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Special Emergency Edition: How to Keep Your Home During These Tough Economic Times; Is the Government Doing Enough to Help Troubled Homeowners?

Aired December 13, 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 a special emergency edition of OPEN HOUSE, how to keep your home during these tough economic times.
One in 10 mortgage borrowers in America are now either delinquent or in foreclosure, that according to the Mortgage Bankers Association. Foreclosure filings, they were down in November, some seven percent, according to RealtyTrac. That's the firm that monitors foreclosures across the country.

But the drop, while it sounds good, could be the result of many states enacting foreclosure moratorium laws and loan modification programs. The worst is not over, clearly. Foreclosures are still up 28 percent from this time last year. And a new report predicts eight million more homes will be in foreclosure within the next four years.

Now, the government has taken steps to help troubled homeowners, but are they doing enough? Here to tell us what's working and what's not is Martin Kady with Politico and CNN MONEY's Jeanne Sahadi.

Welcome to you both. Great to see you guys. Martin, I want to start with you. Look, this week, just unbelievable headlines. We had Barney Frank in Congress basically give an ultimatum to the president saying, look, if you guys don't spend some of this $700 billion in bailout money on homeowners, we're not going to do anything with that money. Is there any chance the money could go before the end of the year to homeowners? And could Barney Frank kind of hold up the process like this?

MARTIN KADY, POLITICO: Well, he can hold it up to a certain extent, because, remember, this is a $700 billion bailout, but they've only gotten the first $350 billion and Congress needs to sign up on the rest. But, there's a lot of bailout regret in Congress right now. They gave Secretary Paulson all this money, he's not exactly spent it in the ways that Congress -- the Democratic congress wanted.

So, Barney Frank and the other Democrats in congress wanted assurances that the second half of this $700 billion is spent for more direct help to homeowners, more liquidity in the home lending market because most of this was just -- the first half went to stabilize the banks.

WILLIS: Yes. Now the head of the OTS, that's the Office of Thrift Supervision, he says that the money should go to jobs. Is there any way there's actually going to be money going to housing or is sentiment here changing and moving toward solving the jobs crisis?

JEANNE SAHADI, CNNMONEY.COM: I think they're going to have to do a two-pronged approach because, obviously, as the unemployment rate goes up, there are going to be more foreclosures. But, forget about the unemployment rate, we already have foreclosure problem. So, if you don't address what already exists, nothing is going to get fixed, basically.

The thing about mods, though, is that even...

WILLIS: Modifications. Loan modifications.

SAHADI: Modifications. Even in normal times, it's more than a 1/3 of a default rate on modifications. So now, it's more than half. And a lot of housing advocates are saying the modifications weren't good enough. We don't have enough granular information from groups like Hope Now which says that they've helped 2.7 million people since July 2007, but we don't quite know how. So, if they didn't modify adequately enough, it's very likely that someone would redefault.

WILLIS: Well, and that's where I want to go next. You know, we have so many programs out there. We have Hope Now, Help for Homeowners, but you dig down into these, Help for Homeowners, it came out I think in October, they've only had 111 applications for Help. What is wrong here? Why can't we get help to the people who need it most?

SAHADI: Well, everybody's got different rules, they're all complicated. In the case of Hope for Homeowners, which allows for $300 billion in mortgages, or 400,000 homeowners to be helped, there are too many requirements that lenders can't meet. It's not good for this business.

They said this before the bill passed. They said if we think we'll benefit from this, we'll play, but I guess they've decided it won't be beneficial, because they have to take a big haircut. And they're also hearing the government's going to step in and do more. So maybe they're hanging...

WILLIS: Waiting for Uncle Sam to help bail us out. All right, Martin, I want to talk to you about Sheila Bair for just a minute. She's become sort of this bigger than life personality in this entire crisis. She's been suggesting a very dramatic new program to help homeowners in which the government would basically stand behind these defaults in case they happened yet again. Is that going to get traction and, obviously, the administration has not been behind this program, it's been on the table for a while. What do you make of it?

