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Housing Industry May Be On the Road to Recovery; Having a Strong Credit Score Is More Important Than Ever; Advice on How to Cope With the Financial Crisis As a Family

Aired May 16, 2009 - 09:30   ET


GERRI WILLIS, CNN HOST: Hello, I'm Gerri Willis and request this is YOUR BOTTOM LINE, the show that saves you money.

What do you get when you put some 3,000 realtors into one room? How about an interesting snapshot of what might happen to the value of your home.

Plus, your credit score is your financial DNA, but have you checked it lately? Why having a strong score now is more important than ever.

Being knocked down and getting back up again, how one family is dealing with a financial crisis. YOUR BOTTOM LINE starts right now.

Well, it's a question on everybody's mind -- when is the housing market going to turn around? Every buyer, seller and troubled homeowner wants that answer and this week I was a panelist at the National Association of Realtors conference in Washington where more than 3,000 realtors and industry experts sounded optimistic that housing may be on the road to recovery, at least for the long term, including Housing and Urban Development secretary, Shaun Donovan.


SHAWN DONAVAN, SECY. OF HOUSING & URBAN DEV.: We need to see a couple more months of good data before we can truly conclude that we've hit bottom in the market. And I do expect, based on everything that we've seen, that we should be out of the housing slump certainly by the end of the year, if not sooner.


WILLIS: Don't get too excited, not yet. Foreclosures in April hit another high with one in every 374 U.S. households receiving a foreclosure filing just last month and that's the highest monthly foreclosure rate ever posted since RealityTrac began issuing its reports way back in January of 2005.

So far, foreclosures are up 32 percent from this time last year. Some of the hardest hit states, California, up 42 percent from last year with one in every 138 homes receiving a foreclosure filing. Florida, one in every 135 homes getting a foreclosure filing, up 75 percent. And the worst, Nevada, up 111 percent with on in every 68 homes, yes, 68 homes, getting a foreclosure filing more than five times the national average. But if you're trying to avoid foreclosure or just looking to refinance, these days getting in touch with your lender can be like pulling teeth. The government says it may be getting some traction through its Making Homes Affordable plan. HUD says this week they made 55,000 modification offers and mailed out over 300,000 -- to 300,000, that is, potential candidates. While this sounds like good news, I can tell you my e-mail box is still flooded with your questions and frustrations on this topic.

Our next guest is here to help you get that lender on the line. Bruce Marks is the CEO of the Neighborhood Assistance Corporation of America, they are a HUD certified counseling homeownership agency.

Bruce, great to see you. So job No. 1 here...


WILLIS: I've got to get you to answer, how do you get that banker on the line? You know, everybody I talked to, they call, they call, they call, they can't seem to get through. What's the secret?

MARKS: Well, there is a secret, but the first thing you have to do, Gerri, is you got to figure out what is the answer for yourself. So you have to determine what a mortgage payment that you can afford and you can do that by doing your budget, take your net income, less your expenses, and you determine what you can afford or you take 31 percent of your gross income and you use that for an affordable payment.

Now to get the banker on the line. Well, when you call the banker and you call that number that is on your statement, you'll get someone probably in India or the Philippines or someone in this country who does not have any authority to make that decision. So what you have to do is once you make the phone call...


WILLIS: Right. And let me tell you how frustrating that is for people out there, Bruce. If I'm trying to contact my lender, where do I get their phone number, who do I ask for, what department do I go to? Those are the critical questions I think people are looking for answers.

MARKS: Well, you know, there is a phone number that's on your statement you can call but, you know, people are us frustrated. These lenders, they're overwhelmed and they just don't want to do it, they're trying to find ways to say no, not try to find ways to get to yes. So, yes, you can go through that process. You can ask for their supervisor, but, Gerri, as we know, that's still not going to work.

You've to not do a political campaign, you have to be relentless in saying I'm not going to allow people to take my home because there are only two solutions out there. One is to restructure the mortgage. The other is a forbearance for people that are underemployed or unemployed for six months to get back on their feet. Those are the only two answers out there, and you've got to be relentless and believe me, if one is relentless, you'll get your solution.

WILLIS: You know, Bruce, of course people can call for help out there. They can call an organization like yours NACA for assistance to get through to these people. I know you do it each and every day and we really appreciate you coming on and helping us with your tough love approach to getting that banker on the line. Thank you so much for helping us out.

If it's your mortgage, your job, or what feels like never ending credit card debt when you're facing financial hardships, the stress can take a toll on you and your family. Here with advice on how to cope is Jeffrey Gardere, he's a psychologist, and he helps us a lot here at CNN.

Thanks for coming in.

JEFFREY GARDERE, PH.D., CLINICAL PSYCHOLOGIST: It's always a pleasure to be with you.

