Friday, September 3, 2010

We Need "Lender Ratings"

Originally posted 20 Dec 2009:

Okay, here's a way we could probably fix part of the banking problem: you've heard of credit ratings, right?

What we need is a Lender Rating.  So, when a bank has to do a foreclosure -- they obviously did something wrong in lending money to that person.  So, this should lower their lender's rating, and the next loan they write should have to be on better terms for the borrower, and/or a lower interest rate.

If they have lots of bad loans, then they need to write loans with a lot better terms for the borrower and at a lower interest rate -- so that the borrower will be able to pay off the whole loan.  Once the bank can show that they are writing responsible loans that work through until they are paid off -- they then earn the right to raise their interest rates, or otherwise earn more profit from writing loans.

And when there is a foreclosure, the loan should be renegotiated at the current market value of the property.  This is the best result for everybody -- the bank gets a fair return on the property, and the property owner who has already committed to the property gets to continue to use it.  This prevents the downward spiral of property values.

Here's an earlier blog entry I wrote on this:
Proposal for the Mortgage Problem

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