KADY: Well, this administration is not going to get behind that sort of program where the government has even more intervention into the housing market, backing up these individual loans. But Bair is one of those people they're talking about being a carryover into the next administration, when you have a dramatically expanded Democratic Senate, Democratic House, a Democratic president. These types of sort of more, bigger government ideas are going to have a lot more traction in the next administration, in the next Congress. So, does it have a shot? A better shot next year than it does between now and the end of the year.

WILLIS: I'll tell you who's really calling for action right now, the National Governors Association and Jon Corzine has been appointed to represent governors and really put pressure on the president-elect to really deal with this problem. Jeanne, to you, can we expect this to be one of the first things that the new administration puts on its to-do list?

SAHADI: Moratorium on Foreclosures is something Barack Obama has supported. He has not been very clear, though, on exactly what he wants to do. He has said his economic team is looking at these various proposals. He also supports bankruptcy reform that would make it easier for people to keep their homes and have their loans modified in bankruptcy as kind of threat to lenders. If you don't act on your own, the bankruptcy judge is going to make you.

It's not clear whether he would back the FDIC plan, but Jarrett Seaberg (ph) at the Stanford Group, as you know, a political analyst, he thinks that there is a good chance that the Congress will not let go of that TARP money unless the next administration backs the FDIC plan. So, it's just not quite clear yet.

WILLIS: Wow. More questions and we're still looking for answers. Thanks to my terrific guests for helping me out today. Jeanne, thanks to you. Martin, thanks to you. We really appreciate it.

KADY: Thank you.

WILLIS: Meanwhile, make sure you grab a pen and paper with the way things are going these days you or someone you know might very well be facing foreclosure. Important tips to make sure you can stay in your home.

(COMMERCIAL BREAK)

WILLIS: Welcome back to this special emergency edition of OPEN HOUSE. Today our goal is to help you or someone you know keep your home and we have a panel of experts to do it: Bob Moulton is the president of Americana Mortgage, Jack Otter is the deputy editor of "Best Live," and Lynnette Khalfani-Cox is a personal finance exert and the author of "Your First Home." Welcome, all.

Lynnette, I want to start with you. We talk about all these programs out there, federal programs out there. Lenders say we're doing everything we can to help people, but my e-mail in box would not bear that out. Are people complaining to you? Do you think people are getting help?

LYNNETTE KHALFANI-COX, PERSONAL FINANCE EXPERT: They absolutely are not getting the help that they need and it's really quite a travesty at this point. We're well over a year into this crisis. Consumers tell me that they do call their lenders for help, they're frequently put on hold. They're told we'll get back to you in a couple weeks or a couple of months. The federal programs that they've reached out to get assistance for, that help hasn't been forth coming either. So, it's a big problem right now.

WILLIS: It is a big problem right now. And of course, if we could see the end of the housing crisis coming, I think people would take hope and maybe try to just make it through those last few months. But Jack, to that point, is there any silver lining, here?

JACK OTTER, BEST LIFE: Well, not really. And I'll even pile on some more bad news which is about 50 percent of the people who do get government assistance end up defaulting again within the next six months. So, it's pretty bad.

Here's my one little tiny glimmer of hope. If you look at credit spreads which is the distance between what everybody else pays to borrow versus what the government pays to borrow money, they're tightening a little bit. They were at all-time highs in October and they've come down. Now they've flattened a little bit. But, that's the right direction. We want to see mortgages get cheaper and cheaper and cheaper.

WILLIS: And that goes to the issue with the credit crunch and is money available to consumers and others, are loans flowing freely. It's a little better, you say. Bob, you're actually in the marketplace, you're trying to get loans for customers. And we've seen these mortgage rates come down. It is it helping? Is it helping people get money?

BOB MOULTON, AMERICANA MORTGAGE: There's a lot of talk out there for people to get 4.5 percent mortgage rates. Right now we're at 5.5 percent. When you're at 6.5, everyone wants 5.5, when you're at 5.5, people want 4.5. If we do hit that 4.5, it's gong to open up the gates to help first-time home buyers. They're going to buy from growing families, growing families are going to buy from empty nesters, empty nesters are going to move down to the retirement villages. So, it will have a cascading effect and it should help all homeowners.

