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CFED Notes: How Many Americans Have "Subprime" Credit?

By Anne Kim on 12/03/2012 @ 08:00 AM

Tags: Federal Policy

CFED Fact File: 56% of Americans have "Subprime" Credit Scores.

Most people may think of themselves as having good credit. But the reality is that most Americans don’t. CFED’s Assets & Opportunity Scorecard finds that a whopping 56% of Americans have credit scores of 700 or below, as reported by credit reporting agency TransUnion. Even in North Dakota, which ranks as the nation’s most “credit-worthy” state, 42% of residents have “subprime” credit.

Among other penalties, less-than-stellar credit can cost a consumer thousands of dollars in additional interest on a home or car loan. On a $100,000 mortgage, for example, www.myFICO.com calculates that a credit score of 620 (versus 720) translates into more than $32,000 in additional interest over the life of the loan, plus nearly $100 more per month in monthly payments.

Another Warning for Household Financial Security: Ranks of the "Unbanked" Rising.

According to the FDIC, growing numbers of American households are becoming disconnected from the financial mainstream. In 2011, 10 million households had no bank account at all (are “unbanked”), while another 24 million households had a bank account but still relied on non-bank providers such as check cashers and payday lenders for essential financial services (are “underbanked”). All told, more than 1 in 4 American households (28%) are unbanked or underbanked.

CFED’s latest Fact File, “Unaccounted,” gives a snapshot of these households, many of whom are “middle class.” You can also see a map of the top 10 most unbanked places in America, along with a quick analysis of what this all means for Americans’ financial security. Read here.

Rebuilding America's Balance Sheet -- One Household at a Time.

While Congress debates how to balance the nation’s books, American households are still struggling to rebuild their personal balance sheets, devastated by the recession. Americans lost more than 40% of their wealth from 2007 to 2010, according to the Federal Reserve, while CFED’s analysis finds that 43% of American households lack the cash to live three months at the federal poverty line if they suffer a loss of income.

More than ever, the nation needs a new agenda to rebuild Americans’ financial security. At an event sponsored by CFED and Democracy, speakers including Sen. Jeff Merkley (D-Ore.), CFED President Andrea Levere, Urban Institute President Sarah Rosen Wartell, Opportunity Agenda’s James Carr and Ray Boshara of the Federal Reserve Bank of St. Louis offered up a host of ideas that could form the backbone of a new opportunity agenda. Among the proposals:

  • Cracking down on predatory payday lenders and financial service providers;
  • Focused federal attention on the continuing problem of “underwater borrowers” and the drag of negative equity on economic growth; and
  • Tweaks to existing savings vehicles to make their more accessible to lower- and moderate-income families.

To hear the details, listen to the webinar here or read the authors’ proposals here.

Struggling Homeowners Head Toward Their Own Tax Cliff.

Among the potential solutions for restoring Americans’ balance sheets is principal reduction—loan forgiveness for struggling borrowers defaulting or underwater on their mortgages. Since 2007, lenders have modified more than 5.8 million home loans, including 1.1 million mortgages under the federal government’s HAMP program.

But homeowners may not find much relief if principal reductions become taxable, as could happen at year-end. The law currently exempting mortgage debt forgiveness from taxes expires December 31, along with the other provisions are part of the “fiscal cliff.” The potential result is a crippling choice for homeowners—a tax bill they can’t afford to pay or a foreclosure because they can’t afford to renegotiate their mortgage.

Writing for RealClearPolicy, CFED argues for the temporary extension of mortgage tax relief, which would particularly benefit low-income borrowers hit hardest by the foreclosure crisis. Read more here.

CFED in the Spotlight

  • The Los Angeles Times writes about CFED and our partner EARN’s matched college savings program.
  • The Northeast Mississippi Daily Journal writes about the Mississippi launch of CFED’s social venture, the 1:1 Fund, which aims to help lower-income children save for college.

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