Return to Transcripts main page

Open House

Credit Crunch; Interview With Governor Ted Strickland; Foreclosure Aftermath

Aired August 25, 2007 - 09:31   ET

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

GERRI WILLIS, HOST: Hello. I'm Gerri Willis, and this is OPEN HOUSE, the show that saves you money.
Chances are you know someone facing foreclosure. Maybe you're facing foreclosure yourself. New figures out this week show the number of people losing their homes continues to rise. But there are steps you can take to protect yourself.

Today we'll walk you through the solutions step by step, showing you how to get help. Your questions and real solutions are coming up.

But first, the mortgage meltdown is ruining the lives of so many from homeowners to those in the mortgage industry. More than 100 lenders have closed shop since the last year, and many of those still in business have felt the effects of a tightening credit market.

David Reed is a mortgage banker and author of "Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You".

David, welcome.

DAVID REED, AUTHOR, "MORTGAGE CONFIDENTIAL": Thank you. Nice to be here.

WILLIS: You know, it's great to have you here.

You are a veteran in this industry. You've got to tell me, what went wrong?

REED: Well, a lot of things went wrong. And they all happened at pretty much the same time. A perfect storm, if you will.

One thing that happened primarily is lenders kept giving people loans that really shouldn't have qualified. Slowly but surely, credit standards were relaxed. People were getting into homes with no money down.

In fact, that was kind of the mortgage du jour. Everyone wants to get in a home without any money.

WILLIS: Right.

REED: They combined that with stated income, non-verified income loans. So you have bad credit, no money down, no verification of income or assets. And then when their loan comes to reset, it they have an adjustable mortgage, there's no equity in the property, and they can't refinance.

WILLIS: Right. You know, David, this is a toxic brew, I've got to tell you.

I just said that we have 100 or so lenders that have gone out. What are you expecting? Is it going to get worse from here? Are we going to see more lenders going out? People are starting to wonder, who am I going to be sending my check to?

REED: Right. Well, you'll probably be sending your check to the same company. What may not happen, though, is the people that you are already preapproved with -- for instance, if you're buying a house now and you have a loan that is designed for people with less than perfect credit, or the lender's not verifying your income or your assets, you need to be careful, because it's quite possible, when you get to the closing table, that money's not going to be there.

WILLIS: We've seen that over and over again, I've got to tell you

REED: Yes.

WILLIS: But come on, David, do we need more regulation here? I have to tell you, just this week, the head of Wells Fargo was quoted as saying, you know, these mortgage brokers, they need more regulation, higher licensing requirements.

Do we need some tough action out of Washington?

REED: I've never really been a big fan of tough action out of Washington. Mortgage brokers are licensed in every state. They're regulated by their state agencies. They take...

WILLIS: Yes, but come on. There's big differences state to state.

REED: Yes, I know.

WILLIS: It's not like there's one -- it's not like they're stockbrokers, who really have to hit some standards and take some very tough tests. It's quite different, in fact, right?

REED: Well, it is in that sense, but there's also been plenty of stockbroker scandals in the past, Enron scandals. And I agree, there needs to be some type of regulation, but it's not the regulation in this instance that happened.

Quite frankly, what's happened, lenders came up with these mortgage programs, and there's just too many loopholes that loan officers could work around to get people into homes that shouldn't have gotten into them. And that's the problem.

WILLIS: I'm telling you, I see that all the time, too.

OK. You're in the market. When is the slump going to end? It's the $24,000 question, right?

REED: Yes. I left my crystal ball in the car. I'll come right back. But with regard to the mortgage slump or the housing slump, it's very possible that we could be on a correction right now, and we'll be out of it pretty soon. And the reason I say that, let's not forget that there's still conventional product out there.

There's still a Fannie Mae, Freddie Mac, V.A., FHA loans. They're not having any problems.

WILLIS: Right.

REED: It's the alternative subprime market that's having the problems. So there's still lenders out there doing business right now, closing loans today.

Now, you couple that market that's still out there, home prices are depreciating in some areas. That means they're more affordable now to a new class of people. So I'm saying, hey, let's do loans the old- fashioned way. Bring your paycheck stub, your W-2, and qualify under terms that you can afford.

WILLIS: David, I've got to say thank you so much for being with us today. We appreciate it.

REED: My pleasure. Thank you.

WILLIS: OK.

So it's tough times for borrowers. If you're in the market right now for a loan to buy a house or maybe you're just upgrading the one you already have, you might want to think about a credit union.

Now, I know it sounds old-fashioned, and it is. Think of the credit unions as money co-ops in which the members own the institution, and for that reason, loan rates can be lower.

