Credit, loans, and the government

When my wife and I were first married, we needed to buy things like household appliances to start our new life together.

.We actually had some money and could have paid cash, which would have prevented us from paying interest on a loan. Paying cash would have been a sound financial move, but would not have allowed us to start a successful credit history.

We took out a consumer loan for things like a washer, dryer and refrigerator. Since then we have worked hard to have a good credit score.

When it came time later to buy a car and — the biggest investment most couples make — a home, we had established a good credit score by borrowing money and paying it back.

The way it works is to get credit you have to have a good credit history. Knowing someone has satisfactorily paid back credit makes those who loan money want to loan you more.

If you fail to pay it back and default on a loan, loan makers are less excited about loaning you more. If they do loan it to you, it is at a higher interest rate.

Who has and has not got good credit is information recorded and kept by credit bureaus. Those businesses sell this information to lenders and creditors in the form of a credit report.

While there are many different bureaus out there, the three biggest and most used are Equifax, Experian, and TransUnion. They will allow you to check your credit report for free once a year to make sure the information they have is accurate. If a mistake is made, there is a system in place to correct it.

The Biden administration is looking into replacing the privately-owned credit bureaus into one run by the federal government.

The idea is that black, brown and poor people are more likely to have bad credit and if the government ran credit report business, those reports could be weighted to give more credit to those who have bad credit.

The idea being floated is that people who have bankruptcy, tax liens, foreclosures, and repossessions on their credit report should be treated the same as people who have worked hard to pay their debits and a good credit history.

In the 2000s, Democrats in Congress passed “reform” of home loans for people who have not demonstrated they can repay a home loan.

This resulted in what became known as “NINJA loans.” That is a slang term for a loan extended to a borrower with little or no attempt by the lender to verify the applicant’s ability to repay.

NINJA does not refer to the Japanese stealth fighters. NINJA stands for “no income, no job, and no assets.”

Most lenders require loan applicants to provide evidence of a stable stream of income and/or sufficient collateral before making a home loan.

The NINJA loan which Democrats in Congress passed ignored that verification process so those who have a history of failure to repay a loan are not discriminated against.

NINJA loans were common prior to the 2008 financial crisis. People who could not make payments were given home loans without regard to whether or not they could or would repay them in the name of fighting “discrimination.”

With people with bad credit buying homes, the price of real estate shot up in price because the demand was artificially inflated. It created what is known as a “bubble.”

When those with no ability to repay the loans had their homes foreclosed on, the financial crisis known as the “Great Recession” started in about 2008.

The foreclosed homes were suddenly dumped on the market and the price of housing declined sharply. This also hurt people who had bought a home recently at the inflated price because they owed more money than their new home was worth.

It took years for the housing market to get back to what is considered normal because Democrats in Congress believed denying home loans to people who did not have the income to repay those loans was some how “discrimination.”

With Democrats now in control of the House of Representatives, the Senate and White House, the far-left want to revisit this previously considered idea of government take over in credit reporting.

The federal government could then “fix it” so people discriminated against because of a poor credit history could once again get loans regardless of their ability to repay such loans.

It seems that just because a bad idea failed once and hurt a lot of Americans financially, doesn’t mean Democrats are not willing to try it again.

Democrats in Congress never seem to learn that the definition of insanity is doing to same thing over and over again and expecting a different result.