Kiss Of Death For A Mortgage Loan?
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Kiss Of Death For A Mortgage Loan?

San Diego, CA - ICFE receives many questions about credit counseling and how it might affect ones credit rating and FICO score.
Jim Garnett, the ICFE's esteemed "Ask Mr. G" and a valued member of the ICFE's board of educational advisors takes on this subject. If you have a question for Jim, please email:

Q: Why does the mortgage industry give credit counseling a "bad rap"? My friend calls it "the kiss of death" for a mortgage loan.
A: Not all mortgage companies are created equal. Some understand the value of credit counseling agencies, others do not. It does appear that the greatest "hit" to a person's credit involved with credit counseling is in the area of mortgage loans. Although the actual credit score of our client is not lowered by being in our program, creditors have the option of placing a notation under their trade line stating that they are receiving payments through a credit counseling agency. This is a temporary notation, usually appearing only during the time debt repayment is occurring. Most creditors remove the notation when their debt is paid in full.

The "hit" I refer to appears to be in the perception of the mortgage industry. They perceive that consolidating debt through a counseling agency makes one less "credit worthy" for a mortgage loan. To be frank, I believe this is so only because the mortgage industry says it is so. The propagation of this idea in their circles encourages the practice the idea. Statements like "It is better to file bankruptcy than go through a debt consolidation agency" or "Credit Counseling is the kiss of death for your credit" get a lot of "travel", but seem to originate from a position of the industry's bias.

For example, our company, Consumer Credit of America aka/CC of Des Moines, has in fact kept over 100,000 Iowans from the bankruptcy courts since its inception in 1987. It sends over $35 million a year to creditors to repay debt. I am sure our clients' creditors who were paid back in full within 5 years (with interest) would not equate our program with bankruptcy. In fact, our creditors' own market studies reveal that they will receive at least 17% more money back faster (5 to 25 times faster) with our dept repayment programs.
So, why is it that the mortgage industry seems to be the origin of most of the bad comments we hear about credit counseling agencies. Let me make a few suggestions as to why this might be.

First, their perception might be based on the fact that they do not know what we do. They may assume our clients are all dead-beats who are not smart enough to handle their money wisely. This could not be farther from the truth. Our clients are people of character who will do most anything to avoid bankruptcy and pay off their debts. They are willing to eliminate most credit from their lifestyle, see the debt repayment as a priority for 4-5 years, and sacrifice to "get'er done"! Possible more factual information about what we accomplish would change their perception?

Second, the mortgage industry possibly views credit counseling agencies as their competitors. They counsel people to borrow against their homes to pay off credit debt, and we counsel against this. We see a great number of people follow their advice and run their mortgage payments into retirement years. Plus, the "paid off" credit card debt often resurfaces after just 2 re usually exempt (kept out of bankruptcy) and payments continue to be made like before. So, encouraging bankruptcy instead of a debt repayment program at times would be in the best interest of the mortgage industry. Maybe this is an added motivation to encourage bankruptcy and promote the idea that credit counseling does greater damage to one's credit. Subsequent mortgage loans (sub-prime loans) are offered to the recently bankrupt with more revenue to the mortgage industry in often higher points and higher mortgage interest rates.

Fourth, a blanket labeling of all families in debt repayment programs as unqualified for mortgage loans is ironic in light of the fact that many people who are "qualified" for mortgage/home equity loans are not financially sound. Many spend more than they make each month and fill in "the gap" by using credit cards. They have a good credit score and can qualify for mortgage loans, but only because they habitually use credit to maintain their good credit. An illusion of financial stability is created because bills are paid on time. This seems to be encouraged and enabled by mortgage lenders who qualify families for loans when they are in fact running deficits of $500 to $1000 per month. A good credit score does not reveal how a person pays his bills. But remember the mortgage lender enters at a much lower level of risk because his loan is secured by the house. Many flee to bankruptcy, keep their house, and the mortgage holder is not hurt.

Bottom line? No one but the mortgage industry can change their perception of the credit counseling industry. As they promote the sentiment of "Kiss of death" and "Worse than bankruptcy", they encourage their members to stay clear of those who are in debt repayment programs like ours. Is their perception legitimate or is it prompted by what is in their best interest? You can answer that yourself.

The debt repayment programs of credit counseling agencies result in a win-win situation for everyone, the creditors get paid, the clients get out of debt, and the community does not have to cover the cost of other people's bankruptcies. That seems to make everyone happy - everyone except the mortgage industry. Go figure.


About the ICFE:

The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation).  The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely. 
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.

The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (  CASDRAP disbanded in 2010, shortly after the web site project was completed.  In 2011 the ICFE assumed the single sponsorship of the ( web site and is now responsible for its content and operation.

The ICFE is also an on-line help for consumers who spend too much.  ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.

Visit the ICFE's other web sites at: and  Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G,  a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.

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