Now, to see if you're eligible to join a credit union, go to the Credit Union National Association's Web site. It's cuna.org, and click on their locator tool.

Another thing to keep in mind, there are big differences these days in the mortgage rates offered by different lenders. Now more than ever, it's important to shop around. And the difference, hey, it could mean hundreds, if not thousands, of dollars to your wallet.

OK. The foreclosure epidemic hits the heartland. Hear from Ohio Governor Ted Strickland, who says it is time for answers.

Then, your questions and real solutions. I'll have answers to what's on your mind.

And you think the nightmare ends with foreclosure? It does not. I'll tell you what to look out for after foreclosure.

But first, your "Tip of the Day".

(BEGIN VIDEOTAPE) WILLIS (voice over): Make sure your vacation is a relaxing one. Get organized.

Write packing lists for yourself and your family members. Be sure to save these lists to your computer so you can refer to them for future trips. Shop ahead of time so you won't end up paying big bucks at tourist traps for items that you forgot to pack.

Speaking of forgetting, be sure to make color copies of your passport and ticket information to avoid mishaps at the airport. Or just save them in your e-mail so that they can be accessed from anywhere in the world.

And sketch out an itinerary before you leave. Planning ahead will help you put in your sightseeing, beach-going, and restaurant-hopping. And most important, head to CNN.com to check the weather before you pack.

And that's your "Tip of the Day".

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: There seems to be no end to the epidemic of foreclosures. New numbers out show foreclosures jumped 93 percent since July of last year. That according to RealtyTrak.

Now, while the federal government has been slow to pass legislation, many states are taking matters into their own hands. Over the coming weeks, we're going to be talking to governors across the country about their foreclosure strategies.

Ohio Governor Ted Strickland has been particularly aggressive, and he joins us now from Findlay, Ohio.

Governor, thanks so much for joining us today.

GOV. TED STRICKLAND (D), OHIO: Well, I'm happy to be with you.

WILLIS: Now, I know you've got another tragedy going on there right now in terms of the flooding. I want to ask you about that first. How are recovery efforts proceeding at this time?

STRICKLAND: Well, we're working at it. Of course, this community and other communities here in Ohio have been devastated.

Thousands of people have been forced from their homes. Businesses have been devastated. And -- but the good news is, with all of this widespread destruction, there's only been one death reported related to this flooding. That's fairly amazing, because people were taken out of their homes in boats, off of the roofs of their homes by the Coast Guard. And so we feel fortunate.

WILLIS: It's a tough story. The worst flooding in 100 years there. I want to turn to another epidemic, though, and that's the epidemic in foreclosures. I want to share first some numbers with our viewers here.

STRICKLAND: Absolutely.

WILLIS: In Ohio, some 60,000 residents, almost 61,000 residents, have filed for foreclosure in the first half of 2007. That's one filing for every 82 households. Very big numbers. Ohio, as you know, Governor, the sixth in the nation.

Why is your state getting hit so hard?

STRICKLAND: Well, I think for two or three reasons.

First of all, until a few months ago, Ohio had very loose regulations when it came to regulating how loans were made and under what conditions. We had changed that, but unfortunately, bad decisions were made and bad loans were provided to people who were unable to carry those loans before those legislative changes were made.

In addition to that, Ohio has had a very flat economy for quite some time. And so people who took these mortgages upon themselves, bought homes, may have lost their jobs and found themselves just totally unable to meet their obligations.

WILLIS: I just have to point out, five Ohio cities are in the top 40 for foreclosures. That includes Cleveland, Dayton, Akron, Toledo, Cincinnati, Columbus. Very big numbers.

You mentioned the bad economy there.

STRICKLAND: That's right.

WILLIS: It hasn't been a strong economy. But you, sir, have formed a prevention task force. Tell me why you did that. What is it doing?

STRICKLAND: Well, a few months ago, as I realized that this crisis was unfolding, I developed a crisis task force that was devoted to bringing together all the stakeholders. And I'm talking about the lenders, the subprime lenders, the banks, the housing authority, the agencies of state government. And they've met nine times thus far. They have formulated some preliminary recommendations for me to follow.

WILLIS: In California, some people are suggesting that there be a foreclosure moratorium. Are you asking for that, and are you pressuring bankers to change what they're doing?

STRICKLAND: Well, we are not asking for a foreclosure suspension at this point because, quite frankly, some foreclosures are due to legitimate reasons, and these foreclosures may be appropriate. But what we're trying to do is work with the bankers, work with the subprime lenders to try to get them to cooperate with us as we institute changes.

WILLIS: OK.

