Credit Consulting Group, LLC

EDITORIAL COMMENTS by J

Anyone familiar with Credit Consulting Group, LLC know that our mission is to enhance the understanding and knowledge base of everyday credit users. Several of us learned the hard way that what you don’t know about the credit industry can destroy you. Like Sun Tzu said, if you only know yourself, you will win half your battles. If you only know your enemy, you will win half your battles. If you know yourself and your enemy and act on that knowledge, you eliminate fear and will win the war. Likewise, there is a biblical verse that says, “…people are destroyed for lack of knowledge.” (Hosea 4:6).

Toward our mission, we devoted this section to one of our researchers and commentator, J. His insightful thoughts and comments on behind the scene activities within the credit industry, and the impact these activities have on our economy and our lives is a valuable asset to this website.

So sit back, read, and think about what J has to say, and whether you agree with his observations or not – at least you took time to think, which is something people are being trained not to do these days. MHG

Who Cares About Credit? – Part One
If you answer this question with an emphatic “I DO”, count yourself as one of the exceptional few. Until recently I didn’t care about credit either. Besides singing along with squirrely credit commercials, I had absolutely no interest in anything that was connected with credit. All I cared about was money; I did not see the link between my credit and my money.

It wasn’t until my mom founded her credit restoration and education business, Credit Consulting Group LLC, that I began to transform into the credit conscious man I am today. Without veering too far off the road, I have to take a minute to give a brief history of CCG^TM. My mom has been a social worker most of her professional life, specializing in domestic violence and human behavior. She had no intentions on getting involved with the credit business. Unfortunately, she became a victim of identity theft that totally trashed her credit. Desperately, she sought help from several so called credit servicing agencies only to find that they weren’t equipped to help her at all.

As the old saying goes, the only way to do something right was to do it herself. She began researching credit laws and working the dispute process in order to get all the derogatory information off her credit report. Apparently, she took to it like a fish to water, so well in fact, that she began helping friends and anyone else who came to her for credit advice.

Long story short, the demand for her wealth of knowledge became a venture that she grew into the business it is today. Of course, she began training her baby boy (me) to one day take over the operation.

Initially, I didn’t realize the opportunity I was given, but I did know the profit making potential CCG™ has, so I was intrigued. I am sure CCG™ is bound for success because we are good at what we do. The only problem was that we had no capital for marketing or advertising.

We had to figure out an affordable way to let people know how excellent our services are, so we came up with an idea. We thought that if people could witness our credit expertise, word would spread like wildfire. Therefore, we decided to offer free credit education seminars and workshops for anyone interested in attending. The underlined word points out the problem, nobody was interested.

Despite my frustration, I could understand the apathy. Most of us feel like our credit isn’t important until it’s a problem. When we discover that the house we want to buy or the car we want to lease is out of reach, suddenly our credit scores becomes top priority. It’s like a cancer that has been festering in your body for years. As long as there are no physical symptoms, the cancer is not an issue because you don’t even know it’s there. But as soon as malignant cells are diagnosed, you want to get rid of it as quickly and painlessly as possible.

Bad credit may not kill you, but it can have a devastating impact on your lifestyle. If your income is near or below the poverty line, odds are that you have bad credit and your lifestyle is suffering because of it. I’m not making stereotypes or unfounded generalizations; I’m merely stating facts. According to a study done in the year 2000 by the Consumers Federation of America, about one third of lower income families spend more than 40% of their income on debt repayment.

That means at least $40 out of every $100 you earn never really makes it to your pocket. Even worst is the fact that due to your debt burden you probably have a high interest rate with minimum monthly payments, which means it will take a longer time and more money to pay off your debt. With a minimum monthly payment rate on a credit card, it could take more than 10 years to pay off a $1,200 balance. If that’s not outrageous enough, multiply the original amount of interest by 300%, that’s what you could end up paying.

Seventy-five percent of the revenues credit card companies earn comes from the interest paid by borrowers who don’t pay in full each month. In other words, the business of credit card banks is to keep you in debt. This explains why creditors target low income borrowers. That $40 could very well be spent more wisely, or at least on something you want to spend it on. But instead, it goes to greedy lenders who have turned the credit industry into a legal form of loan sharking.

