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Open House

Federal Government Offering Lenders Money; Hospitals Checking Your Credit; Tales of Foreclosure; Advice on How to Stay Out of Debt

Aired March 22, 2008 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

GERRI WILLIS, CNN HOST: Hello, I'm Gerri Willis and this is OPEN HOUSE, the show that saves you money.
On tap today, issue No. 1, America's economy, your finances and a visit to the hospital. Wait until you hear why your doctor wants to check your credit report.

The credit crunch, advice on how to get out and stay out of debt step-by-step with Jean Chatzky.

Tales of foreclosure where some folks are forced to go after they run out of options.

But the big news in the mortgage meltdown, the federal government is offering an additional $200 billion to finance giants Fannie Mae and Freddie Mac in further efforts to ease the mortgage mess.

So, that may have you thinking, is it a good time to refinance? How about taking out a home equity line of credit? Time to buy? Time to sell? Time to get to the bottom of it all, Danielle Babb is a real estate analyst and author and she joins us from Irvine, California.

Dannie, welcome.

DANIELLE BABB, REAL ESTATE ANALYST: Thank you, thanks for having me.

WILLIS: Well, let's get to that Freddie Mac/Fannie Mae issue, a lot of people think it's a great idea. Basically, the two companies can reduce their cash cushion and loan out that money to individuals, but you don't like it, why?

BABB: Well, I've talked to 11 banks over the last couple of days and unfortunately until that jumbo amount gets increased, I'm not so sure that it's actually going to help many people. The banks that I have been talking to have said hey, we want to loan people money, we have tons of buyers, we have lots of applications coming in, but there's nothing that we can do about it. And there's other points that Bernanke's laid down with regard to this $200 billion for points that I think have repercussions for homeowners that are very significant.

WILLIS: In fact, you're very critical of a lot of the moves by the federal government to ease this housing crisis, why?

BABB: Yes, well let me give you an example. One of the things that Bernanke is calling for is that lenders no longer allow for prepayment penalties. And that sounds great off the top, you know, without further analyzing it.

WILLIS: Sounds good to me, I don't want to pay. Look, a lot of people are staying in their loans because of the thousands of dollars they owe in prepayment penalties. What's wrong with getting rid of them?

BABB: Well, you have an option when you get a load, to either have a prepay and have a lower rate or to not have a prepay and have a higher rate. And so, it should at least be in the table for homeowners who, they know they're going to stay in their home for one or two more year, they're willing to take a risk of a prepayment penalty and they want that lower rate. So, if you're going to stay in your home long-term, it may be a better option for you. So, all I'm saying give the homeowner the choice.

WILLIS: And certainly disclose it. A lot of people didn't know it until it was too late. Another problem for consumers out there, I think you can help us with, home equity lines of credit. A lot of banks are freezing those. Are there any options for folks who are trying to tap that equity right now?

BABB: Well, the first thing is if you think you're going to need the money shortly and it has not yet been frozen, you should take the money out now and put it in something will hopefully yield pretty close to what you're going to pay in interest. The banks are freezing lines of credit.

I am getting calls from lots of people saying, what can I do, my bank has stopped my line of credit. Basically, what's happening is banks are using banks are using auto appraisals, determining that the home is not worth what combined first and second, or first and HELOC loan to value is and they're just freezing the line and you can't access the money.

WILLIS: It's frustrating out there.

BABB: It is.

WILLIS: Another big frustration, of course, for homeowners is that they owe more than the house is worth at this point. What can you do? Is there anything at all you can do to improve your home's value in this market?

BABB: Well, you can do the typical things in terms of improving value, you know, curb appeal and so forth, the problem is that what you spend, unless you're going to do it yourself, generally exceeds what you're going to get back.

So, the best thing to do is try and get the lender to do some sort of loan modification program, call them as early as you can, even before you're late, let them know that you will potentially be late and see what they can do. Some of them are letting, for example, if you're married and your spouse has better credit, your spouse can assume the loan for the lower rate. So, there are some things that the bank is willing to do.

WILLIS: OK. Call your lender, call your lender, call your lender. Dannie, great advice, thanks so much.

BABB: Thank you.

WILLS: Coming up on OPEN HOUSE, why hospitals are interested in giving your credit report a complete check up. Plus, how to dig out of debt and stay out of debt. Jean Chatsky will be here.

And tales of foreclosure, while some struggle to hold on to their homes, you won't believe what others are forced to do when they're forced to get out. Stick around, lots more coverage of issue No. 1, America's economy, coming your way.

(COMMERCIAL BREAK)

WILLIS: One-twenty over 80, 72 beats per minute, those are numbers you would expect do hear at a hospital, but your credit score? A new number determining how likely patients are to pay their bills. Is it legal and could it happen to you.

Joining me now, Credit.com's John Ulzheimer and CNN medical correspondent, Elizabeth Cohen.

