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Open House

New Numbers on the Mortgage Meltdown; Major Cuts in Medicare; Another Record for Gas Prices: Who's Coming to the Rescue?; Dealing with Debt; Preparing and Protecting Your Family Home During Hurricane Season

Aired July 12, 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.
Another week, another record for gas prices. You won't believe who's coming to the rescue this time.

Plus, dealing with debt. What you should and shouldn't do when a debt collector comes calling.

And our continuing coverage: prepare and protect. The latest when it comes to stocking up for the hurricane season.

But first, new numbers out this week on the mortgage meltdown. According to RealtyTrac, a firm that monitors foreclosure filings, foreclosures were down three percent in June, and while that may seem like good news, foreclosures are still up 53 percent from this time last year.

Just this week, I sat down with Rick Sharga from RealtyTac to break down the numbers.

(BEGIN VIDEOTAPE)

WILLIS: All right, let's start with a few of the states that we always talk about when we talk about foreclosures: California, Florida, Arizona. Let's drill down, what's going on there? Are we starting to see these foreclosure wave pass or are we still in the middle of the tsunami?

RICK SHARGA, REALTYTRAC: We're still in the middle of the tsunami. There's a lot of properties that are in some early stage of foreclosure or some stage of delinquency that haven't hit the market yet and we anticipate seeing a pretty big uptake in bank owned properties over the next few months.

WILLIS: You know, we're seeing the Nevada numbers, there. That's astonishing, that very tough to get over. So, they have a while yet to go, you think, before they start to see the uptick, is that right?

SHARGA: I think those states that you mentioned are probably going to take a couple years to come through the downturn that we've started at this point.

WILLIS: All right, well let's talk about states where maybe life is getting better. Do you have any good news for us, Rick?

SHARGA: Well, you know, part of the reason we saw a national dip is because several states had pretty month to month decreases. Massachusetts in particular was down over 50 percent month to month, Maryland down, New Jersey down, Minnesota and several other states, and in a couple cases, Maryland and Massachusetts; we believe the numbers are down because of recently enacted legislation which delays the foreclosure process. So, we think the government's had an impact on stalling the process in the attempt to give homeowners and lenders a chance to work things out.

WILLIS: Stir down a little more, one of the states we always look at, Florida, Cape Coral, Fort Myers, areas that have been just devastated. What is going on there?

SHARGA: Well, we talked about this before, but that area is sort of a microcosm of everything that's gone wrong in the state, it was overbuilt, it was overpriced. People overextended themselves to buy the properties with bad loans and when the loans reset there was no market left to dispose of the properties. So the banks have taken them back.

WILLIS: One in every 91 households in foreclosure that is astonishing. All right, let's look at the country as a hole. I like to drill down and look at individual markets, but sometimes you sort of want to back up and see the big picture. Where are we in this foreclosure spiral? Tell me we're almost done. Are we?

SHARGA: We're not almost done. We're probably going to hit a new peak toward the end of this year or the beginning of next year. We haven't seen the Alt-A's hit and if the market continues to go down in terms of pricing, the Alt-A's will probably...

WILLIS: Tell me what an Alt-A is.

SHARGA: An Alt-A's load is basically a lower no document loan. It's somewhere between a subprime and a prime, somebody with good credit who didn't do all the paperwork. There are billions and billions of dollars of those loans that haven't started to reset yet, they will this year and next year. If the market continues to go down there's no reason to believe those loans won't perform as badly as the subprimes have done the last two years.

WILLIS: But tell me, is there anything that could change that would help this situation? What if banks became a little loser with capital, what if they were more willing to lend, could anything bail us out of this foreclosure problem?