“Some institutions now invest in bad credit card debt.” I was shocked to read this in the CFA’s Facts About Consumer Credit Card Debt And Bankruptcy. Apparently companies like Commercial Financial Services, a debt collection agency based in Tulsa, Oklahoma, “…buys credit card debt that has been charged off as uncollectable from 25 of the largest credit card issuers, packages the debt into securities which it sells to investors, then pursues new collection activities against the customers.” In other words, by the time debt collectors start harassing you for payment, it’s likely they have sold your debt and made a profit on it already. In 1997 William Bartmann, founder of CFS reportedly had a net worth of more than 2.8 billion dollars.

Don’t confuse me as being a hater. I’m not mad at Mr. Bartmann for being so successful, but I do have a problem with the way the system is set up for the rich to get richer while the poor get poorer. I believe it’s unfair because not only is your default credit card account on your record, but now you also have a collection being reported, even though the collection agency has already sold your debt. In the judicial system this is referred to as ‘double jeopardy’ – being punished twice for the same offense. It’s a well designed method to drop your credit score and keep it low so that you will always have to pay more interest on credit related purchases.

This is just one example of how we are being preyed upon by the credit industry but there is much more to consider. Recent news reports have been investigating what led to the biggest real estate market crash in U.S. history. The foreclosure catastrophe which followed has left millions of people across the nation homeless and helpless. The aftermath can almost be compared to the Katrina disaster in New Orleans but no hurricane is to blame.

Talk again, soon – J
Posted 5/10/2010

Who Cares About Credit? – Part Two
“Subprime Lending” is a term we should all become familiar with. It means lending to someone who is considered unlikely to consistently repay the loan due to their less than excellent credit history, their nominal income, or a combination of both. Up until the mid-1990s, subprime lending was very unpopular. But eventually mortgage lenders realized there was a large demand in the marketplace for loans to high risk borrowers. More importantly, they realized that their risk would be greatly reduced if they could seize the built up equity in the homes they mortgaged.

So they created  adjustable rate mortgages (ARMs) – which simply means they initially offered mortgages at an affordable rate, but as the value of the homes grew, so did the cost of the mortgages. If the homeowner couldn’t afford the increase in payments (which were often 2 or 3 times more than the original mortgage note), they would have to default on their loan and, of course, get foreclosed. This was not a problem for the lenders though, because now they could resell the houses at a higher price. Unfortunately they did not foresee the huge monkey wrench in their plans; they could not predict the oncoming recession.

So now my question is, if it had not been for the loss of jobs and the failure of investments that otherwise could have picked up their slack, would the mortgage companies have gotten away with it? Would there be reports in the media about how loan agents encouraged their clients to lie about their income to get their applications approved? Would all this whistle blowing be going on if the financial damage hadn’t reached across the poverty line to affect the wealthy? Would Washington D.C. have taken notice of the elderly men and women on fixed incomes who, with single moms, became homeless after their mortgage ballooned, or would it all have been just business as usual?

And what about the rich who got richer while the poor lost everything? Believe it or not there were a privileged few who profited off of our losses. Apparently there is, or until recently, was a way to legally gamble on the outcome of any credit related business transaction, such as mortgages or auto loans. Credit default swaps and derivatives is the proper term in which a person could place a bet, or “buy insurance”, based on their belief that the borrower in the transaction would default. The person placing the bet wouldn’t be involved in the actual transaction.

The interesting thing about credit default swipes and derivatives is that it was outlawed following the stock market crash in 1907. But, for some odd reason, Congress made it legal again in 2000 (it’s outlawed again now). That’s right around the same time subprime lending became popular. There were millions of adjustable rate mortgages to place a bet on, so while our homes were being foreclosed and our cars repossessed, a privileged few made millions and billions of dollars. Again, I’m not a hater but damn!

So now that we’ve had a peek behind the curtain to get a glimpse of what’s going, what do we do about it? The nation is still recovering from the recession (wink, wink) and regardless of whether or not you like President Obama’s approach, the hole that former President Bush left in our financial system is being plugged. Sooner or later the economy will hold water again.

