathematicians get the model to be "everything to everyone" again! I would not give any thought to legal liability or exposure, that is more than covered through ECOA not applicable to them. I would not be worried about being in front of a bench or jury, but rather being in front of the major customers trying to answer why they should keep buying my product! Lastly, (if I were the CEO), I would either be following the axiom of: "when you don't know what to do, do nothing", or...just not letting anyone know the model is changed, and threatening to fire anyone that leaked it! It's all business and profit..not legal.
That is a good point and it is well taken. It is true enough that Fair Isaac would not be directly culpable under the ECOA. However, they would be an instrumentality and third-party complaints, contribution claims and the like would become the norm. Impact on them, who is to say insofar as it is speculation at this point just as about everything within this context. With that being said, I suppose the bigger issue is then what lender would elect to implement this proposed model. In using it, they would be directly liable. Generally speaking, most companies do not operate with the thought of potential litigation in mind. However, due to the number of people this will effect should it ever come to pass, I would be considering my options. In the position of in-house counsel, there is no way you could sign off on letting your employer use this model. Finally, I think Fair Isaac has bigger problems than this. Their suit ongoing with the credit reporting agencies, the maker of the Vantage Score, presents a huge one. When it becomes evident that the credit reporting agencies are not violating any anti-trust provisions and the Vantage Score can proceed unihibited, Fair Isaac is going to be fighting for their corporate solvency. And the Vantage Score will use AU accounts thus, there is no illegality. I think the real solution here is to train brokers and loan officers to actually read reports. However, that is assuming that they will forsake their commissions to strike AU accounts and that simply will not happen.
No, they won't forsake their commissions. That's what got people into this bloody mess right now. No one would say "sorry, we think you really can't afford that house."
Noooooo . . . the mess was and is because of all of the millions of people "buying" up authorized user accounts. The ones that had their family members and friends add them are okay though . . .
Well, if they only bought AU accounts to get a house they could afford, they'd still be making payments and not going into foreclosure, wouldn't they? But that's what will always happen. Find a scapegoat and make it their problem, don't admit that you had any blame. The great American way of today, isn't it? Don't take responsibility for anything. I, personally, am tired of people not taking responsiblity for their actions and then wanting me to bail them out. If I had to get AU accounts to get a mortgage I knew I could pay, I would do it. But I would never do it to get a mortgage for a house I know I can't afford and probably never will, at least not in the next 5 years or so.
Since Fair Isaac is a publicly-traded company (NYSE), the CEO better be worried about lawsuits. He better be disclosing any potential liabilities to his shareholders and to the SEC. It is absolutely about legal as well as business. These days, a publicly-traded company better disclose all aspects and potential liabilities or risk the danger of severe repercussions under Sarbanes-Oxley and other laws and regulations. Intentionally misstating or withholding material information not only gets the company fined, but the CEO, CFO, and anyone else who certifies those statements can be held criminally liable, with punishments including both fines and jail time. If they truly only have one product which is threatened by lawsuits, there should be something in their annual report stating the risks. When I get time, I'll look at it.
They don't have to disclose potential lawsuits. Any company can be sued at any time for any reason. No one can track all the risk from suits that might be brought against a company. They only have to disclose the potential risks from outsanding litigation that's already been filed.
I think the problem was caused by selling sophisticated mortgage products to unsophisticated buyers. These ARM's were often sold without full disclosure, or at least without the buyer understanding what was disclosed to them. And I'm sure the buyers were always informed that they could refinance for a fixed rate mortgage in a year or two, before the teaser rates expired. Problem is, they weren't informed how much work they needed to do on their credit in order to be able to refinance. I'm not saying that should let them off the hook, but many of these loans were knowingly sold to unsophisticated people who didn't understand them. It just goes to show that we need more math in school and if it has to be at the expense of some liberal arts subjects, so be it. We all need math, and most of us can't learn it on our own. Yet only those who love the arts need to know about them. And that is a subject you can learn on your own. I find it sad that 95% of the population has no idea how the mathematics of interest works...
I agree to an extent . . . people also need to learn how to read and listen. You'd be shocked at the amount of people that will sign anything you place before them although you explicitly instruct them to "read it carefully." Frankly, our society is largely apathetic and is always looking for the "quick fix." I'm not saying that corporate america is the salt of the earth but, consumers are pretty lazy by and large. My point is that while there may or may not have been enough discloure, that point would have been moot insofar as most people would ingore the terms of ARM agreements.
