Happy bank customers are all happy in the same ways, but unhappy bank customers are each unhappy in their own special way.

The short history of Payment Reporting Builds Credit (“PRBC”) is only a minor chapter in the epic story of how the financial services industry has hurt consumers and it one that differs from almost any other.

PRBC set out to give people with bad credit or with thin credit a chance to prove that they (more…)

The Federal Housing Administration has decided to rethink how it protects itself with a new guidance last month. The new rules have implications not just for borrowers, but also for private mortgage insurance companies.

The new rules, known as the Loan Level Pricing Adjustments (LLPA – pdf here), say that most FHA borrowers will now have to pay an upfront premium of 150 basis points on the amount of their FHA loan. Subsequently, they will be expected to pay another 50 basis points each year. That second charge is paid with the monthly payment.

One analyst at a private mortgage insurance company called me to tell me how much of a difference this will make for his company. He paints a tough picture for the market in the last year: the private firms were being squeezed by the low rates at FHA and the high origination fees built in to (more…)

There is a lot of discussion right now about the apparent drop in credit scores.  It is not a dramatic change in score quality, but it is dramatic for its widespread impact.  Nationally, the average credit score (TransUnion) dropped by six points, to 651. In some states, the impact is especially poor – places like California and Arizona have seen average credit scores in their states drop by more than 10 points.

Here is a recent story documenting the scope of the changes in credit scores. This story attributes most of the change to unemployment and other macroeconomic forces.

What could be the root of this problem?  Yes, unemployment is probably part of the explanation for the drop in credit scores.

Still, a part of it could be driven by the cutting back of credit to consumers on the part of banks. When a bank reduces a credit limit, it increases the percentage of debt owed by a consumer on their account. Credit card utilization rates soar, without any change in borrower behavior.  That’s a strong factor in credit scoring.

There are other things that a bank can do, particularly with credit cards, to deflate credit scores.  If an account is closed, that is also a negative, because it takes away accounts with longer durations.