Elizabeth, I want to start with you. OK, are you telling me that hospitals are going to deny treatment because of my credit score?

ELIZABETH COHEN, CNN MEDICAL CORRESPONDENT: Well, the credit Equifax and other credit companies and hospitals say, no that's not what this is for.

They say that they want to access your credit reports so that they can get a feeling for how likely you are to pay your bills because hospitals have a really hard time with people who don't pay their bills. So, they've come up with some scores that let them know what your risk is and we can take a look at those numbers.

The numbers give them some feeling of how likely. So, are you low risk? If you're low risk and likely to pay, they're might king of leave you alone. If you're high risk, they might also leave you a lone because you might not be worth the effort because you're not going to pay.

But, if you are medium risk, they may come to you either before you go into the hospital or when you get there and say, gee, are you going to -- you know, are you going to be -- how do you plan to pay these bills? You might have a whopping bill.

WILLIS: Elizabeth, let's get John in here as well.

John, I got to tell you I'm still suspicious about this. I'm thinking, you know, how is this going to impact me? Do they have to tell me? Do they have to get my permission? Is it legal?

JOHN ULZHEIMER, AUTHOR, YOU'RE NOTHING BUT A NUMBER: Yes, well first off, it's definitely legal, although I think it's arguably moral. They do have to get your permission, they can't just pull your credit report, say like an auto dealer would, and they have to disclose that they're doing so.

And of course, the reason they're doing so is because they're acting like a bank, they want to know whether or not they're going to get paid for the services that they render. It's very simple.

WILLIS: Well John, though, let's think about this for just a second, credit scores are notoriously based on wrong information, in fact, about half of them are based on wrong information. How can it be that hospitals are going to use my credit score to determine what they're going to -- how they're going to treat me, how they're going to charge me? Help me understand.

ULZHEIMER: Yes, well you hit the nail on the head, Gerri. Credit reports are notoriously ripe with errors. The difference with these types of scores is that they're not only using information from your credit reports, but they're also using information from previous medical claims and so they have a blending of two different types of information so that yields a more powerful score that's specifically tuned to determine risk from patients, rather than risk from borrowers.

WILLIS: OK, Elizabeth, are there other options out there for people who are having a hard time paying?

COHEN: Right, a lot of people having a hard time paying their hospital bills, Gerri, I should say, even people with insurance, because insurance doesn't always pay everything. So, this is what you want to do. First of all make sure your insurance pays its share, consumer advocates say consumers are notorious for telling you no we're not going to pay when really they should, so appeal their denials.

Secondly, don't put a hospital bill on a credit card. The hospital is probably going to give you a better interest rate than a credit card is going to do, maybe even zero percent. Also negotiate, negotiate, negotiate, go to the hospital and say, you know what, I know I owe this amount, but can we do something to bring that amount down and they will negotiate with you.

WILLIS: Wow, well that's good news. John, any other ways to combat this? What should I be doing as a consumer?

ULZHEIMER: Well remember, what's predictive for lender risk is also very predictive for patient risk, which means missing payments, having a lot of credit card debt and applying for credit excessively is going to impact your ability to not necessarily to, not necessarily get treatment, but how the hospital views you as a prospective patient before you even have services rendered.

WILLIS: Wow, it's just amazing to me. One final word here, Elizabeth, when you think about this, what are the remedies for consumers long-term, do you think? COHEN: Long-term, the remedy is of course having great health insurance, which obviously is a huge crisis in this country. But, another long-term remedy is if you're about to go into the hospital, you know you're going to owe a lot of money and you know your credit isn't great, you can go to the hospital up front, don't let the hospital come to you, it'll put you in a better bargaining positions. Maybe if you go to the upfront and say, say look, we got to figure this out even before I go in.

WILLIS: Take action, obviously. Elizabeth, John, thank you so much for being with us today.

Still ahead on OPEN HOUSE, the credit crunch, steps you can take to dig yourself out of debt and tips on how to stay there.

Plus displaced by foreclosure, what one family had and what they have now, the story of how they're getting by, coming up.

(COMMERCIAL BREAK)

WILLIS: Well, the credit crunch is being felt across the country, cutting deep into the savings and lives of many Americans and if you are drowning in debt, there are steps you can take to get back on solid grown. Jean Chatsky is the author of "Make Money, Not Excuses," and joins us now to offer some help and some advice.

Jean, great to see you.

JEAN CHATZKY, AUTHOR, MAKE MONEY, NOT EXCUSES: Nice to see you.

WILLIS: Now, we know the folks out there are cash strapped right now people are choosing between paying the mortgage, paying the credit card. If you are in that situation today, what is the absolute best thing to do?

CHATZKY: You have to pay the mortgage. You have to look at what you've got backing up those debts and what you could lose if you don't pay them. And let's just leave our credit scores to the side for a second, because those are going to go now matter...