When that day comes, will we have grown any wiser or will we go right back to spending $40 out of every $100 we earn on high interest debt? There are already many of us who have chosen to take interest in our credit. Perhaps that can be accredited to the dozens of commercials telling us to check our credit score. By the way, those commercials are misleading you. The only credit score that matters is the one that lenders look at which is the Fair Isaac scoring model, also known as the FICO SCORE.

But once you see how crappy your credit is, then what? There are plenty of credit counseling services that want to “help” you, some of which are so called non-profit organizations. Most of them will enroll you in their debt management programs (DMPs) and try to consolidate all your debt so you can pay it off with little to no interest. Hopefully within 2 or 3 years you’ll have all your debt paid and then you can begin working on building up good history on your credit report.

According to the Consumer Federation of America, only 20 – 30 percent of people who enroll in DMPs complete them. Almost half of those who drop out go on to file bankruptcy as a means of settling their debt. But with the passing of the newest bankruptcy legislation, filing bankruptcy isn’t that simple anymore. In fact, the law requires a person to first get credit counseling which ideally is a good prerequisite. However, the CFA reveals that most credit counseling companies only want to put you into a DMP even if you would best be suited by other services that focus more on financial budgeting.

The reason for this is because lenders, such as credit card companies, will pay credit counselors for enrolling their clients into a DMP because that means payment for the credit card accounts, which would otherwise be charged off. In plain English, many credit counselors want you to pay them for setting up an arrangement for you to pay your lenders, who in turn also pay the credit counselors. This process is called ‘Fair Share’ but it doesn’t seem fair to me. For the last time, I’m not a hater but I hate what’s going on and I know part of the reason we are being taken advantage of is because we simply don’t know any better.

I already mentioned that my mom and I operate a credit consulting business (not to be confused with credit counseling).  We don’t enroll our clients into shady debt management programs. Instead, we scrutinize our clients’ credit reports to highlight derogatory information that should be removed. But the credit reporting agencies don’t remove the information because they are nice folks, they do it because according to the laws that govern the industry, they have to.

Therefore, our goal at CCG™ is to not only improve your credit scores, but to inform you of the laws and policies in place that can benefit you.  Remember, CCG™ was started because my mom found a way to help people who are in the sort of predicament she and I were once in. We figured out, a long time ago, that it’s us against them, which is why we offer free phone advice for anyone who needs a resource to turn to. But I want to go a step further, which is why I’m reaching out to you, your family, friends, co-workers and neighbors to ask the question – Who Cares About Credit? – because we all need to.

The credit industry targets us and influences us to live beyond our means. If they can get us to use credit cards and mortgages to buy the things we can’t afford, they’ve got us in their trap. When our debts become greater than our income we have to pay higher interest rates. If we make late payments or default on our loans, our credit score drops like a rock.

Credit can be used for our benefit or it can cause our detriment, the choice is ours. Credit is most productive when you use it to invest in you. Using a loan to pay for an educational program that can lead to earning higher wages, or establishing a 760 credit score along with a solid business plan to get a small business loan are examples. These sorts of strategies are what credit was initially intended for, to carve out your own slice of the American pie.

For questions, comments or if you’d like to give a testimony about your experiences with credit, please email me at Joseph@creditconsultinggroup.com. If you need free advice via phone, contact us at (313) 835-1800 or 362-1915 (office) between 9 a.m. and 5 p.m.

We’ll talk again – J
Posted 5/19/2010

Signs of Depression – Part I
(Part of the Who Cares About Credit? series)

Wikipedia implies that certain conditions must exist before we can refer to our financial crisis as an actual depression. These are the characteristics of a depression:

• abnormal increases in unemployment;
• decreased availability of credit;
• shrinking investment activity;
• numerous bankruptcies and devaluation of currency;
• price deflation;
• bank failures; and
• market crashes.

More simply put, a depression is a long term, severe recession. Economists largely agree that recessions are a normal part of our financial cycle. It’s almost inevitable, sort of like the common cold is an expected consequence of cold weather.