STRICKLAND: We want them to work with us to help hold down these interest rates. You know, some people entered into these mortgages with a short-term fixed rate that is now changing to a variable rate, and the mortgage payments are exploding.

WILLIS: Right. We've seen that all over the country.

STRICKLAND: And we'd like to convince these lenders -- absolutely.

WILLIS: Right.

STRICKLAND: And it is a sad thing when people who have put what they own and what they have into the purchase of a home and then lose that home. It's very sad.

WILLIS: Right. You bet. It is sad. And it's happening all over the country.

I have to ask you, though, who's paying for the program? The price tag of some of this stuff, $10 million, $500 million. Is it going to be taxpayers? I mean, who's picking up the tab?

STRICKLAND: No, the taxpayers. No, taxpayers -- these will be bonds that will be entered into, and there will be no tax dollars as such used for this.

The Ohio Housing Authority will use their bonding authority to secure these resources, then to purchase these mortgages and to put people into a fixed rate situation where they will be able to meet their obligations.

WILLIS: OK.

STRICKLAND: We've already started working with some individuals. We'll continue to expand that program throughout the coming weeks and months.

WILLIS: Governor Ted Strickland, I know this is a tough time for you. Thank you so much for joining us.

STRICKLAND: Well, thank you for your interest in Ohio and in the flood and in our foreclosure situation.

Thank you so much.

WILLIS: Now, if you're behind paying your mortgage, the very first thing you want to do is contact your lender. That's right. Don't be shy. Many of them have programs that can help. Remember, they don't want to own your home.

Next, call for some counseling about your options. The Department of Housing and Urban Development can hook you up with a professional in your area who can provide advice about your situation.

Now, that toll free number is 1-800-569-4287. And if you are already in foreclosure, the Home Preservation Foundation can be reached at 888-995-HOPE.

Bottom line, take matters into your own hands and don't wait for your lender to call you.

What's on your mind? I'll answer your questions, your comments, concerns on the mortgage meltdown, and give you some real solutions.

Then, your home is gone. Your credit score low. And you're ready to start over. Not so fast. Why the nightmare doesn't end after foreclosure.

(COMMERCIAL BREAK)

WILLIS: Well, as we've been saying, the credit crisis is spreading. And I know many of you are worried about your home and your wallet.

Here's some of your questions.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: How would you recommend people to stop that vicious cycle of credit spending when they're dipping into their home equity lines of credit to pay off their mortgages?

(END VIDEO CLIP)

WILLIS: That's a great question. You know, the truth is, when you use a HELOC to pay off your mortgage loan, you're really borrowing from Peter to pay Paul. This is a cycle that can end badly. You could end up owing more than your house is worth.

If you can, refinance all your mortgages and debt into one loan. Look, 30-year fixed rates are still attractive at 6.49 percent. If housing prices have plummeted in your area, you may want to consider more radical solutions like using savings to pay off that HELOC debt.

Here's another question.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: What's your advice for the next year? Should I buy? Should I stay renting?

(END VIDEO CLIP)

WILLIS: Finally some good news. Next year should be a great time to buy.

Economists say prices should stop falling and start recovering at the end of the year. You'll have the most leverage with buyers in '08, and that means asking the buyer for things like the home warranty, points on your loan, closing costs, or in really troubled markets, maybe even a portion of the down payment.

Here's another comment.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: And I think a lot of these corporations preyed upon people who had lack of information in some cases about the loans they were getting. And for example, interest-only loans.

(END VIDEO CLIP)

WILLIS: Well, I couldn't agree more. Bankers simply got too loose with their purse strings. But you can make the right choices on your own.

The best options for most folks is either a 30-year fixed rate loan or simply an adjustable rate loan in which the initial lock-in phase matches the period of time you intend to stay in your house. It is that simple. No bells, no whistles.

Forget interest only, option ARMs, and if any banker says the phrase "228" or "327" to you, run in the other direction.

Also, if you feel you've been a victim of predatory lending, call the Department of Housing and Urban Development at 800-569-4287. They can set you up with a counselor in your neighborhood.

Here's another comment.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I just think we might be coming up on a -- on a kind of negotiation in terms of homeownership and paying off those loans, something that we haven't seen before in the credit market ever.

(END VIDEO CLIP)

WILLIS: Interesting. You know, it's a good point.

Homeowners who are in trouble are turning to their lender for help, and if you're one of those people, you shouldn't be shy about picking up the telephone and asking for the loss mitigation department. Those are the folks who can negotiate a repayment plan.

You can ask for forbearance. That's when your payments are suspended for a short period of time, or for loan modification, lowering your payments by spreading them out over a longer period of time.

