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I have a modest proposal for our friends in the subprime mortgage industry, who got immensely rich over the past five years making bad loans to people who were in no shape to repay them.
You already use “prime” to describe credit-worthy borrowers. That’s a term that comes straight from the U.S. Department of Agriculture grading system for beef. So why not use the rest of the USDA’s grading system, too? After all, the borrowers have basically been led to the slaughter.
Here’s my modest proposal for ranking borrowing households like meat. The meat descriptions in italics come from this USDA web page.
Prime: Unblemished credit, rock-bottom LTV, doesn’t need your money, so go away.
USDA Prime: Prime grade beef is the ultimate in tenderness, juiciness, and flavor. It has abundant marbling — flecks of fat within the lean — which enhances both flavor and juiciness. Prime roasts and steaks are unexcelled for dry-heat cooking (roasting and broiling).
Choice: Pays all bills on-time. Putting 25% down. Dad defaulted on a college loan in 1982.
USDA Choice: Choice grade beef has less marbling than Prime, but is of very high quality. Choice roasts and steaks from the loin and rib will be very tender, juicy, and flavorful and are, like Prime, suited to dry-heat cooking. Many of the less tender cuts, such as those from the rump, round, and blade chuck, can also be cooked with dry heat.
Select: Late with the occasional car payment, but who isn't? Steady income and the pay stubs to prove it.
USDA Select: Select grade beef is very uniform in quality and somewhat leaner than the higher grades. It is fairly tender, but, because it has less marbling, it may lack some of the juiciness and flavor of the higher grades. Only the tender cuts should be cooked with dry heat. Other cuts should be marinated before cooking or cooked with moisture to obtain maximum tenderness and flavor.
Now we're getting iffy.
Standard and Commercial grade beef frequently is sold as ungraded or as "brand name" meat.
Standard: Got the LTV down to "only" 95% by shopping around for an optimistic appraisal.
Commercial: Plenty of money for a downpayment as long as the house doesn't cost more than $359.14.
And down we go ...
The three lower grades -- USDA Utility, Cutter, and Canner -- are seldom, if ever, sold at retail but are used instead to make ground beef and manufactured meat items such as frankfurters.
Utility: Needs to borrow the entire downpayment and asks the loan officer to slip him a 10 to buy lunch.
Cutter: FICO score same as bowling score.
Canner: Absolutely no chance of staying current past the Fourth of July. Give that man $300,000!!!
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.