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Your Bottom Line

What Health Care Industry Reform Could Mean For Your Wallet; Foreclosures Could Mean the Right House At the Right Price For You; The Call For Greater Financial Oversight; When to Trade in Your Gas Guzzler

Aired June 13, 2009 - 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. This is YOUR BOTTOM LINE, the show that saves you money.

Health care is front and center on Capitol Hill. What industry reform could mean to your wallet. We'll check in on the state of America's housing market. Why a flood of foreclosures could mean the right house at the right price for you.

Then the call for greater financial oversight. Is it time to create a financial product safety commission? And cash for clunkers, we'll tell you if it's time to trade in your gas guzzler for a fuel efficient model with a hand from Uncle Sam.

YOUR BOTTOM LINE starts right now.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Simply put, the status quo is broken. We cannot continue this way. If we do nothing, everyone's health care will be put in jeopardy.

(END VIDEO CLIP)

WILLIS: President Obama in his weekly Web address making the case for health care reform. And this week, Senator Chris Dodd introduced a bill he calls the first step in addressing the nation's health care system. House Democrats citing issues such as the number of uninsured American's excessive cost and unequalled service also laid out their outline for legislation.

Critics assert a government response option could drive out private insurers and potentially lower the quality of health care. Opponents fear such a program would hurt those that have a plan they like because employers could opt for the government program if it was less expensive.

So, can Congress get a bipartisan bill to President Obama's desk by October? CNN's senior medical correspondent, Elizabeth Cohen joins us now to sort out the details.

OK. Elizabeth, help me out here. Don't we already have a plan in place to deliver health insurance? We're acting like this is a brand new idea. It's not, is it? ELIZABETH COHEN, CNN SR. MEDICAL CORRESPONDENT: It's not a completely brand new idea, Gerri. The situation is that the elderly in this country, people over age 65, have a government option, it's called Medicare. And the details of President Obama's plan have not been revealed yet, but many people say you can kind of look at it this way, it would be like Medicare for the rest of us. It would be an option that we don't have to choose, but that you can choose a government-backed insurance option.

WILLIS: All right, so who are winners and losers?

COHEN: Some of the winners and some of the losers here are -- well, people would say some would say the winners are the 46 million people who don't have insurance. If there were a government option, then they would be able to choose it it would theoretically be much less expensive and affordable. There you see the advantages, a lower cost and more affordable.

But, let's talk about what some of the possible cons are according to some of the Republicans fighting this government option. They would say that the cons are that the quality of insurance that the government is going to give might not be as good as what private companies give. That's not for sure, but that's one of the concerns.

Also, that it would present unfair competition. When the government can get behind something with all of its money and all of its purchasing power it might be very inexpensive and then private insurance companies wouldn't be able to compete. Now doctors and hospitals are also concerned about a public option. It could mean less money for them.

WILLIS: Less money for them. Any traction to that idea, Elizabeth Cohen, that, you know, maybe some of the employers would drop out of offering health care if such a plan were passed?

COHEN: Well, actually, this is the concern. The concern is that an employer that now has a private company insuring its employees, might say hey, wait a second, now there's a government option out there and it's really cheap, let's go with that instead.

Well, then you don't have any more private health insurance companies selling to these employers. That is the concern, is that even though this is being presented as an option, that in the end, the government will be the only people offering health care. I'm not saying that's going to happen. I'm saying that's one of the concerns out there.

WILLIS: Many concerns, interesting idea. Elizabeth Cohen, thank you for helping us out today.

COHEN: Thanks.

WILLIS: We're also listening to your concerns about health care reform.

(BEGIN VIDEO CLIP) JEAN LINDSAY, IREPORTER: We have to consider not only the components we want in it to cover everybody adequately and at a reasonable cost, we have to consider how it's going to be administrated.

BILLY DENNIS, IREPORTER: I would absolutely be willing to pay higher taxes for a universal health care plan. The American people will have to choose. Do they want to pay for it up front or do they want to pay for it on the back end? I, for one, prefer we pay for it up front.

(END VIDEO CLIP)

WILLIS: Well, we love to hear from you and we are here to answer your questions and save you money. Got a question about your house, your job, your savings, your debt? Logon to CNN.com/helpdesk and click on the link to send us an iReport.

We always like to share good news with you. In April we told you about the Murdock family. They live in my beautiful mountain hometown of Spruce Pin, North Carolina. Both Vicki and Keith Murdock were out of work after being laid off. Vicki was about to graduate from a medical assistant program at the local community college and Keith had already retrained to become an auto body mechanic when he was pounding the pavement too.