SHARGA: Well, in the first place, we're at a point now where prices have come down far enough and mortgage rates low enough we would have expected to see a lot more buying activity than we have currently have. We believe the reason we're not seeing it is because the banks have really tightened up the lending standards and in a lot of cases are reluctant to lend because they're not sure how much further down the housing market is going to go. So, some sort of injection of liquidity into that credit area would certainly help to get the banks back into the game. But the other thing that really could help is something like the package that they're debating in the House and Senate right now that would basically inject $300 billion in loan guarantees and wipe out a lot of the worst loans in the industry right now and sort of declare a market bottom to tell people it's safe to get back in the water. But we need something dramatic or we're going to just keep going down.

WILLIS: A tough position for so many folks out there. Rick, thanks for coming on and helping us understand more about it. Thank you.

SHARGA: Any time, sure.

(END VIDEOTAPE)

WILLIS: A major issue on Capitol Hill this past week, Medicare spending. Congress returned to deal with something well, they let slide before the July 4th holiday: major cuts in Medicare. Dr. Sanjay Gupta joins me with more.

Hi, Sanjay.

DR. SANJAY GUPTA, CNN CHIEF MEDICAL CORRESPONDENT: Hi.

You know, it's sort of a remarkable thing, there was these cuts that basically were about 11 percent, 10.6 percent on physician salaries overall and what we're hearing a lot -- from a lot of advocacy groups, physicians themselves, was it was going to impact them and millions of patients, as well. That was the concern. HHS put a freeze on those cuts and they're waiting for Congress and the Senate to sort of swoop in and reverse the cuts. That's sort of the drama that's been going on the last couple weeks.

Ted Kennedy actually went to the floor of the Senate to render a vote as well to try and reverse those cuts and got a lot of support from a lot of his colleagues. Ultimate lay 69-30 vote overwhelmingly in favor of reversing those cuts.

WILLIS: You know, it seems like we're doing this every few years, having to renew this spending. Why is that?

GUPTA: You know, almost since its inception, 43 years ago now, Medicare and Medicare have been insolvent and Congress and the Senate sort of come in and add more money or stop cuts or something to try to make it more palatable for people, but it's just a cycle. I mean, these are expensive, you know, health care is very expensive nowadays and to try to contain costs you're going to this sort of evaluation every few years. January 2010, the next one, leave that for the next president.

WILLIS: I'll mark my calendar. Sanjay, thank you for that.

GUPTA: All right, Gerri, thanks.

WILLIS: And don't forget, you can catch Sanjay every Saturday and Sunday morning at 8:30 a.m. Eastern for "HOUSE CALL."

Up next, seller financing, what exactly is it and could it be a good idea for you?

And a growing number of folks hearing from debt collectors these days. What to do when one calls you whether you owe the money or not.

Then, we'll baton down the hatches straight to the store with our hurricane checklist to keep you and your family safe.

(COMMERCIAL BREAK)

WILLIS: Talk about answers from above, record high gas prices are hurting everybody, but here is a new twist. A Rhode Island Catholic church is giving away bus tickets to alleviate pain at the pump.

CNN's Dan Lothian has that story.

(BEGIN VIDEOTAPE)

DAN LOTHIAN, CNN CORRESPONDENT (voice over): Jennifer Munoz has a car. But these days, with gas over four bucks a gallon, the single, unemployed mother of two, is riding the bus, running errands and looking for a job.

JENNIFER MUNOZ, COMMUTER: It helps save money. I don't have to keep filling my tank up every few miles.

LOTHIAN: And she doesn't have to pay for this trip to the grocery store because the Roman Catholic Diocese of Providence is picking up the tab.

MUNOZ: It means I don't have to be set back when I don't have the money for the gas. I can still depend on me to go do what I have to do.

LOTHIAN: The diocese, which provides shelter and food for the needy, is now handing out books of 10 one-way bus tickets, each book worth more than $17, tapping into their charity fund to pay the bill.

BISHOP THOMAS J. TOBIN, ROMAN CATHOLIC DIOCESE OF PROVIDENCE: So, we thought that by purchasing these bus tickets and sharing them with people if they can't afford gasoline, if they don't have their own car, at least to be some way of getting them around for some basic needs.