However, a depression is more like pneumonia in that it is more damaging and more difficult to recover from. America has suffered recessions before but none have lasted as long and hurt our economy as much. This fact alone sparked my curiosity as to whether we were actually experiencing a full blown depression. If this was the case, then why would the media and our government label it a mere recession?

To satisfy my curiosity I researched the depression of the 1930’s, also referred to as The Great Depression. I did so in order to have a model to which I could compare our current situation. What I discovered was amazing. Apparently ‘the great depression was the result of several factors with the main cause being the stock market crash of October, 1929. What is particularly amazing to me are the similarities between the stock market crash of 1929 and the real estate market crash of 2007.

During the mid to late 1920s, America’s economic prosperity prompted many Americans to invest in the stock market. As demand for stocks increased, stock prices increased and people profited from their investments. To cash in on the opportunity, more people began borrowing money to invest which caused lenders to loan more money than they could afford to lose. The over inflated stock prices eventually began to deflate, thus starting a selling frenzy amongst panic driven stock holders.

Panic spread quickly as more and more people began selling stock in an attempt to cut their losses. This of course caused stock prices to plummet faster and further. Ultimately the market crashed and people were unable to repay the money they borrowed from banks and lenders.  As a result, banks began to fail. A total of 9,000 bank failures were reported in the 1930s –  740 of them within the first 10 months following the crash.

The chain reaction continued when people started withdrawing money from banks in fear that they would lose their deposits if their bank went under. This combination of uncollectable debt and complete account withdrawals led to even more bank failures. Surviving banks tightened their belts, which meant fewer loans to businesses dependent on bank funding to cover their cost of operation. This caused many companies to go bankrupt, which caused national unemployment to grow to a record 30%; and the nation’s economy came to a stand still.

This vicious cycle was almost too much for the country. If it had not been for the industrial boom sparked by World War II, the depression may have lasted much longer. As frightening as that may be, I am even more alarmed by how familiar the events of the 1930s are to the events of 2007. In case you don’t see the similarities, allow me to explain.

The real estate market crash of 2007, like the stock market crash of 1929, was preceded by a market inflation that attracted many investors. In both cases, investors wanted to take advantage of what seemed to be a guaranteed profit making opportunity. In the real estate market this opportunity came in the form of Mortgage Backed Securities (MBS). These MBS investments had become so popular amongst foreign investors, many mortgage lenders decided to make them more available.

Their plan was to use Adjustable Rate Mortgages (ARMs) for mortgagors who could not actually afford the homes they were buying. Adjustable Rate Mortgages allowed lenders to offer low introductory rates, which would only grow to be too expensive for home owners to pay. But by then, the lender would have sold the debt as a Mortgage Backed Security to the many foreign investors and U.S. banks who wanted to cash in on what appeared to be a lucrative opportunity.

For a while the plan worked. The demand for housing grew, and like stock prices prior to October 1929, the real estate market became over inflated. It was only a matter of time before those Adjustable Rate Mortgages began ‘adjusting’ into much higher mortgage payments. Of course, home buyers could not make the ever increasing payments. Subsequently, they lost their homes to foreclosure.

Talk soon – J
Posted 5/26/2010

Signs of Depression – Part II
I should note that although I don’t know the underlying factors that set the stage for the stock market crash in 1929, I do know what caused the real estate market crash in 2007. It was DECEPTION! People were led to believe that they would be able to handle their mortgages. There are reports of lending agents coercing home buyers to lie about their income on loan applications. Other agents were instructed by their bosses to process and approve loan applications that should have been rejected.

The $6.5 ($6,500,000,000,000.00) trillion dollar question is why would the mortgage industry do such a thing? Consider the fact that they lied to investors about the risk factors of the Mortgage Backed Loans they were selling. This deception permitted the MBS market to expand to an astounding $6.5 trillion dollar value. Unfortunately when the scheme went up in flames, it also burned the housing market to the ground.