Well, both Keith and Vicki have found new jobs and Vicki's on the phone with us to tell us all about it.

Hi, Vicki.

VICKI MURDOCK, FOUND JOB: Hi, Gerri.

WILLIS: It's good to hear from you. And I am so pleased that you got jobs. I want you to tell our audience how tough was it finding those jobs?

MURDOCK: It was pretty tough. It was through a lot of prayer and through help with our local ESC office here in Spruce Pine.

WILLIS: So, you got some help from some folks there in Spruce Pine to find the new roles. We were just seeing pictures of your family. You daughters are so beautiful. I bet they're really proud of you, making this change. What's your best advice, Vicki, for people out there today who are frustrated, looking for jobs, should they get retraining? What do they need to do?

MURDOCK: To me, I would definitely recommend the retraining, and just pray hard and know that the Lord's got it all under control and he'll answer it in his time.

WILLIS: Well Vicki, I know you worked really hard for these jobs and your husband Keith did too. You guys really went that extra -- that extra length to try to get jobs, get retraining. You know, best wishes to you and congratulations.

MURDOCK: Oh, I appreciate it very much and thank you.

WILLIS: A growing number of economists are calling the end of the recession, but when are you going to feel better about the value of your home? The future of the housing market and what it means for you.

(COMMERCIAL BREAK)

WILLIS: New foreclosure numbers this week. RealtyTtrac reports more than 321,000 foreclosure filings in May. This is the third straight month of foreclosure filings over 300,000. RealtyTrac says a first in its history and Rick Scarga from RealtyTrac is forecasting a total of four million filings by the end of this year, that's up from 3.1 million last year.

Our next guest says many more foreclosures may be on the way. Jim Park is the president and CEO of New Vista Asset Management. His company works with lenders to manage and sell their foreclosures.

Jim, welcome, good to see you.

JIM PARK, NEW VISTA ASSET MGMT.: Good morning.

WILLIS: All right, so I want to talk more about these foreclosure numbers. When you really dig down, you find that the foreclosures actually went down month to month, April to May. This would appear to be a positive. Why aren't we excited about this?

PARK: Well, I think it is a temporarily a good sign. However, as you know, there has been a government imposed moratorium on lending institutions well into early part of this year and, therefore, my expectation is that those inventories that's been held back will come into the market through the summer and we will -- I expect to see more of those foreclosure numbers to go up in the months ahead.

WILLIS: So, Jim, how bad does this get? I mean, because you actually have insight that most of us don't. You're looking at those banks' books, seeing the homes. How much inventories are there ultimately going to be?

PARK: Well, No. 1, it depends on a lot of things. Clearly, the government, a lot of the lending institutions are working to create solutions for existing homeowners. And I think that is a good thing. There will be less foreclosures because of that reason. But I think you have a massive pipeline that has been held back over the last number of months which will hit the market and it will create some price compression throughout key markets throughout the country.

WILLIS: Yeah, and the timing not so great, a lot of people losing their jobs, more people going into foreclosure the old- fashioned way.

Let me get you, though, to some numbers that I think people out there are missing that are positive. Home sales, quarter to quarter, you look at some of the worst hit states in the country when it comes to foreclosures, California, Nevada, we're looking at them now, Florida, Arizona. The sales numbers, not the home price, we're still waiting for that to rebound, but the sales numbers are up and up strongly.

How do you explain that? I mean, isn't this a glimmer of hope in this market?

PARK: You know, Gerri, there is absolutely a glimmer of hope and for a lot of different reasons. Right now, first-time home buyers are getting back into the market for a number of different reasons. No. 1, home prices are at a historic low, now.

It's probably been since 1972 that we've seen home price affordability at this level because of low interest rates, because of the government efforts with tax credits, down payment assistance, we are seeing a real opportunity for people who have been left out of the market for the last five, 10 years, to jump back in and really have a opportunity for sustainable home ownership.

WILLIS: Eight thousand dollar tax credit, it doesn't get any better than that.

PARK: Absolutely.

WILLIS: I have to ask you about a big problem you know a lot about, short sales. This is something that could really save this market and help turn around the housing market quickly. That's when you sell the home for less than it's worth and a banker signs off and everybody agrees the banker's going to eat that loss, ultimately.

PARK: Right.

WILLIS: You know, at this point, it's almost in everybody's best interest to do that. Why can't we get those done?

PARK: Well, it's a complicated matter. Many times these loans are owned, securities are owned by investors throughout the world and in many ways they have to get those approvals. But the bottom line is, I think the government, the industry itself, is trying to do more to deal with that issue, to create a faster solution to short sale, and I do think over the long haul, that is going to be a critical element of creating stability in the real estate market.

