Obama Pushing Banks Into Riskiest Borrower Pool Yet: 45 Million 'Unscorables'

222 Comments

05/15/2015 06:58 PM ET

Housing: As part of its amnesty program, the Obama regime seeks to expand credit to a whopping 45 million potential deadbeats — including illegal immigrants — whose credit files are too spotty even to score for risk.

In a just-released federal report, the administration portrays these "credit invisibles" as victims of a traditional credit-scoring system. And since most are minorities, it claims that excluding them from the financial mainstream is discriminatory.

"These results suggest that the problems that accompany having a limited credit history are disproportionately borne by blacks, Hispanics and lower-income consumers," the 37-page Consumer Financial Protection Bureau report concludes.
"Our report found that black and Hispanic consumers are more likely than white or Asian consumers to have limited credit records," CFPB Director Richard Cordray said in a press call.

"About 15% of black and Hispanic consumers are credit invisibles compared to 9% of white consumers (and) about 13% of black consumers and 12% of Hispanic consumers are thought to be among the unscored — compared to only 7% of white consumers."

Added Cordray, "These consumers face reduced access to credit that continues to hamper their opportunities for growth throughout their lives."

To remedy the "credit inequality," credit reporting agencies are being pressed to generate scores for this high-risk group based on payments of cellphone and utility bills, as well as immigrant remittances.

It hopes that once they secure a FICO score, they can move a step closer to qualifying for mortgages, car loans and credit cards. Without credit scores, Cordray says, these consumers are a target for "predatory lenders" such as payday lenders who charge high interest rates.

But analysts say most of these "unscorables" are not creditworthy, and according to preliminary estimates, their median credit score falls well below the subprime cutoff (535 vs. 620). Public records show many are subject to third-party debt collection and tax liens.
Lenders rely on the three-digit credit score as an indicator of how likely it is a borrower will repay a debt. Stale files or thin credit history does not allow FICO and other risk modelers to accurately predict future credit performance — that is, the likelihood, relative to other borrowers, that a consumer will become 90 or more days past due on a credit obligation in the following two years.

Using "alternative" inputs in the models, such as utility payments and remittances, could water down the models and make credit scores less reliable, leading banks to make even riskier lending decisions.

The CFPB divides consumers with limited credit histories into "credit invisibles" and "unscorables." Credit invisibles don't have credit records and represent 11% of the U.S. adult population, or 26 million individuals.

"Unscorables" have credit records, but the records can't be scored, either because they lack enough information to provide a score or the available information is stale. They include 19.4 million, or 8.3%, of U.S. adults.

This means more than 45 million — or roughly one in five U.S. adults — have credit histories too sparse to generate a credit score. Imagine the credit crisis the financial sector could face if 45 million deadbeats and undocumented immigrants are mainstreamed into the credit market.

Read More At Investor's Business Daily: http://news.investors.com/ibd-editor...#ixzz3ae7TKada
Follow us: @IBDinvestors on Twitter | InvestorsBusinessDaily on Facebook