We want to hear from you. Send us your questions or your comments on the mortgage meltdown to openhouse@cnn.com.

Why the nightmare doesn't end with foreclosure. Steps to start over.

But first, your "Local Lowdown"

(BEGIN VIDEOTAPE)

WILLIS (voice over): Just out with its list of the 30 most visited U.S. cities, forbestraveler.com. Coming in at number five, the Windy City of Chicago.

Number four, The Big Apple.

ANTHONY GRANT, FORBESTRAVELER.COM: With something like 44 million visitors in 2006, it's a very healthy showing.

WILLIS: Number three, Orlando.

GRANT: We have the sunshine, convention and visitors trade, and a whole array of Disney attractions which is something that pulls in families.

Number two is Los Angeles and the fabulous weather all year round, to beaches, Dodger Stadium.

WILLIS: And number one, Las Vegas.

GRANT: It's got so many attractions going for it. Over-the-top shows, entertainment. It's very family friendly. And amazing growth as well in the convention and visitors trade.

WILLIS: That's your "Local Lowdown".

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: OK. You're looking at some numbers you can call here right now for help if you're facing foreclosure. Now, the thing you might not know, if you have been foreclosed on, you've got to know what comes next.

Time now for some solutions to help you get back your financial life.

Sue Hunt is with Consumer Credit Counseling Service and joins us from Atlanta.

Sue, great to see you again.

SUE HUNT, CONSUMER CREDIT COUNSELING SERVICE: Nice to be here, Gerri.

WILLIS: All right. Well, we know that one of the big downfalls of foreclosure, of course, is what happens after, the taxes that can accrue. How does this happen?

HUNT: Well, it's unfortunate that many people don't realize that, if their lender takes a home through foreclosure, or even through what's called a short sale, if the lender doesn't sell that house for as much as the loan is worth, that the consumer, the homeowner, can actually be liable for taxes on the amount of unearned income that happens when that sale occurs.

WILLIS: Wow, that's adding insult to injury.

HUNT: It's a double whammy. WILLIS: I guess you can call a tax attorney, though, maybe. And can you get that rate lowered?

HUNT: Well, there's a couple things that we might suggest that you do.

First of all, if you're facing foreclosure, never just walk away from that transaction. Even if that foreclosure happens and even if there might be a tax liability, it's a good idea to check back with your lender to look over the paperwork, to make sure that all those numbers were correct. And if there is a tax liability and the lender's not willing to work with you about it, then certainly, if you can't work directly with the IRS, give a tax attorney in your area a call.

WILLIS: OK.

HUNT: They'll be able to look over the paperwork and maybe give you advice.

WILLIS: All right, Sue. OK.

Well, let's talk about your credit score, because that's another big hangover.

HUNT: Right.

WILLIS: How long does a foreclosure affect your credit score?

HUNT: Foreclosures usually stay on your credit report seven years. So anybody looking at your report...

WILLIS: That's a long time.

HUNT: It is a long time.

WILLIS: Not as bad as bankruptcy, which is 10, but not good anyway.

Let's talk about getting another loan, because I know people will probably go out and rent for a while, but they'll be eager to get back in a house.

When can you do that?

HUNT: We recommend that the homeowner stay away from any new loans for at least 12 to 18 months. The first and most important thing the homeowner can do during that length of time is to take a look at their credit reports and to work to improve their credit score, which has probably been pretty badly damaged.

WILLIS: Yes, you bet.

OK. Let's talk about -- you know, some people think, if I close some of my credit cards, it will help, but not necessarily, right?

HUNT: Not necessarily. Generally speaking, everybody should have somewhere around four to five credit accounts on their credit report that are in good standing. If you have less than that, it can hurt your credit score, and if you have more than that, it can hurt your credit score.

WILLIS: Yes, there's no reason to go out and open a bunch of credit cards, that's for darn sure.

OK. Let's talk a little bit about the relationship with foreclosure and credit cards, because it seems like the credit card issuers know all about you. Will they jack up your rates after foreclosure?

HUNT: It's not unusual for your credit card companies to look at your credit report every couple of years, and if they see a blip on your credit report like a foreclosure, it is often the case that they will increase the interest rate on your cards.

WILLIS: Wow, that's not good news.

Sue Hunt, thank you for helping us out. Lots of great information, as always.

I'll continue to follow this story for you every week on OPEN HOUSE, and you can see more on the mortgage meltdown and the rest of your money on "YOUR $$$$$" with Ali Velshi and Christine Romans in just a few hours at 1:00 p.m. Eastern Time.

As always, thanks 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.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.voxant.com