Goldilocks of Credit Risk Analysis

My entire point of contention with banks previously was that they applied no credit controls when making loans. That they lent money too loosely.

Now that the housing market is collapsing they're gone completely overboard and gone to the other extreme. Anecdotally I hear of friends and family who never missed a mortgage payment in their life, getting turned down because they're "too much of a credit risk." Forget it if you're self-employed, you'll never get a loan or a refi. Even if you were a savvy younger fellow thinking now would be the time to buy some rental property, such a smart move is impossible because you are too young to get a loan.


Sadly banks are shooting themselves in the foot. First the people that the easing of credit was intended for by the fed are not getting that help they needed. Two, banks are passing up on good loans that would actually be paid back. Third, in not refinancing the people who deserve it, they further risk prolonging a recession.

The banks must learn to strike a Goldilocks balance of credit. Not too stringent, yet not too loose. Of course, you're asking for competence on the part of banking executives.