WILLIS: Bob, though, you are in the marketplace. What are you seeing? Are lenders out there, are making new loans right now?

MOULTON: There are new loans for people who qualify. Your major financial, national institutions are very helpful for the vanilla loans, for those conforming loans up to 417,000. If you're looking to buy in a specific community, you need to check with a local mortgage broker because they understand that community and they can help those individuals that have extenuating circumstances.

WILLIS: Right. The devil is in the details here. If you have anything out of the ordinary, watch out.

Lynnette, let's talk about how you talk to your lender, how you approach them. What are the magic words that make the dollars flow?

KHALFANI-COX: Well I think, two things. You have to have great credit. I mean, there's no question that you need a higher FICO score today than...

WILLIS: Seven hundred, 750, 780? This is tough for people out there.

KHALFANI-COX: Bob and I were talking earlier. He was saying some even below that, maybe in the 680 or 670 range, but you've got to have the compensating factors, things like cash reserve, stability on your job, that you've been there for a very long time, something to be able to show that if you do have a weakness in your application, you have other positives that offset it.

WILLIS: All right, well let's talk about other possibilities, here. Jack, should people intentionally go into foreclosure? There's a lot of talk about this that, hey, I'm not going to get help unless I stop paying my mortgage. Why wouldn't I do that?

OTTER: It's called jingle mail, leave the keys in the mailbox and walk away. And one very good reason not to do it is because it destroys your credit. For the next seven years, forget about actually buying a house. Another reason is can you live with yourself? I mean, really, you know, you shouldn't do that.

But also, as difficult as these programs are to get into, I think the fact that we're talk about it, that Sheila Bair is recognizing it, that we've got a Democratic administration coming in that will have to make progress on this issue, that 4.5 mortgage rate could be a magic number, so I think we are going to see progress. I think people should hang in there, and I think some help is on the way. There's no miracle that's going to happen...

WILLIS: It's just whether you can make it to the deadline that is being set here, and seems to keep being pushed out.

OTTER: You know, one good bit of good news we haven't talked about is the fact that banks do not want to be homeowners. They don't want any more houses on their books.

WILLIS: Right.

KHALFANI-COX: The typical bank actually loses about $58,000 for every foreclosure, so like you said, Jack said, they don't want to lose that either.

WILLIS: Guys, great thoughts. Excellent panel. You guys are so good. I'm sure you helped a lot of people out there. Guys, stick around.

The prospect of losing your home is scary. It's a financial disaster and a personal one that uproots your family. If you are having trouble paying your mortgage, maybe you've missed a single payment, maybe you've already defaulted on your loan, the first step is always, always, always call your lender.

Some, frankly, aren't responsive, but some are. Several are just now starting up programs to help people like you. Ask for the loan mitigation department and be brutally frank about your situation. What you want is a loan modification, that's essentially a new loan with different terms, maybe a lower rate of interest or a longer time to pay it back. Just be sure the new loan is affordable. Now, if that doesn't work, your next best step is to call in the feds. A myriad of programs have been established out there to help struggling homeowners. Start with the Department of Housing and Urban Development which may have counselors in Hour town or city. Their number is 800-569-4287. Ask them about Help for homeowners, a program designed to curb foreclosures.

Try the lender-led initiative called Hope Now, their number is 888-995-HOPE. And finally, don't be shy about calling the National Foundation for Credit Counseling. They have a homeowner crisis resource center with counselors who can help you negotiate with your lender. That number is 866-845-2227.

Don't own your home, don't worry. We've got tips for all the renters out there.

(COMMERCIAL BREAK)

WILLIS: Back with us once again, Bob Moulton, Jack Otter and Lynnette Khalfani-Cox. OK guys, we're looking for solutions, here.

