The problem is that financial institutions have not adjusted to the new reality of their faulty underwriting methods.
Rochester, New York (PRWEB) October 31, 2011
Dr. Robert D. Manning, distinguished consumer finance scholar (author of CREDIT CARD NATION and link to http://www.creditcardnation.com) and founder of the nonprofit Responsible Debt Relief (RDR) Institute, announced the release of his company’s pathbreaking, online mortgage underwriting, home refinancing, and housing counseling assessment system last week in Salt Lake City, Utah. During his luncheon address at the Utah Housing Coalition conference, Dr. Manning, one of the earliest forecasters of the Consumer-Led Recession and collapse of the US housing market, reported on the current state of the U.S. economy, the perilous condition of the housing market, and the failure of the banking industry to adjust to the realities of current risk-management standards.
According to Dr. Manning, “public policy-makers made the fatal mistake of assuming that the 2007 recession was propelled by a traditional business-cycle that would last 3 or four years rather than a consumer debt bubble that would require drastic household debt relief through loan forgiveness and low-interest loans.” The problem is that financial institutions have not adjusted to the new reality of their faulty underwriting methods. Individually-based FICO scores and related retrospective financial measures are much less reliable assessments of consumer financial capability in the current environment of consumer credit scarcity. As a result, banks are reluctant to offer loans to creditworthy households that have encountered financial difficulty during this turbulent economic period.
During his presentation, Dr. Manning asserted that a new paradigm for assessing household credit capability must be explored if the nation is to avoid a deeper and more prolonged recession. Otherwise, fewer mortgage and loan applications will be approved which will reinforce falling housing prices and lead to more families abandoning their “upside-down” mortgages. Dr. Manning then explained the key features of the RDR net cash-flow algorithm/software that calculates net, after-tax household income based on such factors as federal, state and local taxes, household structure, tax filing status, regional cost of living, home ownership status, federal approved deductions such as retirement and charitable contributions, and court-mandated payments such as child support and garnishments.
This proprietary algorithm is the basis of a webservices-based data management system whereby lenders, counselors, and individual consumers can conduct a preliminary, online assessment of the affordability of a mortgage modification, home loan, and even an auto loan.
Following the presentation, Dr. Manning demonstrated the ease and speed in using the RDR online financial assessment system—beginning with a budget assessment based on the net cash-flow software. The assessments can be calculated for individuals and for households. The unique “Credit Capacity” score provides a quick assessment of the financial situation of a household. Similarly, the online mortgage underwriting, home loan modification, and auto loan assessments estimates the size of the loan that is affordable, whether the borrower should qualify for a prime or subprime loan, and the total cost of the loan. Additionally, RDR offers a unique tenant screening score that estimates whether a person that has experience financial distress such as foreclosure or bankruptcy can afford a particular rent without being rejected due to a low FICO score.
Dr. Manning concluded that, in the short-term, the pace of the US economic recovery will depend on the stabilization of the housing market. Without new risk management tools to a guide recently foreclosed and/or bankrupt families into the rental housing market and more precise underwriting tools that are not dependent on flawed FICO scores, the US will face a decade of declining economic prosperity and widening social inequality.
For more about RDR, its pathbreaking net cash-flow tools, and Dr. Manning, please contact us at 585-563-7675.
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