Bankers - Get a Clue…

March 31, 2009

Here’s my problem with banks. They just don’t seem to get it. Ok, first they take tax payer money to get bailed out. Then they use it for bonuses. That’s just one glaring example, of course. But that’s not what I’m talking about. The following is a scenario that has happened to many people around the country. If this has happened to you, please let me know.

John (not his real name) is a businessman in L.A. He had good credit. His FICO score was 715. He was only using $40,000 of a $100,000 line of credit. His debt ratio was 40%. Two years ago, John could have gotten hundreds of thousands of dollars in loans and lines of credit for his business. But here is what happened to John.

2008 was a little rough. Sales were down a little, as people weren’t buying as much. So John wanted to get some more credit for his business. He heard that in order to qualify at the banks, his debt ratio should be 30% or lower, so he took $10,000 cash and paid down his current debt to $30,000. Now he was at 30%. Then, within the next 24 hours, the bank slashed John’s credit from $100k to $30k. By no fault of his own, John had just gone from a good credit risk (715 FICO and 30% debt ratio) to a bad credit risk (630 FICO and 100% debt ratio). The fact that his debt ratio went from 30% to 100% dropped is FICO scores immediately. So when John went to get a line of credit from his bank, they told him he didn’t qualify. Is it just me, or is this situation F&%#d up?

The banks have basically created a situation where nobody can qualify for credit. And I don’t think the bank got the memo. They don’t seem to see the connection. The right hand doesn’t know what the left hand is doing. Until the banks realize that they are creating another problem, the average person will still be getting the shaft. President Obama wants to get the credit markets flowing again. The banks are supposed to start lending again. But who will they lend to if nobody can qualify?

So what is the solution? I don’t know. I’m open to suggestions. First, the banks have to understand that by their actions, they have just turned good credit-worthy people into bad people. The FICO and debt-ratio criteria for personal guarantors has to be re-evaluated. This is the same problem that car dealers are having. People still want to buy cars. That’s not the problem. The problem is that nobody can qualify for an auto loan. The same is true with home loans. Nobody can qualify because of the banks’ deleveraging policies.

It is frustrating for everyone. Tell your banker. Tell your congressman or senator. Tell President Obama. Maybe they are so busy trying to save the banks that they can’t see how its affecting us normal people.

The government’s plan is to buy up all the toxic assets from the banks and have investors buy and sell them. This will take the bad assets off the banks’ balance sheets so they can begin lending again. This should start happening very soon. But my question to the banks is this, “Who are you going to lend to?”

Written by billshuttic · Filed Under Bill's Articles