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There is a great opportunity here, if you have unlimited funds and can hold your own loans. The problem is that nobody with the money wants to take this risk o

There is a great opportunity here, if you have unlimited funds and can hold your own loans. The problem is that nobody with the money wants to take this risk on themselves, so they need to securitize these debts. Securitization requires categorizing different loans into risk pools or tranches, which are only categorized by FICO score. In other words, sure, if you've got $billions lying around and are willing to hold 30 year loans for their full term, feel free to start a business doing this. If you're like any other bank and you want to off-load it to Fannie/Freddy immediately or securitize them and sell them to hedge funds, you need to put a FICO score on every loan and that is the only thing anyone cares about. It's obvious this is why our financial system is so screwed up. There are people with 800 credit scores that are upside down by hundreds of thousands of dollars, yet they can still get as much revolving credit as they want because of their credit scores. Then, there are people like me who have actual cash reserves in the tens of thousands and 0 debt, and refuse to hold revolving credit, who have sub-700 because we don't buy into the whole debt ponzi scheme. The system is broken and it will take a lot more than a new business model to fix it. It will literally take several acts of congress.

adamsmith 16y ago
Thank you that's very helpful. Maybe hedge funds need to get into this business. Or maybe I should find a way to show hedge funds that my new risk assessment is better. Though one of the challenges is getting new types of hard-to-fake data. If my risk assessment looks at a person's email account or does machine vision on their facebook photos, those things are easily forgable.
- TheCondor 16y ago
  Hedge funds did get in on it. That's why Goldman was sued for fraud. Didn't the hedge funds just game Morningstar against AIG against FICO scores?
  - ZachPruckowski 16y ago
    >Hedge funds did get in on it. That's why Goldman was sued for fraud. Goldman wasn't sued because of what they offered as investments, they were sued because they misrepresented the net positions of at least one major player, allegedly deliberately.
- roel_v 16y ago
  "Maybe hedge funds need to get into this business." Profits are too low. What does a US mortgage do nowadays, 6-10%? That's before costs and risk premium. With money tied up for 20 to 30 years.
utnick 16y ago
Instead of mortgages, if you focus on the payday loan industry ( particularly online ), you won't need $billions of dollars. You could hold your own loans and probably scale up from 6 figures. The issues are pretty much the same as mortgage and there is alot of room for innovation.
- Unseelie 16y ago
  Payday loan firms charge up to 500% interest, too, which they're doing because they're not using the FICA scores. That said, there does seem to be a huge area in which one could undercut that market...if they were willing to hold the debt. While we're talking about holding the debt, you could drop into microloans in the kiva style, and start with only four figures.

adamsmith 16y ago

Thank you that's very helpful. Maybe hedge funds need to get into this business. Or maybe I should find a way to show hedge funds that my new risk assessment is better. Though one of the challenges is getting new types of hard-to-fake data. If my risk assessment looks at a person's email account or does machine vision on their facebook photos, those things are easily forgable.

TheCondor 16y ago
Hedge funds did get in on it. That's why Goldman was sued for fraud. Didn't the hedge funds just game Morningstar against AIG against FICO scores?
- ZachPruckowski 16y ago
  >Hedge funds did get in on it. That's why Goldman was sued for fraud. Goldman wasn't sued because of what they offered as investments, they were sued because they misrepresented the net positions of at least one major player, allegedly deliberately.
roel_v 16y ago
"Maybe hedge funds need to get into this business." Profits are too low. What does a US mortgage do nowadays, 6-10%? That's before costs and risk premium. With money tied up for 20 to 30 years.

utnick 16y ago

Instead of mortgages, if you focus on the payday loan industry ( particularly online ), you won't need $billions of dollars. You could hold your own loans and probably scale up from 6 figures. The issues are pretty much the same as mortgage and there is alot of room for innovation.

Unseelie 16y ago
Payday loan firms charge up to 500% interest, too, which they're doing because they're not using the FICA scores. That said, there does seem to be a huge area in which one could undercut that market...if they were willing to hold the debt. While we're talking about holding the debt, you could drop into microloans in the kiva style, and start with only four figures.