WILLIS: This is an emergency situation, right?

CHATZKY: Right, no matter which debts you don't pay, you pay the mortgage, you pay your taxes because they could garnish your wages, you make your car payment because you need it to drive back and forth to work. And unfortunately, if you can't make the credit card payments, that's what has to slide.

WILLIS: All right, so let's talk about those mortgages for just a second, a lot of people out there with adjustable rate mortgages, they cannot afford these resets, it's just completely out of the question to afford those, what do you do?

CHATZKY: Well, hopefully they will get some sort of a break because of the decline that we've had in interest rates. But if you can't, this is a good time to go in and lock yourself into a 30-year fixed, if you can do it. Now, you need a good credit score at this point, you need equity in that house and some people don't have it. But, it's time to go back out, do a little shopping and see what you can find.

WILLIS: Even if you have a jumbo mortgage now, there is some relief out there for people coming for people with the big mortgages, so you need to start thinking about getting a new mortgage out there. One point that I know so many people are worried about, and this is sort of tricky. A lot of people are underwater in their mortgages, they owe more on the home than it's worth right now, and some people are not paying their mortgages because of it. Is that a good idea and what can you do?

CHATZKY: Well unfortunately, we're in this very dodgy position where until you are 90 days late, the lender doesn't actually step in there and offer you some relief. I think you pick up the phone, you call the lender and you talk through the situation with them and see if there is help available for you. Otherwise, if you're not selling, you have to hope that five years from now, 10 years from now the house will come back and be worth what it was worth when you first bought it.

WILLIS: All right, so you call your lender, but what if your lender doesn't want to do anything?

CHATZKY: If your lender doesn't want to do anything, then you have to make a choice. Essentially you have to decide, am I willing to completely trash my credit in order to stay afloat financially, if that's my only solution. And for some people, letting go of the house is actually the thing that they have to do.

WILLIS: It's sad. It really is true though.

CHATZKY: It's sad and people are in this position where they just don't feel like they have any choices and in some cases, they're right.

WILLIS: I have to give you one more other, I know, so many people concerned out there, right now, about debt. You know, all of these problems have exposed our weaknesses when it comes to debt, what is the best way to get rid of it?

CHATZKY: You just chip away at it. And essentially, it's an arbitrage question. You line up your interest rates across the board and then you hit the highest one first and you work your way down the ladder.

WILLIS: Thanks God for that stimulus package, right? That's a big help, $1,200, you can knock down some of your credit card debt.

CHATZKY: You absolutely should, I don't want to hear about people going shopping when they've got bills to pay.

WILLIS: Exactly. Well, Jean Chatzky, thanks for that no- nonsense advice. As always, if you have an idea on how to save money, send us an e-mail to openhouse@cnn.com. and if you want to check out this "Project Savings" again, check out our Web site cnn.com/openhouse.

More and more Americans are struggling to make their mortgage payments, faced with foreclosure, some homeowners are turning to crime.

Chris Lawrence explains.

(BEGIN VIDEOTAPE)

CHRIS LAWRENCE, CNN CORRESPONDENT (voice-over): The bank was just days away from taking this home when the owner took matters into her own hands.

SHERYL CHRISTMAN, FMR. HOME OWNER: If I could take it back, I'd take it back in a minute.

LAWRENCE: Sheryl Christman was sentenced last month for setting fire to her Michigan home. She thought insurance money could help her catch up on past due house payments.

In California, insurance officials say the number of fires linked to foreclosure doubled last year from seven to 14. In Colorado Springs, this foreclosed home went up in smoke the same day the owner was scheduled for eviction.

UNIDENTIFIED FEMALE: He intended to burn the house down, that he was not going to allow them to do this to him and he was not going to allow them to have it.

LAWRENCE: We sat in court as the homeowner pleaded guilty to attempted arson.

(on camera): Do you think this is the last time you're going to see something like this

SHERIFF KEVIN DOUGHERTY, TELLER COUNTY SHERIFF'S OFFICE: No, I think it will still happen again.

LAWRENCE (voice-over): Sheriff Kevin Doherty predicts these crimes will continue to rise as the economy falls. He says investigators now immediately consider arson even when a burning home is simply up for sale.

(on camera): Why would someone do something like this?

DOUGHERTY: I don't know, through desperation. For the people that are doing this, they're good people. You know, these are not bad people and they're desperate.

LAWRENCE (voice-over): Desperate enough to risk jail time, though most only get probation.

UNIDENTIFIED FEMALE: He barely has a dime to his name. LAWRENCE: And after a conviction, homeowners still owe the bank hundreds of thousands of dollars.

CHRISTMAN: I feel sorry for all the other people that are facing this, but don't do what I did.

LAWRENCE: And the damage doesn't stop there, even neighbors end up getting burned when higher insurance premiums are passed on to them.