LOTHIAN: The church never expected to be in the business of funding public transportation, but as gas prices kept increasing, so, too, was the burden on many commuters, like Munoz, who not long ago was driving a large SUV before trading it in for a small car.

LOTHIAN (on camera): And then now even that is too expensive for you?

MUNOZ: Yes, it is. LOTHIAN (voice-over): So far the diocese has spent more than $17,000 to buy bus tickets and more than 400 of the books have been handed out to people who can show they have a real need.

TOBIN: We have a very simple application process. We don't want to make this so burdensome or so bureaucratic that it defeated the purpose.

LOTHIAN (on camera): Bishop Tobin says he realizes that this effort won't solve all the problems of those who need a little help, but he says at least it will help relieve some of the pain.

(voice over): Especially during the summer travel months.

MUNOZ: It's not cheap, it's not like it used to be.

LOTHIAN: Dan Lothian, CNN, Providence, Rhode Island.

(END VIDEOTAPE)

WILLIS: Nice story. Well, all right, selling your home can be tough. Some people offer all sorts of bonus gifts or twists to get buyers in the door, but now a new idea, but one that can be dangerous, it's called seller financing. Connie Degroot is a real estate broker with Prudential and she's here to tell us about it.

Connie, great to see you.

CONNIE DEGROOT, PRUDENTIAL REAL ESTATE: Hello, Gerri.

WILLIS: Well, OK, let's get into this. Seller financing, I guess everything that's old is new again. this has been around for a long time, it's coming back. Tell folks exactly how it works and let's talk a little bit too, about whether it's a good idea.

DEGROOT: OK. Well basically, what the seller is doing is acting like a lender, giving a loan to the buyer to purchase their home, in return for a down payment and monthly interest payments. But what's really good about this for the buyer is that all these terms are negotiable.

It can be a loan for 10 days or 10 years, it could be seven percent or five percent interest payments, maybe even no points. So, it's a terrific opportunity for a buyer that can't quite qualify for a loan because their credit is not as it needs to be or they don't have a sizable down payment which is about 20 percent or 25 percent, today.

WILLIS: Well, I think that's a really good point. You know, that for buyers out there looking to get in the market who maybe can't afford it, this may be a way to get into a property. Let's look at it from the flip side, the seller's side. Do you have the same rights as lender? Can you take the house back if they're not paying?

DEGROOT: Yes, you can. I mean you're going to have, you know, if the buyer defaults, and that's the big risk, then you know it's going to be a process to try and solve that problem. You're going to have legal expenses, perhaps maybe that buyer, if they can't afford to make those monthly payments, maybe they're not taking care of the property as they should, you might have damage and if you get it back and resolve that, you might be selling it in a different marketplace and you might, you know, have added loss, as well.

So, there's -- something you really need to think about. A lot of times also on a long-term loan, you have to really think, is this OK for me for 10 years or five years? What could happen in my life, maybe my kids need something or my spouse.

WILLIS: Right, right, right.

DEGROOT: Or I lose my job.

WILLIS: OK, well, let's talk about, are there savings for the sellers out there?

DEGROOT: OK, well the saving is that they probably can sell their house, they might actually be able to sell their house for a little bit more because they're offering this tremendous opportunity to the buyer. They're going to save on all the fees associated, you know, some of the closing costs.

WILLIS: You're not paying a realtor, necessarily.

DEGROOT: Yes, so you are saving. However, even though you don't need an appraisal, I would definitely, as a buyer, always get an appraisal. You want to make sure you're not overpaying for your property.

WILLIS: That's a great point. Now, let's talk a little more about buyers out there who are going to use this. This may not be as safe as using a loan from a federally chartered lender out there. I mean, you really could get in trouble, here.

DEGROOT: You can get -- I mean whether you're taking a loan from, you know, Mr. Jones or from bank of America, you need, you know, you really need to be responsible and you need to be honest with yourself to see if you can really afford this responsibility.

