Scotsman Guide - April 2010 Residential Edition

By Brian Voytovich
CEO
Debt Free Associates

Diversify Your Income with Debt Settlement ou om w b em
Helping consumers pay off bills could lead to residual earnings and new clientele

Mortgage brokers seeking al- ternative income can consider offering debt-settlement services to current and prospective clients. In many ways, now is the perfect time to join the debt-settlement industry. Many consumers carry as many as five credit cards and have unsecured debt upward of $30,000.

Debt-settlement companies make money by charging consumers an enrollment fee that ranges from 8 percent to 15 percent of the total amount of debt entered into the program. Enrollment fees are typically paid over a period of time, the length of which can change depending on the consumer’s income and debt load. A common fee-payment period is 18 months, though settlement payments can continue for much longer.

One of the most-attractive aspects
of adding debt settlement to your prod-
uct offerings is the residual income it
allows. Brokers who start their own
debt-settlement business can earn full
enrollment fees. Those who work with
established providers can collect a per-
centage of the fee.

Negotiating the terms

Debt-settlement services have helped consumers out of debt for many years. The industry emerged in the U.S. in the late 1980s and early ’90s, and debt settlement represents an alternative to bankruptcy for many troubled consumers, many of whom would rather avoid the long-lasting negative impacts of bankruptcy.

Providers of debt settlement negotiate with creditors to allow consumers

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to pay off outstanding debt loads for less than the total amounts owed. Often, a consumer agrees to make payments into a trust account insured by the Federal Deposit Insurance Corp. Funds accumulate in the consumer’s name until enough is saved to pay off one creditor. The process repeats itself until all creditors are paid.

Settlement amounts can range from 15 cents to 80 cents on the dollar. With credit card delinquency increasing among many consumers, the need for settlement agreements doesn’t appear poised to go away any time soon. When delinquency rates increase, settlement amounts as a percentage of outstanding debt often shift in consumers’ favor. In addition, a weak economy and high unemployment increase the demand and need for debt settlement.

After determining clients’ unsecured debt load — generally, this will primarily consist of credit cards — debt-settlement providers determine how large of a monthly payment the clients can afford. Typically, clients must pay at least 1.5 percent of their total enrolled debt monthly. A debt analyst can determine the appropriate enrollment fee and monthly payment.

Brokers who decide to enter the debt-settlement business can either hire experienced debt analysts or train to become debt analysts themselves. Often, brokers will choose to team with established debt-settlement providers, which can provide training. Much like good mortgage brokers, good debt analysts should have strong sales and customer-service skills.

After clients agree to enroll in a settlement program, including agreeing to a specific monthly payment, a servicing center generally assumes responsibility for payment collection and client inquiries. Servicing companies also will set up clients’ trust accounts. Many debt-settlement servicing companies require direct transfers from clients’ checking or savings accounts.

Call us today and speak with an inside account executive at

1.866.440.9101

USOBA, IAPDA and TASC watch their member debt-settlement companies and industry developments closely. They also work to keep the industry strong and filled with honest professionals.

An important factor in the industry’s outlook for the next few years will be legislation such as the Consumer Financial Protection Agency Act of 2009, which would add much-needed regulation to the debt-settlement business. To track the act’s progress, see sctsm.in/hr3126.

When investigating debt-service providers, brokers should look for companies that:

Belong to industry organizations •
such as USOBA, IAPDA and TASC;

Have a track record • of helping clients settle their unsecured debt successfully;

Can provide client • testimonials;

Provide excellent customer • service;
Work with servicing • companies that
can handle business growth; and
Brokers who enter the debt-set-
tlement industry will find that the
service-providers with whom they
choose to work reflect directly on
them. In addition, brokers should
consider four to six salespeople and
a marketing budget of $100,000 as
minimum requirements to start a
successful settlement company. The
sizable cost of entry results from the
length of time it takes for residual in-
come to accumulate.

On the flip side, competition remains sparse because of the high startup costs. In addition, brokers who begin by marketing to a strong existing database can decrease their initial costs.

Now is a great time for mortgage brokers to enter the debt-settlement industry. With proper research and planning — and a strong startup budget — brokers can realize residual income for years to come and develop new mortgage clients at the same time. •

Go to our website now at

www.broker fha.com

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Choosing a partner

Often, creditors would rather settle debt than face the prospect of receiving no money, which can occur if consumers file for bankruptcy.

According to industry groups such as the United States Organizations for Bankruptcy Alternatives (USOBA), the International Association of Professional Debt Arbitrators (IAPDA) and The Association of Settlement Companies (TASC), increased need for debt-settlement businesses likely will continue as the U.S. economy slowly recovers from its recent troubles.

Brian Voytovich is CEO of Debt Free Associates ( www.debtfreeassociates.com), a successful debt-settlement firm. He has a California mortgage-broker license and entered the debt-settlement business following the 2007 collapse in the mortgage industry. He operates a retail branch and employs 48 sales agents. Voytovich owns DFA Servicing, which offers net-branch opportunities and partners with mortgage brokers looking to expand into debt settlement. Reach Voytovich at (888) 286-1181 or e-mail brianv@debtfreeassociates.com.