WILLIS: I want to show you some numbers, you may find these surprising. The Pew Center came out with new numbers showing that some 58 percent of people 50 to 64 years of age found that the recession was causing them a lot of stress. And you can see that every age category here is really hit. You must see this in your practice where the fear, the stress is really weighing people down.

GARDERE: Absolutely and when you look at that age range of 50 to 64, these are people who are looking forward to retirement. And now they realize they can't retire and may have to work all of their lives or realize that their 401s are wiped out that they really don't have anything in place, that the best investment, which was the real estate, now has absolutely zero value as compared to what it really should have had. So these people are really anxious, really nervous, and really don't know what to do.

WILLIS: Let's talk about how you talk to kids because you can really send them over the edge by just the comments that maybe you didn't even think about before it came out of your mouth. How do you talk to them, how do you get them on your side?

GARDERE: Well, one of the worst things you can do as a parent is to say in front of your kids "we're broke" or "we don't know what we're going to do," or "we're going to lose our homes." Those are conversations you need to have one-on-one with your spouse or with more adult family members to figure out what it is that you're doing. Kids study us, we're role models for our kids. The way that we handle our money issues, financial issues and other issues is the best way we can deal with our kids.

So we need to be calm and composed when we talk with our kids and explain to them what's going on, why they can't have the European trip, why they need the staycation (ph), why they may need to get out of private school and go to public school but the most important thing we can do is to listen to what their concerns are, keep them informed, but let them know that they are part of our family and part of the team where we're working together. WILLIS: Well, that's the point I was just going to make. It is a team effort, right, fixing this problem, making it better, moving on to the next phase. You give everybody a role to accomplish in your family and then everybody feels like they're participating. You might actually be happier than you were when you had the money.

GARDERE: Well, statistics are showing people are really much more happy now with their families, family togetherness has increased during this great recession. Why? Because now we're not thinking about overleveraging anymore, now we're thinking about saving, now we're thinking about the good old family values. Those things are free and so we know what's more important to us. It's about having the family togetherness.

And if we can brain storm with our kids, because they do have great ideas, and make them part of that team, now it becomes a group effort and not one where we're just, oh, my god, we're sinking, we're underwater in our mortgages and our relationships. Now it's more about how do we come together and be a cohesive family unit to get through this recession.

WILLIS: You've actually going to take those next steps, get beyond the pain and move to a resolution. Jeff, great to see you. Thanks so much.

GARDERE: It's always great to see you. Thank you.

WILLIS: Of course you know your birthday, your social security number, and hopefully your anniversary, but what about your credit score? Why a tightening credit market makes your credit score a vital number.


WILLIS: Your employer, your bank, your credit card company, they all check the credit score at one point or another but have you checked it lately? If not, it's time to look into it because having good credit is more important than ever. Gerri Detweiler is a credit adviser at, she's also the author of "Reduce Debt, Reduce Stress." I love the name of that.

Gerri, Thanks for joining us.


WILLIS: All right, so your credit score is really your financial DNA. It's -- when you're going for a loan, that's how you figure out how much you're going to have to pay for that loan. You say there are really some misconceptions out there among consumers about how this thing is generated and the way it really works. Tell us about that, Gerri.

DETWEILER: Yeah, I think the biggest misconception is that most think your credit score is sitting in a database somewhere for someone to access. It's actually never created until it's requested. So when a lender asks for it, they pull all the data together and calculate it as of that moment. And the good news about that is that your credit score can change and hopefully for the better rather than the worst.

WILLIS: All right, well, the big question, of course, is these days average credit score out there, about 723. Do people have the score they need to get the loans they have to have?

DETWEILER: A lot of people think they have better credit than they do and that's because a year ago 720 was great. Now many lenders are looking for 750, sometimes 760, even higher.


DETWEILER: So, you have to make sure your credit is especially strong right now if you want to get the best deal.

WILLIS: All right, so there are a lot of companies out there, Equifax, Experian, FICO is probably the most important one out there, the one everybody seems to use. Let's talk a little bit about what goes into that credit score. You know, what are the baking ingredients, if you will, that goes into a credit score?

DETWEILER: Sure, well, the ingredients are what the credit bureaus create about. That's where Experian, Equifax and TransUnion, but then FICO sort of puts the recipe together and calculates the score. Your score will be different from each bureau because each bureau has a little bit different information and I think one of the top things that people don't realize is that about a third of your credit score is based on the debt you carry.

So, even if you are right now making those minimum payments on time, if you have a lot of credit card debt, your score is probably hit quite a bit because of the debt you're carrying.

WILLIS: All right, so it's always smart to reduce that credit card debt, that's for sure. If I want to improve that credit score, how do I do it and, Gerri, can I have a real impact on it?