WILLIS: Great information and a really fascinating new way of trying to find buyers if you're really having a hard time. Thank you for that.

DEGROOT: My pleasure.

WILLIS: Coming up, debt got you down? What to do when collectors come calling and demand you pay up.

And our "Prep, Prepare and Protect" series rolls on. Steps you need to take now to guarantee you're ready when the storm hits.

You're watching OPEN HOUSE, the show that saves you money.

(COMMERCIAL BREAK) WILLIS: According to the Better Business Bureau, complaints against debt collectors are up 26 percent over last year, that's over 18,000 complaints and counting. And when you are struggling to pay your credit card, mortgage, other expenses, getting nagged by a collector is the last thing you need. So, know your rights if a collector comes calling.

Gerri Detweiler is with credit.com and author of "Stop Debt Collectors." You are the right person for this interview. Gerri, thanks for joining us. I think our viewers will think we're seeing double or something today.

Anyway, let's get right down to it. This is absolutely a huge problem, overzealous debt collectors. You say one of the big problems here, sometimes they're trying to collect debt that you don't owe.

GERRI DETWEILER, STOP DEBT COLLECTORS: Yeah, absolutely. Or they may be inflating the debt that you owe. We're seeing a couple things, one is that consumers will get these bundle notices for huge amounts and they have no idea how much is actually legitimate. I just spoke with someone last week, Gerri, who owed $7,000 last year when his credit card company wrote off the debt, now the debt collection company is telling him he owes more than twice than. That's a big jump in a year.

WILLIS: OK and one of the critical things we want to remind people out there, you know, there is a statute of limitations out there. Debt ages and after a certain point you don't owe it anymore. Check your state laws to find out what the law is in your state. If you get one of these phone calls, what is the smart thing to do, Gerri.

DETWEILER: The smartest thing to do is not to talk. I mean talk as little as possible. Just say, you know what, send me something in writing. I need to check it out. I can guarantee you if you start engaging in a lot of conversation, sharing a lot of information about your financial life with a collector, they will use it against you, you'll probably end up paying a lot more.

WILLIS: All right, so they have to send you a letter describing the debt, what it is, who you owe it to, et cetera. Now, if you do not owe this money and this happens a lot out there, what steps should you take?

DETWEILER: The first thing you should do if you don't believe you owe the money is to send a certified letter to the collection agency explaining why you don't believe you owe it. Now you have the right under federal law to say, don't contact me again. If you're sure you don't owe the debt that's a great idea. The only way to contact you then if is they want to take you to court. But, if you're not sure if you owe it, I don't necessarily recommend telling them to stop contacting you because then the only thing they can do is sue you.

WILLIS: All right, so if you do owe the money, you should probably negotiate with these folks and get the whole thing concluded. But, let's talk a little bit here about what is illegal. What can these debt collectors not do? What is against the law?

DETWEILER: Well, one thing they can't do and this is very important is they can't make threats to do things that they can't do or don't plan to do. So for example, they can't tell you if you don't pay this by Friday we're going to take the money out of your paycheck or we're going to take the money out of your bank account or we're going to take your house or car if it's a credit card bill. In most cases the collector has to take you to court first and get a court judgment before they can take those actions against you.

The other thing we're getting a lot of complaints about at credit.com is collection agencies that call people repeatedly at work. If you tell them I cannot take these calls at work and they call again, they have broken the federal law.

WILLIS: All right, and also other things we should talk about here. They can't call your friends and family. They can't embarrass you. They can't garnish your wages. If they are threatening this from the get-go it's completely illegal, right Gerri?

DETWEILER: It is. And that's why one of the things I recommend the moment you get contacted by a debt collector is take notes, keep records of what they said. You may not know that some of the things they're doing are pushing a line or illegal, but a consumer law attorney will and they can help you have a lot of leverage when they have broken the law.

WILLIS: Well, Gerri Detweiler, great information. Her Web site is called credit.com, thank you so much.

DETWEILER: Thank you.

