Counseling and Mortgages 'Symbiotic'

One of the most tangible lessons the industry and borrowers appear to have learned from the foreclosure crisis is that counseling is a symbiotic partner to mortgage finance.

Demand is energizing the marketplace.

Government programs and nonprofits no longer are the main customer counseling advocates. Private firms are boosting up the trend while at the same time exercising caution.

By the end of April, CareOne Services of Columbia, Md., established in 2002 to provide customers with multiple debt management solutions "to complex money problems" said it has seen demand for its services increase 15%, compared to the same period in 2008.

Demand was the reason that fueled the recent merger of ClearPoint Credit Counseling Solutions, Richmond, Va., with ByDesign Financial Solutions, formerly known as Customer Credit Counseling Service of Los Angeles.

ClearPoint CEO Chris Honenberger said both companies are experiencing "unprecedented demand for financial education" due to the rise of foreclosure and bankruptcy. The merger will combine the agencies' respective strengths and allow them to "assist thousands more customers save their homes" from foreclosure and pay down their credit card debt. For instance, ByDesign brings to the cooperation English and Spanish language counseling options.

As expected during a recession the primary driver to demand is unemployment, up to 10% in some parts of the country, adding to foreclosure risk and homeowners' need to cope with debt. It implies that customers are ever more vulnerable. So as the market grows, regulation becomes even more important.

Which is why CareOne is advocating stronger licensing rules for credit counseling firms, debt settlement companies and other counseling service providers.

CareOne president Mike Croxson warns that as more people than ever are seeking help, customers are not always sure whom to trust or how to recognize a legitimate company from one that may put them at higher financial risk because of incompetence, or even worse, fraud. "Licensure provides an additional layer of protection against predatory companies that, as we've seen in Texas, Florida and elsewhere, can do further damage to consumers' finances."

CareOne maintains many states have weak licensing rules, outdated laws or no rules at all. According to CareOne, 20 states do not have regulatory requirements "so long as the debt settlement company doesn't hold consumers' money." Up to 16 states do not have licensing requirements for debt management service providers. Other states, such as New Jersey, CareOne said, "are still operating under laws written during the Kennedy administration."

Recognizing that "most organizations" in the credit counseling and debt management industry operate with integrity, Mr. Croxson says, "there have been some bad actors.

"In some cases customers have lost money and actually had their debts increased and their credit further damaged because they trusted providers that turned out to be negligent or even criminal. Stronger state regulations would give customers more protection from these unscrupulous, predatory organizations."

In Mr. Croxson's view, regulatory requirements should include Mandatory licensing by a state regulatory agency, periodic audits of these firms' activities, a clear description of what kind of services it provides to customers and upfront description of fees, a commitment to provide face-to-face or phone-based human contact if necessary and some ongoing customer support, and free financial education materials.

"I urge state legislators around the country to take a good look at how they regulate - or fail to regulate - our industry during this difficult economic period," Mr. Croxson said.

States like Virginia and Pennsylvania are among the few states in the country with licensing regulations that not only protect customers but also create a "customer friendly, competitive marketplace," the company said.

The company website also clearly states it does not offer to change or improve an individual's credit score. An important distinction given the confusion that exists in the marketplace between those who offer to arbitrarily change one credit and debt settlement companies that offer to help borrowers in distress pay off their debt and help their clients improve their credit score within a period of time.

Options available to customers could be credit counseling that offers family budgeting advice; debt management programs designed to help borrowers improve their credit, consolidate and pay off debt within a period of time, typically five years, based on negotiations with creditors; and debt settlement services that help borrowers who cannot afford to pay off all their debt to negotiate the due amount.

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