Jack, it seems to me if I was in trouble with my mortgage, one of the first things I might think about is really look at the details, if I have a adjustable rate mortgage, maybe getting it refinanced. What are the first steps here?

OTTER: Well first think you want to do is find out exactly what you're facing. So, call the person who sold you the mortgage and say, look, exactly when do -- does my ARM reset? What will that rate be? He can't give you an exact number, but he can tell you, for instance, it might be what's called LIBOR plus two percentage points. And you can find LIBOR...

WILLIS: London Interbank Offered Rate, it's one of the many variations on rates. And certainly your own loan documents would have those details, too, right?

OTTER: Right. And then you have to do some calculations and say, OK, if I can get the -- what is it now, six percent, probably 6.3 percent...

MOULTON: It's about 5.5 percent. But, some of those adjustable adjust to the one-year treasury, plus a margin of 2-7/8. A year, year and a half ago we were advising people to refinance out of that. But, those are now adjusting down to about four percent. So, if they're at a six percent handle and they're adjusting down to four percent, it's going to stay there for a year...

(CROSSTALK)

WILLIS: All right, now we're going to tell you about it in English. What Bob is saying here is that there's some good news for people in adjustable rate mortgage, that they're mortgages are actually adjusting down, not up, so you want to make sure what the numbers are, right? MOULTON: Exactly right. Because you have the 10-year treasury at an all-time low. You have the one-year treasury at an all-time low. This wasn't anticipated a year, year and a half ago or when those homeowners took out those adjustable. So that is good news.

OTTER: So, your deadline isn't necessarily when it resets, it could be a year or two after it resets, which really gives you some breathing room. And I think that there's so much hurt (ph) for so much effort for that 4.5 percent number. I think we may not get there, but we are going to get close.

WILLIS: Well, that would be a wonderful thing and that would really change the terms of the game.

Lynnette, I got to get you in, here. Let's talk about forbearance for just a second. If you manage to negotiate something, what are the details there? How does that work? You know, people hear that word, it sounds like a good thing. What does it mean as a practical matter?

KHALFANI-COX: It can be a short-term solution. It can give you a little bit of relief in terms of cash flow. Essentially, a forbearance allows you to put off payment for a set amount of time. So, they might say, OK, you have just lost your job or you've applied for a new job and new job seems forthcoming, we'll allow you to not make payments for three months.

The challenge for home owners and what Jack alluded to before about why people get a loan modification and then get back into trouble is that a lot of times, lenders require that you make up your arrears or the amount that they've let you slide in 12 to 18 months.

And so, for a lot of times, people just can't do that. They find that it might have been $2,000 before and now, it is $2,500. So, the loan modification helps, the forbearance helps on a temporary basis, but longer terms, once you have to start to repay it, it (INAUDIBLE).

(CROSSTALK)

WILLIS: Bob, let's get you in here, because I think people are looking for all kinds of solutions and one of them might be, I move out of my house and put renters in or try to sell it and have somebody rent out. What is the rental equation, right now? Is it worth even thinking about?

MOULTON: It depends on the area. A lot of times, the rental income is not covering the mortgage, the insurance, and their real estate taxes, so you have to do the math. But, every situation that comes across my desk and comes across the bank's desk is different. They're all like snowflakes, every homeowner is different. There is no blanket answer for everyone. Each situation needs to be looked at individually, negotiated with the lender and come up with a solution that's satisfactory to the lender and the homeowner.

WILLIS: Guys, excellent panel. Thank you so much. Renters are getting stunned too by the housing crisis, forced out of their homes when their landlord goes into foreclosure. Unfortunately, your landlord has no obligation to tell you if he's facing foreclosure. In a few states, you may get notice of default if your landlord stops paying his mortgage, but for the most part, there is no warning. Look for signs that trouble is ahead, building maintenance is slack, legal notices against your landlord published in the local newspaper.

Look, whatever you do, keep making your rent payments. If you fail to pay, your landlord could sue you. And check tenant protection laws in your state. Go to the U.S. Department of Housing and Urban Web site at hud.gov. Some states have protections for the elderly and for school-aged children.

