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Comment by buildfocus | Hacker News Reader

Spain - the bank asks for evidence of income (payslips or tax returns), existing funds (bank/broker statements) and checks outstanding debts (via a public register: https://www.bde.es/wbe/en/para-ciudadano/gestiones/informaci...). Risk analysis runs on that data directly. There's no credit history where you need to have ever borrowed money before.

Average interest rate on mortgages in Spain with this system appears to be _half_ that of the US, so it seems this isn't so ineffective that premiums have to spike to match. (is that right? https://www.bankrate.com/mortgages/mortgage-rates/ suggests 6% interest mortgages is a current average in the USA while Spain is below 3% now - personal anecdotes plus gov stats shows 3.25% average on all issued mortgages in 2024: https://ine.es/dyngs/INEbase/en/operacion.htm?c=Estadistica_...)

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US mortgage rates are typically 30-year fixed. In Europe aren't they typically variable rate and shorter times? Both impact the rate significantly.

They are creating a credit score for you. They’re asking for the essentially the same data a credit scoring agency would use. The difference is that they manually underwrite everything.

Spain also enforces a much stricter debt to income ratio, which means it’s much harder to get loans for people that already have debt, which means the risk profile is reduced for those that do get approved.

Also Spain’s unemployment is among the highest in the EU — and almost three times higher than the U.S., so the central bank’s lower interest rates reflect less of a concern over inflation and more of a concern towards encouraging growth. The low interest rates in Spain aren’t a reflection of reduced risk but of lower central bank rates. You could get 30 year mortgages in the U.S. just a few years ago approaching 2%.

Comparing mortgage rates across countries is a pointless endeavor because the macroeconomic circumstances are vastly different. For example, one would think that lower interest rates would result in a increase of housing supply in Spain as investors build more housing because the loans would be cheaper — however that isn’t the case because of the post-tax return on investment (and regulatory risk) for real estate is far worse than an equivalent investment in the United States despite higher lending costs. A €10 million housing project in Spain has a lower ROI than the same project would in North Carolina. Interest rates could be zero in Spain and it wouldn’t change the housing market much because of the myriad of other factors that go into the spreadsheet.

I'd rather each bank do the due diligence themselves than some centralized entity removed from anything.

Also almost all the things GP listed apply all across Europe. So the "Spain character assassination" exercise is pointless.

Well you're in luck because almost all US residential mortgage lenders perform that due diligence. Credit scores may be a factor in determining loan approval and interest rate but they also look at other metrics including DTI, LTV, and others.

Then what's the point of centralized scoring agencies except for selling your data?

Those aren't really "scoring agencies". The credit reporting agencies make most of their money with mortgage lenders by selling high-quality data. Credit scores are more of an add-on, and mainly of interest to other types of lenders dealing with smaller loans who can't afford to do rigorous underwriting themselves.

In the credit score system, you get no visibility into the data that is used for your decision. I think in GDPR there's actually a right that any algorithmic decision has to be able to be appealed to a real human. With credit scores, all you'd get is "your magic number is below our magic threshold"

"Magic 8 Ball says no"

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