Refinancing with poor credit – What about the Bank’s credit?

There is a lot of talk about credit scores, poor credit, bad credit blah blah blah. But this is on a personal level and no one is really looking at the creditworthiness of the banks and lending institutions. The banks can arbitrarily decide that you are not creditworthy and that is the end as far as you are concerned, you now need to scramble around fixing your credit rating or face the prospect of never being able to borrow money at a sensible interest rate, and the banks are not interested in helping you refinance with poor credit.

But the current credit crisis has bought something plainly into view – the fact that none of the world’s banks are creditworthy. This is the root of the current “credit crunch,” and foreclosure crisis. The banks are not lending to each other, because one, they are illiquid and two, they do not trust each other because they do not know the extent of the losses being disguised.

There is much hoopla about the fact that some of the US banks are planning to “pay back,” taxpayer’s money. Lloyds bank in the UK announced that they are going to “repay,” £2 billion of UK taxpayer’s money. Ignoring the fact that this announcement was instrumental in preventing the present Prime Minister, Gordon “no more boom and bust” Brown from being evicted from his comfy chair, just a week later Lloyds announced yet another £600 million loss as one of the UK’s biggest pub chains defaulted on their loans and the closure of a building society (savings and loan) with the loss of 1,600 jobs.

Here is how it works:

  1. Bank goes broke lending money it does not have to people who cannot pay it back and will never be able to refinance with poor credit
  2. Bank needs bailing out by government Inc using your money.
  3. Government Inc changes the accounting rules to allow banks to re-value assets to show a paper profit
  4. Central bank prints more money which is used to buy corporate bonds and bad assets from banks
  5. Banks use this newly created money to “repay” borrowed taxpayer’s money

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The very scary thing for me is the extent to which the banking system has now become a political tool and the amount of repossessed houses for sale is staggering.The size of the numbers being bandied around are of a magnitude beyond any mere mortals comprehension.

The credit crisis is continuing to get worse, not better, despite the constant barrage of Government Inc press releases telling you it is all over and you can relax. Just this week, The London Times, the British Government’s preferred method of feeding misinformation to the masses announced the following headlines:

  • The recession is over, according to a leading economic think tank.
  • Pound surges, as investors bet Britain will be first out of recession
  • Lloyds banking group boost Brown with £2.3 billion bailout repayment

The self same paper includes these headlines at the same time:

  • Lloyds take £600 million hit as pubs fall flat
  • Lloyds Banking Group will lose an estimated £600m on Admiral Taverns, the pub giant, in what is believed to be one of the biggest write-offs it will be forced to take on a single investment
  • Gaming giant Gala’s credit crunch
  • Gaming giant Gala Coral asked Lazard for a plan to raise £200m of fresh funding to help it through a looming cash crunch
  • British Airways in pension reserves crisis
  • BA has begun negotiations with its pension trustees after dropping below the level of cash reserves agreed three years ago
  • UK jobs at risk as LDV files for administration
  • LDV, the beleaguered van maker, was today placed into administration…
  • Jobs to go as Lloyds takes Cheltenham & Gloucester off high street
  • Lloyds Banking Group will close all its 164 Cheltenham & Gloucester (C&G) branches and shut other parts of its mortgage business, with the loss of 1,660 jobs.

I am well aware that my government thinks I am stupid, but to be reminded on a daily basis is pretty annoying. The banks are still insolvent, so refinancing any loan over the next two years is going to be all-but impossible without direct government assistance. The bad credit pyramid is growing with every dollar, pound or euro being printed, and the pressure is increasing on the base of the pyramid – you! I live in a small town on the French coast – and two bakeries have been shut down in the last few weeks for non-payment of government taxes. The madness is beginning here also.

The current tally of failed banks in the US this year has now reached 45 after another three banks were closed June 19th (2009), and the Federal Deposit Insurance Corp is fast running out of funds, meaning refinancing with bad credit is going to become even more difficult.. They still have more than 300 banks on their “problem” list. Trust me – they will be back at the trough before the year is out. When you consider that we are not even half way through the year and the amount of foreclosed homes is still rising, we are in for a rough ride.Take a peek at Realtytrac’s foreclosure heat map for 2008. That trend is worsening if anything and although Mr Alan Greenspan claimed a couple of months ago, when speaking to the National Association of Realtors, to be seeing “seeds of bottoming” in the housing market it is worth bearing in mind that back in 2006 he said, “the worst may well be over.” Clearly the worst is not over and those wishing to obtain a 100% home equity loanare going to be out of luck. The refinancing mortgage rates are also likely to go through the roof over the next 2 years or so – I fully expect to see interest rates in teh 15% region. UK homeowner loans are already becoming so expensive they are impractical – and interest rates are at all time lows. Those wishing to remortgage with adverse credit are also likely to be out of luck. What a mess !

We are in debt up to our eyeballs from the base of the pyramid on up to the top, and printing more money is not going to solve it. So if you need to refinance and you have bad credit – do as they do – walk away from it. If I had a credit card I couldn’t pay, I would be cutting the card up and posting it back to the bank. If I had a car loan I couldn’t pay, I would be mailing them the keys. I wouldn’t be putting a stamp on the envelope either.The chance of any one refinancing anything currently are slim to non. I would be more interested in persuading a judge to write off some of my mortgage instead.

Your Bank has Failed!

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