Right now, about 15 million homes or mortgages are underwater. There is no indication that that's going to change any time soon. And those homes are going to either go to foreclosure or you have to be modified or short sale is going to have to be the answer to those families that are living in those homes.

WILLIS: Thank you for your help today. We really appreciate it.

PARK: Well, thank you, Gerri.

WILLIS: Most of the things you buy from cars to food to medicine are heavily regulated to keep consumers safe. But, is the government doing enough to protect people from predatory financial products?

(COMMERCIAL BREAK)

WILLIS: The Obama administration since the very beginning has been pushing for greater financial oversight for products that enable you to buy a home, get a credit card, or pay down your debt. Back in the summer of 2007, Harvard Law professor Elizabeth Warren made her case for a financial product safety commission.

Saying, "It's impossible to buy a toaster that has a one in five chance of bursting into flames and burning down your house, but it is possible to refinance an existing home with a mortgage that has the same one in five chance of putting the family out on the street and the mortgage won't even care a disclosure of that fact to the homeowner."

Warren is the chair of the Congressional Oversight Committee in charge of TARP funds and joins us from Washington.

Professor great to see you.

PROF. ELIZABETH WARREN, CONGRESSIONAL OVERSIGHT CMTE.: Good to see you.

WILLIS: All right. Let's talk about this commission idea you have which the administration is taking very seriously at this point. Why do you think a commission is necessary and could it have prevented the mortgage meltdown that we've struggled so much with?

WARREN: You know, the consumer credit market is broken. There's just no other way to describe it. We now receive credit card agreements that are 30, 32 pages long and they're filled with incomprehensible text. That means that I can't look at credit card A, credit card B and credit card C and tell the difference between them. Tell which one I really want, tell which one has the highest risk or the lowest risk. There is no place else in America where that goes on.

You know, you buy products, toaster was the example we started with, but any kind of product, a child car seats, cosmetics, the water you drink, and we know that there are basic safety standards.

WILLIS: Right.

WARREN: And that means that nobody's going to trick you. They're not going to sell you a heart pill that, in fact, is a sugar pill. They're not going to sell you an infant car seat that, in fact, is something that will fold up in a crash. Competition in those markets has moved to things that are very consumer friendly. But not so with financial products.

WILLIS: We have an FDIC, we have an OTS, we have the Treasury, we have the Federal Reserve, why aren't they watching out for our bottom line?

WARREN: You know, it's exactly the right question, Gerri, because legally, the fed, for example, could have stopped all of the tricks and traps that go on in financial products at least by 1994 -- and many people think before then. There's been no doubt that they had the legal authority to do it, but they have had no interest in doing it.

Instead, those are the agencies charged with what's called the safety and soundness of the banks, of the financial institutions. Which is a way of saying, quite frankly, they're charged with making sure that those institutions are profitable. There is no one in -- there is not much interest within those agencies on protecting consumers and more importantly, making sure that with consumer financial products, that it's just a level playing field.

WILLIS: Professor, you know, I get a lot of e-mail about credit cards and people, you know, frustrated with the terms of credit cards, as you just mentioned. However, we just had massive credit card reform passed, very controversial, in the works for a long time. Are we say when it comes to credit cards now or are there still loopholes that you expect companies to exploit?

WARREN: You know, I'm really pleased to see the legislation we've had, but, girl, let's take a closer look here. Nothing in that legislation does anything to trim down the 31-page credit card agreement. Nothing in that legislation does anything to close up the hundreds of other traps that are buried in that language.

WILLIS: Let's talk about the bigger picture here, though, professor, because I think a lot of people are thinking, wow, unemployment, 26-year high, turmoil in the housing market, I don't know if I'm going to have my job, I don't know if I can keep my house. What is the silver lining here at this point? And do you expect the economy to turn around as most economists expect by the end of the year?

WARREN: Well, let me start with the silver lining. Americans family, household-by-household, are getting smarter. They're cutting back on credit as much as they possibly can. They are pitting away money in savings. We're watching the first real growth in savings in over a decade, reversing, actually, about a 30-year trend in terms of decline savings. They're trying to make themselves more, secure household-by-household. And I got say, I applaud that. is really important.

Projections on the long-term economy, you're going to get a lot of economists in here who want to look at you know, you know, TED spreads and rediscount rates. I've got to tell you, where I look is at the household level, family-by-family. The rising unemployment rates, the declining value of homes, the number of people getting caught in foreclosures has me deeply, concerned.

WILLIS: Well, you're still worried but, we appreciate your help today, and certainly hang on your every word. Elizabeth Warren, thank you so much for being with us today. We really appreciate it.

