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The Importance of Finance Companies
by Rick Shell
You have to understand the debt process in order to be a good collector.
Consider the typical consumer that comes before us. Unemployment has to be the single greatest cause for debt problems. The vast majority of people live paycheck-to-paycheck. At the early phases of their debt crisis, consumers begin to prioritize the “important” accounts and start cutting loose the accounts that they feel can wait. In just six short months, a consumer who has maintained 20 years of outstanding credit can be financially ruined.
As the delinquent accounts begin to amass over the months of unemployment, pressure to pay begins to increase. Consumers now have several creditors calling, and all want paid NOW.
The consumer has now finally returned to work, but unless they made an outstanding career move, they probably don’t make enough to pay everyone at once. Most consumers at this stage are lost. They don’t understand financing. Banks won’t loan them money now that their credit has gone awry. All they know is they have collectors calling them demanding payoffs, and they don’t have it. Where can they turn?
The obvious conclusion is to determine if the debtor owns their home. Be careful when posing this question to the debtor…some don’t want you to know this and will tell you they don’t, and when cornered about it they will say something like “their bank owns it.”
When a debtor owns their home, they have an asset they can use to get out of debt. However, there are limitations. If they’ve owned the home for less than a year, then their mortgage isn’t “seasoned,” so they cannot refinance during this period. If they have very little equity in the home, a refinance or home equity loan may not give them enough to pay off their delinquent accounts. This is more of a problem these days since many mortgage loans are written with only 5% down, as opposed to 20% down like most mortgages were 15-20 years ago.
A good collector needs to be able to walk a consumer through this process. If you’ve ever closed on a mortgage, then you know it can be a confusing process. Most consumers don’t want to re-live it, even if it is strategically the best financial move they can make for themselves. If, as a collector, YOU don’t understand the loan process, then how can you expect to be convincing enough to encourage a debtor to take this monumental step?
First, convey the flip side of the coin…the debtor continues to ignore this (and other) debt(s). There is the potential for a judgment to be obtained, and a lien be placed on the property. A debtor who tells you they don’t want to refinance in order to pay a bill needs to understand that their homes could be involved in the event that involuntary action is taken. If such action is taken, the debtor would not only be responsible for the debt, but also any cost that occurs due to their delinquency, including court costs and legal fees. So, in a nutshell, they can refinance now and save money, or they can do nothing and have it forced upon them with an overall greater expense to them.
Have a mortgage broker available to you that is good with working with debtors who have “c” and “d” type credit. Be ready to conference them in on the call if the debtor gives permission to do so. Make sure the debtor knows that they are not required to use the mortgage broker that you are recommending, but assure them that this person is used to helping people who are financially stressed.
To read the entire article click here.
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