To make matters worst, fuel was literally thrown onto the housing fire. At the same time these foreclosures were beginning to occur, the energy crisis drove gasoline up to almost $4 a gallon causing a meltdown in the automotive industry. The gas guzzling SUVs and trucks that had been the Big Three’s (Ford, General Motors and Chrysler) bread and butter were no longer selling. The nation’s workforce had already been weakened by President Bush’s deregulation of labor laws which made outsourcing a popular trend. This coupled with the auto maker’s weak performance in the marketplace was too much to bear.

Chrysler and GM went bankrupt, and all three companies had tens of thousand of workers – white collar and blue collar – lose their jobs. This massive loss of income led to even more home foreclosures. The housing market began to deflate dramatically as the demand for housing dropped. Property values dropped as well, but mortgages remained as high as before and in the case of ARMs, were still growing.

People found themselves owing more on their homes than their homes were actually worth. Therefore, rather than be evicted they attempted a short sale or simply just walked away from the mortgage altogether. This is what has been happening since 2007, on such a massive scale that investors have long ago lost interest in purchasing Mortgage Backed Securities. When people can’t afford to pay their mortgages, an MBS is virtually worthless.

Without investors buying, financial institutions were left holding a huge bag of uncollectable debt. Comparatively, this was the same situation banks found themselves in after the stock market crashed in 1929. Unfortunately, in 1930, the U.S. government did not respond as Congress did in 2009. If not for the intervention of the Obama Administration, we would have witnessed bank failures on a much more massive scale.

Still, surviving banks have tightened their belts, just as they did in the 1930’s. So, in addition to the collapse of the auto industry, many people are out of work because of a nationwide credit crunch that is causing companies to go bankrupt. The result is the same now as it was then; the unemployment rate is up and ongoing with no end in sight. The start of WWII was the saving grace of that era, but our war on terror isn’t boosting America’s economy, quite the contrary it is costing us over a billion dollars every year.

Now, let’s revisit the Wikipedia definition of an economic depression to see if we can check anything off the list. We’ve had:

• abnormal increases in unemployment;
• decreased availability of credit;
• shrinking investment activity;
• numerous bankruptcies and devaluation of currency;
• price deflation;
• bank failures; and
• market crashes.

In other words – check, check, check, check, check, check, check and check. If it looks like a duck, walks like a duck and quacks like a duck it’s probably a duck.

So why did government officials and news reporters classify what happened as a recession when it was obviously a depression? In addition, why were there reports of the ‘recession’ being over in 2009 when the economy still has not fully recovered? Perhaps they were trying to restore the public’s confidence, and the confidence of foreign investors so we would begin spending enough money to get the economy flowing again. Or maybe, they wanted to assure us that it would be safe to begin banking again so banks will have a sustained source of capital with which to operate.

The psychological damage to people who experienced the crash of 1929 and the Great Depression that followed almost crippled the nation permanently. Our economy depends on its consumers to keep it flowing. It makes sense then, in an effort to lessen the psychological damage of the crash of 2007, and the events surrounding it, we were led to believe that it, and this, is merely a recession. However, the truth of the matter – and make no mistake about it – we were in a depression.

Regardless, I am personally confident that the economy is on the rebound. Meanwhile, it is our individual responsibility to learn from what happened. This isn’t simply a case of history repeating itself; it’s a clear cut example of how lenders set us up for failure. And as long as we stay ignorant or apathetic about it, we are perfect targets.

Credit will become widely available again, and lenders will go right back to business as usual. They will use sub-prime lending to get us into debt, and then sell that debt to make themselves a profit. Meanwhile, consumers will be stuck paying high interest rates or defaulting on the debt. All of this can be avoided by simply learning how to use credit to your benefit, not to your detriment.

That’s the credit education we strive to give through Credit Consulting Group, LLC. We are the best resource for establishing, understanding and maintaining good credit. We realize that the economy is built on credit use. Having good credit is almost the equivalent of having a financial backer who will lend you money to invest in yourself.

Credit is truly intended for those of us who want to build wealth. Whether we are prospective business owners or want to advance our education in order to qualify for higher wages, we can, and should, use credit to fund it. Abusing credit is an attempt to create the illusion of a lifestyle we can’t afford; whereas using credit empowers us to afford the life we want to live.

More to come – J
Posted 5/28/2010

77 Responses to “COMMENTARY”