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Saturday, June 19, 2010

On the Backs of the Vulnerable: Debt Relief

I read this in the New York Times this morning. Then I saw Funny's post on the same concept, so this is a sister post.

Sometimes I think I must be crazy because I never see anything on this topic: trickle up economics. The Times article is about companies that offer to help you out of your credit card debt. In spite of being on a no-call list, I get an occasional robocall, with a concerned voice saying something about how many people are in debt blablabla.

This is how they work:

In the typical arrangement, the companies direct consumers to set up special accounts and stock them with monthly deposits while skipping their credit card payments. Once balances reach sufficient size, negotiators strike lump-sum settlements with credit card companies that can cut debts in half. The programs generally last two to three years.

“What they don’t tell their customers is when you stop sending the money, creditors get angry,” said Andrew G. Pizor, a staff lawyer at the National Consumer Law Center. “Collection agents call. Sometimes they sue. People think they’re settling their problems and getting some relief, and lo and behold they get slammed with a lawsuit.”

In the case of two debt settlement companies sued last year by New York State, the attorney general alleged that no more than 1 percent of customers gained the services promised by marketers. A Colorado investigation came to a similar conclusion.

And look who is in the biz:
Cody Krebs, a senior account executive from Southern California, manned a booth for, whose Internet ads link customers to debt settlement companies. Like many who have entered the industry, he previously sold subprime mortgages. When that business collapsed, he found refuge selling new products to the same set of customers — people with poor credit.

“It’s been tremendous,” he said. “Business has tripled in the ” last year and a half.

And look how they sell it:
“We negotiate the past while you navigate the future,” read a caption on its Web site, next to a photo of a young woman nose-kissing an adorable boy. “The American Dream. It was never about bailouts or foreclosures. It was always about American values like hard work, ingenuity and looking out for your neighbor.”

So the money trickled up from the poor to the real estate agents, builders, etc and waaaay up to Goldman Sachs et al, all for the American Dream of an ownership society.

Now the money is moving up through these debt relief businesses.

And it continues to move up from the student loan borrowers...

I think I'm going to return to my rice cooker.


Someone said...

No, the money didn't "trickle up" to real estate agents. Having been in that biz for some years, I know that our income has been slashed and commodified to death with everyone trying to kill us off from discount brokers to the media that trots out "is your job being replaced by the internet (we sure hope so)" every season.

If some agents are making big money, it is because they have built up a loyal clientele over many years, or they are a perfect fit for their area and easily find many people to work with, or they grew up in the business, or they live in an area where demand is so high they can't not sell. It has NOTHING to do with dishonesty or pushing people into financial folly. There ARE jerks in our business, but guess what, they are in EVERY business.

People who don't know what they're talking about keep piling blame on us for the financial meltdown. What we did before it, and since, was meet the self-described needs of pre-approved clients. We do not "qualify" buyers the way it used to be done. If a bank says in writing that a buyer is good to go, then we follow their wishes and connect them with the home they want. How could we have done otherwise?

And don't believe the hype that says we "push" buyers into more home than they can afford. First, as I said above, it is the BANK that tells the buyer (and therefore us) what they can afford. There is really no way to go around that, and even if we could, commission structure means that our return on any price increase is pretty darned low - like $150 per $10000. People think we're willing to risk losing a sale altogether plus an unhappy client for another $150? Umm, no.

The reason buyers end up buying more home than they first intend is because their champagne taste doesn't match their beer-budget ideal price. They spend weeks of our (unpaid) time looking at 25-40 homes in the beer budget until they realize how unrealistic their idea of a steal is (sellers price their homes for what they can get, who knew?), so they eventually have to move up to a range that DOES get them more of what they want. PS, WE don't set real estate prices, the sellers (and then the buyers) do. It is supply and demand, pure and simple.

I don't know if you'll print this comment...but it is high time that we lay these stereotypes to rest. Any financially-oriented blogger has a responsibility to their readers to write financially responsibly. And smearing real estate agents is not only unfair, it can be costly to those who use our services because we have been completely mischaracterized as hurters instead of helpers.

I could go on and on about attitudes and ignorances that unfairly pit us against the people we are there to help, but this comment is long enough.

Frugal Scholar said...

@someone--Sorry--I didn't mean to diss real estate agents. I was just trying (perhaps failing) to say that, during a period of tremendous real estate activity, everyone involved in the biz did very well. I knew someone who didn't work who was licensed to do title searches--she was doing 8 or more closings a day over a period of several years (at $100 or more each). She was getting work referred to her by people who could not keep up with all the work coming their way.

Someone said...

Frugal - not everyone did very well at that time actually, but what's wrong with doing well? That's the whole point of being in business.

And, any supporting business (like title work) does well when the economy does. Again, there is nothing wrong with that is there? Then it goes BUST when the economy does, also. Other things affect businesses too; in fact, my sister was a title searcher in another state (so there was no relationship between her business and mine), perking along ok, and then they changed the laws in her state and suddenly she was 100% out of work. She does something else now.

And of course, title agents are not Realtors, usually. They also tend to work for several agents/real estate companies at once, so if they do 100 deals you can bet those deals are divided among a whole group of agents. So who's really doing well? The title people, because they make money on all those transactions, not just a handful apiece.

Anyway, I just see a lot of real estate agent bashing out there and it's tiresome. There is a huge animosity toward agents for actually making money in their business...why? Everyone thinks they know how to do our job better than we do, and has an opinion on how we should be doing it. But when they want an agent to help them buy or sell what do they all want? The biggest name agent they can find. Cognitive dissonance at all? Yeah, there's lots.

Thanks for your response to my comment. Your post and its title implies that we did well by taking advantage of the vulnerable, and that is so not what I'm about (or most other agents I have worked with). Now, there ARE lots of businesses that clearly did, and do. More power to ya for writing about those.

Duchesse said...

Uh,wait. People who owe money for goods they chose to acquire through crdeit think someone is going to arrange for them to pay over a long period of time (years) AND pay less than they owe?

The real estate industry is predicated on people believing they do not have the skills, time and knowledge to manage (whether buying or selling) what is usually their primary asset.

Does one? That is a matter for each person's evaluation, not blind acceptance.