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Effects of the new VantageScore credit score

National Mortgage Professional
Aug 14, 2006

Nine weaknesses of debt elimination programsJoe Cornodebt elimination, credit restoration I am a firm supporter of being debt free, including paying off one's mortgage. This concept is starting to emerge in our industry in the form of debt elimination business, employing patented wizards and systems. They come in every shape and size, from multi-level and non-profit to for-profit companies. There are some fallacies that are inevitably at the forefront of any freedom-from-debt opportunity. If you are going to offer your customer debt elimination as one of your companys services, be very careful when marketing it. Let us review the weaknesses of debt-elimination marketing. 1. The customer must really want to be debt free. I know this seems a bit ironic, but most Americans do not seek to be debt free. In order for the customer to take advantage of any debt elimination product or program, he must be an active and willing participant. 2. Some companies teach your customer that the way to become debt free is to earn more. This is a supporting fallacy that claims the customer will eliminate his debt by paying it off earlier with increased revenue. It is not reduced income that has created the debt, rather, it is not controlling and monitoring spending. 3. Greed becomes the motivator, and relieving debt becomes secondary to the dollar to be earned. This is another supporting fallacy that creates added time burden to earn more money so that the consumer can get out of debt, when what really is established is greed to want and have more. If the customer who truly wants to eliminate debt would take on a part-time second job, he would eliminate his debt quicker than marketing the debt elimination system. The time spent would earn the added income needed and not require selling some debt elimination system to others. 4. Debt elimination marketers will sell the customer on his wants. The ultimate vacation, the cabin and the car of his dreams are all within reach. This fallacy does not eliminate debt and is based on earning residual income. The residual income, along with freed-up income, is only an illusion. The customer, rather than making money instantly with a second job, will be marketed on selling debt elimination to others for residual earnings. The customer pays out a membership and monthly service fee for the opportunity. 5. There are some companies that profit from a percentage of the amount saved by eliminating debt. After a small monetary cost to enter the customer into the system and run an analysis on interest savings, the company will take its profit from the savings being realized. It gets its profit before anything else is paid, and this can be in the thousands of dollars. Most debt elimination businesses will want control of the customer accounts in order to auto-pay bills per the prescribed wizard analysis program. This usually includes refinancing the existing home mortgage with an option ARM or interest-only payment structure. 6. One cannot keep paying from interest savings or creating added residual income to cover expenses without soliciting others to join. Now, instead of being in the loan business, you are in the debt elimination business and have changed the focus of what you represent. 7. Reworking the mortgage will create instant additional income due to the short-term option ARM or interest-only payment structure; however, the real key to eliminating a home mortgage is in reducing the term, resulting in a shorter duration of the mortgage lien. Some companies may be completely independent of any mortgage institution, but they still have their selected lists for utilizing loan services. You are now being replaced as your customers' loan contact and are surrendering your customer base to the debt elimination business. 8. A small percentile (in single digits) actually will work the plan and eliminate their debt. The larger percentile will pay for a plan that will never bring them to the goal of being debt free. Also, the tax ramifications of having no mortgage interest need to be factored in. If you have someone who truly wants to eliminate debt, you can establish resources and plans that do not charge fees or require the networking of additional debtors. It is everywhere for free. 9. Major banking organizations (often depicted as the demons and monsters that caused your customer to get into debt) offer free, 24-hour, Web-based tools that show spending habits, suggest strategies for improving spending and debt load and allow your customer free consultation with bank staff. There is a myriad of books available in public libraries on getting out of debt. You could spend some time doing research and creating a system for your client to utilize, without the patented wizards. This takes us right back to Item 1. The customers must make debt elimination their true goal. By paying off debt through the customers' work and personal commitment (no one else cares to do it for them without a charge attached), they can be debt free within an acceptable time frame. The main goal for you as their loan originator is to consult and obtain the mortgages. There is nothing wrong with analyzing their financial crash dates and teaching them that debt elimination may need to be their main goal. Yet, it is the customers' choice to eliminate debt and not yours to make for them. Your research and studies on debt elimination can be ongoing and make for great mailers to past customers who get them to consider coming in to talk to you. This could be an added service for your business to offer so that you can ask for loan-referral business. Joe Corno is president of Utah-based We Be Consulting and Seminars. He may be reached at (801) 836-2077 or e-mail [email protected]
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Aug 14, 2006
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