Asian Journal- The Filipino-American Community Newspaper

When you land as an immigrant in America, you have no credit history here.  So, when you apply for a credit card, your credit report will be blank.  You might wonder how creditors can tell if you are credit worthy enough to buy a house based on your credit report.  Well, if they are able to tell your credit worthiness by looking at your credit report before they lend you money to buy a house, then our financial system should not be broken now, right?  Because the root cause of our failed financial system is the giving of home loans to people who are not able to pay them back.  When I bought my first house twenty years ago, I was required to put a downpayment of 25%. I purchased that house for $130,000 with a downpayment of $32,500 and a mortgage of $97,500. My mortgage payment was $700 based on a 30 year fixed rate mortgage. Requiring a downpayment ensured that the homebuyer had equity in the house. It also made the mortgage smaller and the mortgage payments smaller and more affordable for the homebuyer. Thus, if you had no money saved up to make a downpayment for the purchase of a house, you would not be able to buy a house. You would have to keep on saving money for several years until you had enough for a downpayment to buy a house.

However, creditors threw caution to the wind when they started giving housing loans to buy houses with nothing or zero down. They tell you that you can afford to buy a half a million dollar house because they will give you half a million dollars to buy it. You don’t have to put anything down, and your first year monthly mortgage payment based on interest only is only $1,500. That’s as cheap as rent. Don’t worry about the mortgage payment going up to $3,000 on the second year, all you have to do is refinance the house before the year ends. Aside from selling you this fairy tale of a house, they also tell you that your less than stellar credit score is good enough. So, really, your credit score is an optional standard that is selectively used by creditors when and if they want to. Many of the sub-prime mortgage borrowers had below average credit scores yet they were able to buy expensive houses with zero down. In other words, housing loans were routinely given to people with bad credit scores who had no savings for downpayments on houses they wanted to buy. When many banks to this for some time, you eventually get a mortgage meltdown because many housing loans were given to people who could not afford to buy a house in the first place.

Did Indymac, Countrywide, Washington Mutual, Wachovia, Fannie May, Freddie Mac, Lehman Brothers, Bear Stearns have good credit scores? If you pulled their credit reports six months ago, or maybe even a day before they collapsed, their credit scores would have been perfect. But the fact was that they were all bankrupt. Many of these very large banks have been doing business for more than a hundred years. Their credit scores were perfect until the day they died.

The truth is that what is more important than credit scores is having no debt. If you have no debt, you cannot become bankrupt because you don’t owe money to anyone. You may be poor if you don’t have savings but you cannot become bankrupt. You can only become bankrupt when you are no longer able to pay your debts on a timely basis, or can foresee that you will reach a point where you can no longer pay your debts on a timely basis, go now for a chapter 7 bankruptcy if you qualify to get rid of all your debts so you can start fresh without accumulated debt. After all, just like Washington Mutual, Indymac, Countrywide and Wachovia, you are bankrupt, even if your credit score is perfect.

If you need debt relief, contact my office. I will analyze your case personally.

Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California.  Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.

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