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CrisisOfCredit.com has an excellent video explaining how we got into this credit crisis. But one thing about the video seems a little overdone.
They include drawings of what a prime vs sub-prime borrower looks like.
Prime:
Sub-Prime:
That seems a little ridiculous. The number of kids, weight, and smoking habits of borrowers likely has little to do with their financial situation.
As I understand the term, sub-prime refers to people with credit scores under 620. That can be just about anyone who’s fallen behind on credit cards or other types of financing.
In a rising market with high employment, even that group skated along just fine because they could always refinance based on the increased equity of their homes, or continue to pay their mortgage while letting other bills fall behind. But things hit the fan when homes stopped increasing at the rates they were. Put that together with layoffs and it’s pretty easy to see why both images above could represent the credit crisis.
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The best news coverage I have seen/heard about how we got into this mess was on This American Life on NPR. Even for someone like me who is in the real estate business I didn’t understand how deep the rabbit hole went. It might be available for download on the NPR site.
I saw this video as well and posted it on my Blog, too. (great minds think alike) While I agree that the representation of the subprime borrower (weight, # of kids, smoking, no pet) is not directly correlated to irresponsible financial behavior it is iconic of irresponsible social behavior. Irresponsible social behavior can be a good indicator of irresponsible financial behavior.
The graphical representation may not be technically spot on in a politically correct sort of way but it does get the point across that the prime borrower and the subprime borrower are different.
This reminds me of the line in the second Addams Family movie where Wednesday says she’s dressed up as a serial killer for Halloween: “They look just like eveyone else, you know.” (paraphrased).