Chris Lawrence, CNN, Colorado Springs.

(END VIDEOTAPE)

WILLIS: A very sad story.

Still to come, a very different one, a family displaced by foreclosures, up close and personal, trying to rebuild their life one day at a time. We'll meet the McCues, right after the break.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Tampa, Florida, one of the nation's fastest growing cities. This bustling port town offers a revitalized downtown water front and plenty to keep you busy.

Check out Busch Garden's Tampa Bay. This 300 acre park is ranked among the top four zoos in the country. Stop by the Florida Aquarium to get an up close look at sharks during a feeding. And visit the Henry B. Plant Museum, this beautiful Tampa landmark is the old site of the Tampa Bay hotel.

And be sure to head to Legends Field, that's the home of the New York Yankee's spring training camp. Stop by for batting practice or hang out outside the stadium to snag an autograph from your favorite player.

That's your "Local Lowdown."

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: Home sweet home. Well, the mortgage meltdown may have shown a slight improvement over January, but year to year, foreclosures are up 60 percent, that is according to Realty Trak. It's hard enough to lose your home, but then there's what's next, and for some folks there's virtually nowhere to go.

(BEGIN VIDEOTAPE)

THELMA GUTIERREZ, CNN CORRESPONDENT (voice-over): High in the mountains, behind a white picket fence is space No. 96, a place Bill and Vickie McCue now call home.

BILL MCCUE, LOST HOME TO FORECLOSURE: What you see here, your fireplace, our fountain, this was all part of our house decoration.

GUTIERREZ: This was the 2,700 square food home the McCue's once owned Las Vegas that went into foreclosure. This is the 28 foot camper trailer they now own.

What is it like living in a campground?

B. MCCUE: The two sides of it, No. 1, it's beautiful, No. 2 it's insulting because I worked very hard all my life to get where I had gotten and I wound up here.

GUTIERREZ: A camper that leaks when it rains and is designed more for weekend getaways then than fulltime living.

B. MCCUE: This is not what I had planned to be 50 years old and wind up on a little lot for the rest of my life in a little camper.

VICKIE MCCUE, LOST HOME TO FORECLOSURE: And here is our bathroom.

GUTIERREZ: They say living here has been a huge adjustment.

V. MCCUE: Up in here, our desk. In here, in here food. And my kitchen before was huge. I had granite counter tops, stainless steel appliances.

GUTIERREZ: The McCue's thought they were doing everything right. They worked fulltime. He was a technician in a five star casino, she was an administrative assistant. They were ready to buy their dream home.

V. MCCUE: We walked in and it was like we can get this for $265,000, no money down? Oh, my God.

GUTIERREZ: Soon, their home nearly doubled in value.

(on camera): So for a while you were sitting on a mountain of equity in your home?

V. MCCUE: Yes.

GUTIERREZ (voice over): Then Vickie lost her job, they took out equity and their payments went up 57 percent to 1,100 a month. The McCues decided to sell. The buyer fell through, so they took out a $35,000 emergency loan to help pay the mortgage.

(on camera): What would you say to the money people on the other end who are going, yes, but you wanted free money, I mean, you signed the loan documents, you knew that it was an interest only loan, you should have read the fine print and you shouldn't have signed the loan. What would you tell those people?

V. MCCUE: I would tell them that they shouldn't will lied to us and convinced us that that was the way to go and that our payments wouldn't go up more than $100 each year per month.

GUTIERREZ: Did you read the fine print?

V. MCCUE: The way that they word things, it's not real clear, it's not real straight forward and you put together what you're being told with what you're reading.

GUTIERREZ: So, you were trusting the people?

V. MCCUE: We were trusting the people because they kept telling us, this is the only way to go.

GUTIERREZ: The McCues say they were only trying to build for their retirement, in the process, lost it all.

B. MCCUE: It hurts because you worked so hard and you don't expect this to happen. It hurts emotionally, it hurts physically. I didn't cause this to happen. Others caused it, nobody cared. Everybody just walked away.

(END VIDEOTAPE)

WILLIS: Sad story. Our "ISSUE #1" coverage of America's economy continues all next week on CNN, Monday through Friday, noon to 1:00 p.m. Eastern. Your house, your debt, your savings, your job, it's all about your money. We'll answer your e-mails live during the show, so send us your questions at cnn.com, we're on top of the goal, 12:00 p.m. Eastern, everyday next week.

You can hear much more about the impact of this week's news on your money on YOUR MONEY with Christine Romans and Ali Velshi, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN.

As always, we thank you for spending part of your Saturday with us. OPEN HOUSE will be back next week, right here on CNN. And you can catch us on "Headline News" every Saturday and Sunday at 3:30 p.m. Eastern Time. Don't go anywhere, your top stories are next in the CNN "NEWSROOM." Have a great weekend.

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