One of my Digg.com friends Chris just passed along an interesting story on yahoo about some enterprising credit repair providers. They use a technique that many mortgage brokers/Loan Officers have known about for years called piggybacking.
Instead of spending several years repairing his credit rating, which he said was marred by two forgotten cell phone bills and identity theft, the 37-year-old real estate agent paid $1,800 to an Internet-based company to bump up his score almost overnight.
Instantcreditbuilders.com, or ICB, helped Estruch boost his score by arranging for him to be added as an authorized user on several credit cards of people with stellar credit who were paid to allow this coattailing. Parents also use this practice when they add their children to their credit cards to help them build solid credit.
The pitch to those who are essentially renting their credit history for pay is seductive: You don’t need to worry about users of this service receiving duplicate copies of your credit cards, account numbers or any of your personal information. It’s essentially free money, they are told.
In the past if a borrower needed a few points extra to qualify for a loan program loan officers would ask them if any of their family members had an account they could get authorized on. Once the borrower is authorized as a user on the account, they do a rapid rescore and 75% of the time the prior history would be attached to the newly authorized user. This company however is taking it to a new level.
I came across an interesting article today by !PDF Warning!Michael Hudson – Distinguished Professor of Economics at the University of Missouriâ€“Kansas City. After reading it I thought I had never read anything that was so completely off the mark.
From the Article:
The reality is that, although home ownership may be a wise choice for many people, this particular real estate bubble has been carefully engineered to lure home buyers into circumstances detrimental to their own best interests. The bait is easy money. The trap is a modern equivalent to peonage, a lifetime spent working to pay off debt on an asset of rapidly dwindling value.
This paragraph makes two faulty assumptions. First and most egregious is the idea that there was a master plan set forth by the Fed to enslave Americans to mortgage repayments. I’m not a big fan of Owner-Occupied housing, as i see it as a liability and not an asset, however the flip side of paying rent and claiming no interest deduction and no possibility of equity gains is even more patently absurd. The second is that these new homeowners will never be able to pay off their loans. We are in a period of extremely low interest rates. Even now when the average loan is running 6.5% for 30 year fixed paper (and falling I might add). How long ago was it when we thought a 7.5% fixed interest rate was reasonable? This means of course that as a percentage of payments a buyer is paying less on interest expense than at any time in recent history. That one percent drop in interest rate just negated a 10% rise in home values. Lets not forget either that a god number of the homes sold during the recent boom were locked in at 5.5% or lower. A full 20% increase in buying power when compared to pre-boom financing.
I also find it hard to take the author seriously when he compares homeowners to the sharecroppers of the south at the turn of the century:
Debtors were medieval peons or Indians bonded to Spanish plantations or the sharecropping children of slaves in the postbellum South. Few Americans today would volunteer for such an arrangement, and therefore would-be lords and barons have been forced to develop more sophisticated enticements.
Yes! That enticement is called lower interest rates!
According to a recent articles fromCNET and Politech, one ISP has successfully fingered a handful of industry heavyweights:
White noticed that the spam flood had two things in common: It was being sent to many ASIS e-mail addresses that were no longer active, and it directed (she would later tell the judge) the recipient to connect to Web sites such as wwmort.com, bbmort.com and xxmort.com.
On Oct. 27, White filled out a form on one of the Web sites using the fictitious name of “Bruce Wolf.”
The next day, ASIS says, the company received this voice mail from Francis Prasad: “Hi, this message is for Bruce. Bruce, this is Francis calling from Aegis Lending Corporation (in) Sacramento. Bruce, actually, I am the loan officer who has been assigned to handle your financial request…”
A legal brief that ASIS submitted includes transcripts of calls to “Bruce” from Aegis Lending, American Home Equity, Quicken Loans, Stateside Mortgage, Northstart Financial and National Fidelity Funding.
While I hear Quicken Loans has a wholesale side now for brokers I have never used them. AHE and Aegis however are two of the more notable names in the industry. Aegis is a generally known as a sub prime lender (although they do have a prime division now) and American Home Equity is a full service lender but their niche is stand alone seconds behind neg am loans. As the market continues to slide we can expect to see more of the same from companies desperate to increase sales in a declining market for shareholders.