by Calculated Risk on 3/13/2009 10:14:00 AM

"Before we do the credit cards, we are actually not done with the mortgage [crisis] - the worst of that is yet to come in fact. The thing about mortgages is you can predict when they are going to reset and you can sort of see what is coming. We easily have another 12 to 18 months of pretty ugly times in terms of mortgage resetting. ... Credit cards are next."
FICO (formerly Fair Isaac) CEO and Michael Porter, CNBC

Porter also defends FICO scores as useful (no surprise), and I think he is mostly correct. Unfortunately during the housing bubble, many lenders used creditworthiness (and FICO scores) as the only measure to allow a loan. Historically lenders used the "Three C's": creditworthiness, capacity, and collateral.

On capacity, during the bubble, lenders qualified borrowers at teaser rates - or the Neg Am rate for Option ARMs. They didn't consider if the borrower could meet the fully amortized rate. On collateral, lenders just assumed housing prices would increase and 100%+ LTV loans were common. All three C's still matter.