Chapter Five

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Save Big On Mortgage Interest To Retire Like A King

Mortgage Interest Can Fund Your Retirement

Brief History Of The 2007 Real Estate Bubble
In the wake of the near-collapse of the financial system and the subsequent bailout of big
banks, the truth in the credit scoring system is revealed for all to see. Banks and credit card
companies were making loans to virtually every applicant, regardless of their credit score.
Why? Greed. These institutions didn’t care about the creditworthiness of borrowers because
they were selling those loans to unsuspecting investors, making them hold the “bag” (the
risk) and take the losses that followed.
Let’s follow the money trail: bank makes loan to borrower for big fee, then sells loan to
investor for second big fee. Bank has its money back, plus 2 fat fees. Supposedly, the credit
scoring system justified those loans and investments. We all know what happened. Voilà,
the loans weren’t worth the paper they were printed on, but the institutions that made those
loans didn’t incur any loss, because they got bailed out by the government.
Without going into too much detail, because we are simply following the money trail, the
money that bailed these banks out was used in large part to pay huge salaries and bonuses
to the bankers who used the phony credit score numbers to justify making those loans in the
first place!
Back to that credit scoring system. When those banks were bailed out, no one needed a
credit scoring system to know that these institutions were broke. It was headline news in
every newspaper – everyone knew those banks were broke. Yet, those same banks were
given huge infusions of cash to bail them out – and without any restrictions on how they
could use that money. So much for any validity to a credit scoring system as it applies to
these financial firms!
In other words, these companies were exempt from ANY credit scoring system. They were
broke – but that was ok, they got bailed out, no questions asked.
But what about the millions of people who were victimized. Many of them were hardworking,
paid their bills on time, and took out loans based on the smooth functioning of the credit
markets. But because the credit scoring system was abused by lenders, vast sums of money
were injected into the economy, leading to the real estate bubble. When that bubble
collapsed, the asset value of borrowers’ homes collapsed, leaving them underwater and with
large loans they could not refinance.
Many borrowers were unable to refinance and fell behind in payments, so the lenders
reported them to the credit agencies, which lowered their credit scores. To make matters
worse, consumers have virtually no effective way to dispute that their circumstances
were caused by lenders, who refused to refinance the terms of their loans, helping those
borrowers who wanted to make their payments on a timely basis.
According to the NY Times: “FICO, which produces one of the most popular credit
scores used by lenders, said it viewed different types of collection agency accounts —
medical-related or otherwise — as equally damaging”. For someone with a spotless credit
history, “it wouldn’t surprise me if (a minor credit incident) caused their score to drop by 100
points or more” said Frederic Huynh, a principal analytic scientist at FICO. And the blemish
does not entirely disappear for seven years.
What you should, no, make that NEED TO, learn from this brief history is that banks and
many so-called “financial institutions” are slimy people to do business with. Still, if you want
to purchase a home you’re going to need a mortgage – from THEM. So, you’re going to have
to deal with them.

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