WILLIS: Still ahead, prepare and protect your family and your home, today. We've got your hurricane check list.

(BEGIN VIDEOTAPE)

WILLIS (voice over): Whether or not you live in an area that is affected by wildfires, you should have a home inventory guide. Listing all of your possessions in the event of a disaster or burglary can be difficult.

Speed up insurance claims and guarantee your family returns to life as usual quickly by keeping an up to date list of the contents of your house. Update your guide regularly including serial numbers for new electronics. Be sure to make copies of your inventory and store these in safe, easily accessible places.

For more information, head to www.insurance.ca.gov.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: Preparing and protecting your family home from the elements. If you wait for that hurricane siren to sound, chances are it's already too late.

CNN's John Zarrella is in Florida checking in with folks there to see if they are ready for this hurricane season.

(BEGIN VIDEOTAPE)

JOHN ZARRELLA, CNN CORRESPONDENT (voice over): This impact test shows what happens when a projectile hits a sheet of half inch thick plywood.

UNIDENTIFIED MALE: Ready. Fire.

ZARRELLA: The 2x4 goes right through it. Bottom line, if you plan using plywood to cover your windows, experts say to get 5/8 inch thickness, that should work and to do it right, you need to get started now.

MIKE RIMOLDI, BUILDER: By the time you cut your plywood, you get all your holes marked, you're still looking at an hour per window, so...

ZARRELLA (on camera): To do it right.

RIMOLDI: Yeah, exactly.

ZARRELLA (voice over): Builder, Mike Rimoldi, a consultant for the Federal Alliance for Safe Homes, demonstrated for us the proper way to board up. For this window Rimoldi drilled studs into the masonry around the window.

RIMOLDI: We need to stay at least two inches in from the exterior side of the wall and that prevents blowing out the concrete block or masonry and at a maximum of 12-inch intervals.

ZARRELLA: Those are critical points. Again, the anchors need to be two inches off the edge of the frame. And you've got to have enough of them.

RIMOLDI: If you just have ones in the corner like a lot of people do, that's not going to provide you any strength.

ZARRELLA: There are anchor kits for wood frame homes, as well. Installation is basically the same. There's one simple way to lessen the risk something will hit your windows, bring all loose objects inside. Hanging baskets, birdbaths, lawn furniture and if you've got extra time and attic access, you can reinforce your roof.

RIMOLDI: We're going to put a liberal amount here and run it the whole way down.

ZARRELLA: Using construction adhesive run a bead along the joint where the truss meets the roof decking. Tests show this can strengthen your roof. But keep this in mind.

RIMOLDI: When the storm is off the coast of Miami or the coast of Cape Canaveral, it's too late. ZARRELLA (on camera): Of course, the shutters are just part of the equation on your house. You know, you've got to prepare by getting all of the other things, as well. We went around and picked up odds and ends, got the mandatory weather radio.

Of course, you have to have a first aid kit, flashlights, a tarp, if you end up with a leak in your roof, gas can for the gasoline if you happen to have a generator, oil for that generator. All of the things you need to have. And of course, you've got to have food and water. The experts will tell you three days worth of food and water, so go ahead and stock up on those things right now, as well.

One of the problems that is concerning a lot of the experts, right now, is that because of the economic climate people may put off buying these things or not buying them at all. And that can be very dangerous. If you can in any way afford to pick up the very basics, go ahead and do it because certainly, Gerri, as we know, better to be safe than sorry -- Gerri.

(END VIDEOTAPE)

WILLIS: Great stuff from John Zarrella.

Well now, before we go we want to share with you the single best money saving tip from today's show. If you have to deal with a debt collector, don't share any information with them on the telephone. Tell them to send you proof you owe the debt in writing, that is federal law. And remember, don't let yourself be intimidated. For more information on your rights, logon to www.ftc.gov.

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

As always, we thank you for spending part of your Saturday with us. Don't go anywhere, your top stories are next in the CNN NEWSROOM. Have a great weekend.