WARREN: Thank you.

WILLIS: So what can you do if a financial product is just not working for you? Well, since your credit card is giving you trouble, say you're having trouble paying it off get in touch with the National Foundation for Credit Counselors at nfcc.org.

Now, these counselors may be able to get rid of some of your late fees or negotiate a lower principle balance with your creditors. Perhaps it your mortgage that's getting more unmanageable, go to the U.S. Department of Urban Development's Web site, it's hud.gov or read more about the government's plan to help homeowners modify their mortgages at MakingHomeAffordable.gov.

Congress is taking yet another step to aid the American ought industry. How a brand new $4 billion plan can put cash in your pocket.

(COMMERCIAL BREAK)

WILLIS: Congress approved a bill this week that will give you money to flad (ph) your gas guzzler for a more fuel-efficient car. Here to break it all down Jon Linkov, autos editor at "Consumer Reports," in Yonkers, New York.

Jon, great to see you again.

JON LINKOV, CONSUMER REPORTS: Oh, thank you. Thank you for having me.

WILLIS: All right, tell me how I qualify for this money.

LINKOV: Well, basically, we were looking at the vehicles that you own. If you have a vehicle, for example, an SUV or sedan, that gets 18 gallons, a mile, or few ir, you begin the process. So, say you get to own a vehicle that's from '92, it gets 15 miles per gallon, if you get something that's 18 gallons per gallon or more, you will get $3,500. But if you get something that's five miles per gallon better, you'll get $4,500 for the SUV.

WILLIS: All right, and to be clear here, I don't get the money. Right? It goes right to the dealer? I don't get my hot little hands on that money.

LINKOV: It's a voucher, yes.

WILLIS: It's a voucher. OK. And so, let's talk about what you have to get. What do I buy? What did I upgrade to? There are rules than, too?

LINKOV: Right, well with the SUVs, you basically something that gets 18 miles per gallon or better, so that if one vehicle is two miles per gallon, you get one amount of money, five miles per gallon better, you get something else. With sedans it's a little different, you have to get something that's 22 miles per gallon or better to start.

So, you know, even though the old car can get 18, you're stuck kind of in that four mile per gallon window at first to qualify for the money. If you get something that's 10 miles per gallon better, you all of a sudden can get that $4,500 check. So, there are certain restrictions. WILLIS: This is complicated and convoluted. Right? At the end the day what we're talking about is probably people with older American cars are going to be trading these in. And, Jon, work through this with me just a little bit, because I think a lot of people will want to be part of this program, but only be able to participate, because, you know, maybe they don't want to have a new car payment every month, maybe they can't afford it. The average car in this country cost $28,000. Financing that will be difficult for some people who would like to upgrade.

LINKOV: That's kind of the point. You know, some of the questions that are raise in the sense that it doesn't involve used cars, which is what one of the early Senate bills really wanted, was to have people have the option of buying a used car. So, you are stuck buying a new vehicle.

And if people are driving something that's really, really old and is getting such horrible fuel mileage, is it because it's a station car and they don't really care about and they don't want something expensive to drive to the train station or is it that they just can't afford it and that they're just kind of scraping by? So, maybe if they qualify for the $4,500 voucher, the best scenario, can they really actually either afford the rest of payment or can they even qualify for a loan. So, that's a big question, there.

WILLIS: Are there other options for those people? I mean, is it possible, for example, I don't know, to sell that car on eBay and get more than the government is offering in this voucher?

LINKOV: It really seems that the government's tried to put this together in a sense that the vehicles that are going to qualify are really pretty much valueless. You know, you're talking about vehicles from the late '80s, early '90s, even if it's the late '90s, if it's am SUV, it gets 15 or 14 mile as gallon, it might be worth $2,000, $3,000 or $4,000 at the most, and that's in cherry condition, with low miles.

So, it is a good if you qualify. And you look at it in the sense that if you have an odd sedan you get yourself a small Nissan Versa, a Toyota Yaris. You get yourself something like that. You know, a Honda Fit. You know, if the car's $10,000, $12,000, and you're getting $4,500 towards it, that's not a bad payment to make, but again it depends on the individual's current bank status.

WILLIS: Jon, fantastic information. Thank you so much for your help today.

LINKOV: My pleasure. Thank you, Gerri.

WILLIS: As always, we thank you for spending part of your Saturday with us. YOUR BOTTOM LINE will be back here next week right here on CNN. And catch us on HLN every Saturday and Sunday at 3:30 p.m. Eastern Time. And hear much more about the affects 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 next in the NEWSROOM. Have a great weekend.