I agree with Apex. Think about it. If you can't afford the payments now, and everyone who even remotely read or listened to the news knew that interest rates were going to go back up, how are you going to afford to refi when the rates are higher. I had this discussion with several people, and they didn't care. All they cared about was that someone told them they could afford the big house on the hill. I've been saying for several years that this was coming. A quick study of economics told you all you need to know.
gmansfu said: "And I'm sure the buyers were always informed that they could refinance for a fixed rate mortgage in a year or two, before the teaser rates expired. Problem is, they weren't informed how much work they needed to do on their credit in order to be able to refinance." And that's the reason I haven't gotten a mortgage yet. I could have gotten one a year and a half ago, but the proposal of one interest rate now and another much higher in a couple of years and the "promise" that "oh, you'll be able to refinance it long before that" scared the crap out of me. I guess I'm a pessimist but I could see how Murphy's Law could operate fully in that my credit either wouldn't get better or wouldn't get better fast enough or the value of the house wouldn't go up like again, these mortgage brokers assured me it would, so I'd have no equity to offset the crappy credit. On the topic of the thread, I recently got my father to add me to two of his credit cards as a AU. A Discoverer and a Visa, both with fairly high limits (one for 12K and the other for 15K) and low utilization (under 2K on both). I'm hoping it will help my credit somewhat since I'm in the low to mid 600s and one of the issues according to the scoring is short credit history. Some of my oldest closed accounts from the late 80s early 90s just dropped off and put my credit history down to under 10 years. I have a couple of old charge off/derogatory accounts that are due to drop off in early 2008, so I'm laying low and letting them age and go away.
If they're due to drop off in early 2008, they should be past the SOL for collecting. I'd go ahead and dispute them with the CRAs and see what happens--you might get lucky. You could try disputing them as "obsolete."
The root cause of this mortgage issue was greed and profits, pure and simple. The blame is widespread across the industries of mortgage writing and brokerage, real estate, and even poor financial advice promulgated during this "boom market". In any industry which is commission and "production" based, the limits of "ethics" will always be pushed to the limit, and often beyond. I have seen it in the securities industry, and there the regulations (and consequences of violations) are much more severe. Many people were simply "sold too much", and the "easy lending atmosphere" encouraged what are truly fraudulent acts. I personally know mortgage brokerage companies that were "taking bodies off the street" to try and keep up with business! Imagine that the largest financial transaction of your life is being handled by someone with hardly any training! So, there always has to be a fall guy, in this case Fair Isaac and the AU purchased accountsfit nicely. I'm sure the actual impact was miniscule, but they make great political fodder. I am positive Fair Isaac is scratching their heads trying to figure "what happened here", and are as much a victim of this mess as some consumers. Only when the root cause of the issue is addressed will the true corrective measures surface, but that is an issue no firm will stand up to.
Exactly why I am no longer in the securities business. I worked in a situation where our "training" was on how to sell the products that brought the most commission, and how to sell to people whether it was what they needed or not. I wasn't comfortable doing what I would have to do to make any money, so I quit. I couldn't compromise my personal ethics for money. Before you ask, it was part-time and I still had a good job. But what I saw turned my stomach.
I'm assuming you took, and passed a "Series 6 or 7" exam, so you know about "Rule 401", "know your customer". I'm well aware of the "Push Money" aspect; I once was offered a Rolls Royce by a developer if my firm financed a land deal successfully! I didn't take the car or the deal... Part of the reason I also got turned off to the industry, I've seen enough "boiler rooms" in my day. Glad to hear you held to your ethics and values, and that you've had success in another industry.
I had Series 6 & 63. I know what the regs were, and know they weren't followed. I've been in so many industries you couldn't keep up. But for the last 35 years or so, my primary business has been dealing with DoD contracts. I've done many businesses on the side, working three jobs to pay off debt I got stuck with in a divorce. Come to think of it, I probably had four jobs at one time. I have left several jobs because I couldn't reconcile my ethics with what I was asked to do.
You Can Still Buy Better Credit (For Now) Earlier this year, Fair Isaac, originator of the FICO score, announced it would be modifying its credit scoring calculation to exclude authorized user accounts. This came after pressure from mortgage lenders who'd been lending to borrowers with faked FICO scores. The new model, FICO 08, was supposed to have been rolled out to Experian this September, then Equifax and TransUnion next year. Right now, FICO 08 is not in place at any of the credit bureaus. Mercury News reports: Fair Isaac, developer of the FICO score widely used for home loan underwriting, confirmed that its "FICO '08" scoring model is not yet available at any of the three national credit bureaus. The new model, announced with fanfare in June as an antidote to piggyback fraud, was to have been activated in September at one of the bureaus, Experian. But Experian says it has no firm timetable to make the model available. The two other bureaus - Equifax and TransUnion - are not scheduled to receive the model until sometime in 2008, according to Craig Watts, a Fair Isaac spokesman. Credit bureaus' delay in adopting FICO 08 gives consumers more time to start building their own credit histories without relying on authorized user accounts to give an artificial boost.
Yea right . . . This new model is not going to come to pass because it is illegal. Anyone who uses it is going to avail themselves to liability and by that, I mean class litigation. Personally, I think this is all spin and pomp. A scare tactic. We'll see I suppose.
