Tuesday, August 5, 2008

How Debt Settlement Companies will Save the Economy and Save Many People from Home Foreclosure

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Filings of home foreclosure have surged in 2007, as increases in home price revered or slowed, leaving borrowers unable to make on-time payments when their adjustable rates started resetting at higher levels.

According to RealtyTrac, an online foreclosure properties marketer, the number of home foreclosure filings soared, in comparison with the last quarter of the year 2006, to 27% during 2007's first quarter. The study disclosed that there were over 430,000 home foreclosure filings all over the United States, at a ratio of one per 264 households, and encompassing default notices, auction sales, bank repossessions and everything in between.

The state of Nevada recorded the highest home foreclosure rate of one per 75 households. Colorado accounted for the next highest home foreclosure rate, at a ratio of one per 111 households. Studies reveal that many homeowners in Colorado have faced unaffordable loan rates in the recent years. Meanwhile, California and California have had the highest number of filings, the report said.

Analysts expect the home foreclosures to continue to rise throughout 2008, given the numerous mortgages that were written in 2004 or 2005, that are subject to adjustable rates and will have their first resets and interest rates will increase by three or more percentage points. The resets are expected to make loans “totally unaffordable” for most borrowers, thereby effecting default. The U.S. Commerce Department also reported a 0.6% dip in housing sales as of June 2007.

In an apparent case of domino effect, the mortgage defaults of homeowners in the United States push homes toward the epidemic of negative equity, where a home's worth becomes much less than the mortgage. Statistically, some reports say that roughly 2,400,000 Americans are under the threat of losing homes from mortgage rates in the coming years.

The United Kingdom is not spared as well, as homeowners are said to be at the risk of dipping into the negative equity state if prices of houses drop, according to Experian, a credit ratings agency.

The Debt Settlement Option

There are several strategies to settle debts. For one, debtors may approach their credit agencies or banks for lower interest rate, pursuant to the government's announced policies. This will mean all credit cards that are unsecured will soon cease to become burdens. It will also be wise to close other credit card accounts, if any, and keep one for use to help track expenses. However, if the debt is huge, leaving debtors unable to create financial plans, debt settlement companies may prove helpful.

Debt settlement has been practiced years ago, but became prominent in the U.S. in 1980s and 1990s when deregulation of banks took place, effecting loosened practices in consumer lending practices.

Essentially, debt settlement involves a third party that settles or eliminates debts through settlement with creditors through a plan that is executable and not requiring the payment in full amount. As a rule, debt settlement companies do not handle their clients' funds to avoid impropriety.

Technically, on behalf of their consumer-debtors, debt settlement companies assist in the clearing of their clients' debts by directly negotiating with the creditors to facilitate repayment. If negotiations are handled appropriately, debt settlements effect handsome reductions on debts. In some cases, most creditors ultimately accept less than the client-debtor's full balance in an effort to settle their outstanding debts.

Debt settlement can provide certain benefits, such as negotiation with creditors, easy payment terms and reduced debt in the overall, and in most cases, fixed payment terms on regular installment such as on a monthly basis, while taking into consideration a debtor's financial position.

A major benefit of utilizing the services of a debt settlement company is freedom from creditor and collection agency harassment and litigation threats. As part of debt settlement companies' services, their main business is to handle the debt issues, rendering the client free from harassment and lawsuit woes.

According to the Association of Settlement Companies, debt settlement companies' basic aim is to lower or lessen the debt amount. The company also works on reducing interest charges on principal amounts, and reduce payments on tenure in the process. Settlement companies target good practice of debt settlement in the industry without compromising protection of consumer-debtor's interests.

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Debt Leads Are The Next Mortgage Leads; Will We See An MSN Homepage Banner Anytime Soon?

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The past few years witnessed the booming of the real estate industry. With it, sales persons saw the opportunity and involved themselves with the mortgage industry so that they can cash in -- conveniently and quickly. According to the industry's 2005 statistics, over a million loan officers and brokers all over the United States flocked the mortgage world, plus direct lenders and banks that kept the industry afloat.

Alongside the upsurge of the real estate and mortgage industry, lead generation companies boomed. For one, LowerMyBills.com, the Web site of an Experian-owned consumer finance corporation, earned, by connecting prospec mortgage borrowers and lenders, a whooping $26,000,000 in profit over sales of $120,000,000 as of March 2005. According to various reports, the company became one of the largest mortgage advertisers in November 2006, and spent roughly $75,000,000 in assuming this leadership. The following year, LowerMyBills.co.uk was launched.

On the other hand, LendingTree, LLC had facilitated over 20,000,000 loan requests, and closed $152,000,000,000 in loan transactions since its launch in 1988. LendingTree provided access to mortgages, and among other things, refinanced loans, auto loans, home-equity loans, personal loans, credit cards and savings accounts.

The recent scenario, however, has become much different. In fact, since mid-July 2007, the real estate market had seemingly cooled, prompting various vendors in the mortgage leads generation to close business, including about 450 mortgage lead providers to loan officers and brokers. By the years 2006 and 2007, the decrease had swelled to a hundred percent. The subprime mortgage industry went into a deep freeze state, spreading layoffs among lending companies.

LendingTree, among other companies, has been hit hard by the downturn. In 2007, the company reportedly laid off over 400 workers that made up 20% of its entire workforce.

According to analysts, generating mortgage leads have become much tougher, as consumers have grown weary of their financial states -- becoming smarter shoppers and customers. Techniques that generally worked for them ceased to become enticing, such as filling out Internet forms, which dangled convenience in process and quick action.

As compared with the past industry conditions, people today who have money and good credit standing do not make decisions as they did during the real estate or mortgage boom. These days, a majority of Internet users who are seeking loans are either buyers or refinance prospects with credit issues and some little cash.

These days, loan officers are struggling to learn to generate mortgage leads of their own, or find the best providers, policy and quality-wise. Analysts say that perhaps, in the past, the focus was merely on the number of leads, instead of zeroing in on actual quality and the company policies on credits for these leads.

With the sub-prime market struggling and the biting effects of credit crunch in the U.S., lead generation companies need hefty capital to develop leads, which will not be worth the expected percentages of real credit prospects, which are estimated to range only from 5% to 15%, assuming that the information at hand is valid and accurate.

In light of the problems besetting the mortgage and real estate industry, mortgage companies have taken a backseat and reorganize themselves as credit repair companies, legally processing consumer credit standing to remove inaccurate data from their credit reports, based on Consumer Credit laws in the U.S.

Among other companies that took the mortgage-to-debt-repair shift, LendingTree is known to have survived the downturn of technology that plagued loan and mortgage industry, and has been applauded by investors at Wall Street. In 2007, LendingTree took advantage of the refinancing boom, and, with the rise of the current rates and the lenders seeking more customers, LendingTree's business of pre-screening borrowers are much more prized. Analysts aver that LendingTree is reaping benefits from its strongly positioned market, and its recognizable brand.

According to the Research Department of the Philadelphia Federal Reserve Bank, th U.S. consumer credit repair and reporting industry has dramatically evolved from joint ventures of a few local retailers in the 1900, to a technologically-dependent industry which supports the country's trillion-dollar credit market. Apparently, credit bureaus have changed, just as lending and retail did.