Finally, your landlord's lender may be a source of help, as well. Some will provide financial assistance for tenants who leave the place fast and in good shape. Hey, in never hurts to ask. And don't be embarrassed to ask for your security deposit back. After all, it's your money.

Mortgage fraud, it could happen to you. We're going to put the power in your hands. Know the signs and how you can avoid a scam.

(COMMERCIAL BREAK)

WILLIS: With so many homeowners now looking for help, scam artists are sure to be on the proud. But, you can spot a scam and protect your family. Ann Fulmer exposed mortgage fraud in her own backyard and now she works for Interthinx, a firm that tracks mortgage fraud.

Ann, welcome. Good to see you.

ANN FULMER, INTERTHINX: Good morning, Gerri, nice to see you, too.

WILLIS: You know, they used to describe mortgage fraud, I believe the FBI did, as the fastest growing white collar crime. Is it still on the rise?

FULMER: Yes, because economic conditions are such as they are because the foreclosure rate is going up, because there is a lot of desperate industry professionals out there who can't make the living they used to make. We're seeing a significant uptick in mortgage fraud these days.

WILLIS: Wow, that's bad news. OK, tell us how it works, because it's fairly complicated and there are lots of varieties.

FULMER: Well, basically, it is all bank robbery without a gun. But, in this these conditions, one of the primary areas of concern are the schemes that target borrowers who are in distress. Those would be the foreclosure rescue schemes.

WILLIS: Right, and we've heard a lot about those. In fact, we've talked to folks who've been involved in those and let me tell you, if you think you are going to get foreclosed on and you get a letter in your mailbox from somebody saying, hey, we could save you from this. Don't believe them, right, Ann?

FULMER: Well, I think that you are exactly right. And one of the first red flags is when you get an unsolicited offer to help. There aren't a lot of altruists out there, most of those people who show up unsolicited are in fact in business for themselves.

Another red flag is if someone who is purporting to help rescue you wants you to sign over part of your title or all of your title to them so that they can negotiate with the lender. That's absolutely not true. Your best line of defense always, if you think you are in trouble or if you're about to be in trouble, is talk to your lender, talk to your servicer.

WILLIS: All right. Great advice there. In the other red flags we need to watch out for?

FULMER: Well, there are a lot of the same schemes out there, advanced fees. If somebody says, give me some money up front and I'll help negotiate, chances are they're going to take the money and run. There's still bait and switch schemes, where they say we'll help you with the refinance or again, we'll help you with the modification process. They actually have you in the paperwork, signed documents that convey title, they'll sell the house out from underneath you.

And the really sad thing is a lot of people who are eligible for some of these government bailout programs and for some of these lender programs are falling in with these fraudsters and then they have absolutely no hope whatever of getting any kind of modification.

WILLIS: That's a tragedy. You know, it's interesting that you say loan modification is an area where there's a lot of fraud going on. How do I avoid that particular fraud? Because, that's something that people are all looking for, right now.

FULMER: Right. And again, that's an area of desperation and vulnerability that the perpetrators are exploiting. The best way is to deal directly with your lender or with your servicer, because they all have programs to try and help you out.

Whatever you do, don't let somebody get part of your title, convey it to a land trust, because that's almost a sure way that you're going to lose your house. Don't give them a part of it, so that you can file bankruptcy.

WILLIS: Quickly, though, Ann, what do I do if I think I am having a problem? Who do I contact?

FULMER: I think the best thing, again, is to contact your lender and your servicer. But, the HUD Web site also has some great resources that can get you to housing counselors, it can get you some information about the different programs that are out there on the federal level and also on the state and local level.

WILLIS: Ann Fulmer, thank you so much for that. We really appreciate it.

As always, we thank you for spending part of your Saturday with us. OPEN HOUSE will be back next week, right here on CNN. You can also catch us on "Headline News" every Saturday and Sunday at 3:30 p.m. Eastern. And 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.

Don't go anywhere, your top stories are next in the CNN "NEWSROOM." have a great weekend.