DETWEILER: You can have a real impact. The first thing, of course, is you have to get your credit report, see what the credit reporting agencies say about you. You can go to to do that, but you won't get a credit score for free there. So you have to buy a credit score.

I like the FICO product just because FICO scores are the most widely used in the country. And then look at what's wrong. If there's wrong information and you dispute it and have it removed, that can boost your score. Let's say there's an in correct collection account on there, you get that removed, you could see your score pop by 20, 30, 40 points or more...

WILLIS: And that can be the difference between getting the loan and not getting a loan. So, you really can have an impact on this.

Bottom line is you've got to do everything you can to raise that score. Of course, as you were saying, paying the credit cards are important. A lot of people, though, are talking to me about the debt collection agencies, the credit agencies that say they're going to come in and help you get rid of this debt. Does it make sense to use these folks now?

DETWEILER: It may make sense to go ahead and find a solution to your debt, but it will hurt your credit in the short term, so sort of like going through surgery, you have the scar, and then you have to heal. But on the flip side if you don't deal with the debt, then think about what's going to be happening three, four, five years down the line when you're still struggling to make the payments and your credit score is still affected.

WILLIS: Gerri, I've got to ask you before you go, because people ask me this all the time. If I pull my own credit score just to check it out, am I hurting my credit score?

DETWEILER: You are not hurting your credit score by checking your own credit report, so check away.

WILLIS: Check away. All right, Gerri Detweiler, thank you so much for your help today.

DETWEILER: Thank you.

WILLIS: We've been getting a lot of e-mails from viewers about how credit card companies are lowering your credit limits out there, increasing your minimum payments, hiking up interest rates and penalties. First course of action, read any mail your credit card issuer sends you. It may just look like junk mail, but it might be a notification of new terms and conditions.

If you're not happy with the changes, call the credit card company and ask to have your old terms reinstated. You'll have more leverage if you've been a loyal customer who pays bills on time. But sometimes you'll just have to choose between accepting the new terms or opting out of the changes.

If you do opt out, chances are you'll have to close the account and that will hurt your credit score, double jeopardy. But if you just won't be able to make the payments with a new interest rate or you can't do a balance transfer, opting out may be the necessary evil. But don't lose heart entirely, on the horizon new credit card rules that curb some of the controversial practices.

Even if you have a good credit score you probably notice that getting a loan isn't as easy as it used to be. We'll help you make the best of a it tough market and get the loan you need.


WILLIS: Well, it's a buyer's market out there but getting the loan you need to make that big purchase could be harder than you think. Joining me now from Washington is Ric Edelman; he is author of "Rescue Your Money."

Ric, welcome, good to see you. Important topic, a lot of people out there trying to borrow money, they're us from straighted. Of course the banks are having all kinds of problems, bad loans on their books, but you say there are important reasons that people really get turned down for getting loans. What are they?

RIC EDELMAN, AUTHOR: It's really true, Gerri. No. 1 is your lack of a established income. You've got to have a very stable income stream because the bank beyond all else wants to ask how are you going to repay the loan.

Second, you've got to have a good credit record. Meaning that you have a demonstrated history of paying off the debts you've accumulated in the past -- no late payments, no bounced checks, no missed payments. And, third, that you don't already have too much debt, because if you already are saddled with a lot of debt, they're going to be reluctant to give you more.

WILLIS: All right, well, so then, how do I get the loan? What are the keys, the three things I need to do or think about that will really get the money for me? Open the doors?

EDELMAN: Well, you need to answer the three questions. One, is your income stable, do you have -- if you're self-employed, that's often something that's a big problem fro lenders because they aren't really sure how much income a self-employed person really has. So, do you have a good stable income?

Second, do you have a good credit history? You need to be able to demonstrate that and that's why your credit score is so important, because it reflects how good a borrower you have been in the past.

And, third, you have to demonstrate that you can fundamentally afford this loan, and that means that you aren't already saddled with a huge amount of debt. In fact, having a lot of credit cards even though you might not have used them counts as having debt. In other words, the ability to use the card is the same as actually having used it. So, you need to demonstrate that you're a good credit risk for the creditor.

WILLIS: It's all about their world, not ours. OK. We got to satisfy them, make them happy, obviously, Ric, but let's drill down, because there are different kinds of loans that people go out and get. Obviously, mortgage loans have been in the crosshairs, here, we've talked a lot about them. The banks are saddled with a lot of bad mortgage debt. What's your strategy for getting that mortgage loan today?

EDELMAN: Well, what you need to do beyond all else is go back to the old rules. In other words, we got a little carried away this decade with people buying houses that they frankly couldn't afford because mortgages were so easily available. No money down, in many cases bigger mortgage balances...

WILLIS: But those loans aren't even available anymore.

EDELMAN: There -- right, that's exactly the point, Gerri, those loans are gone. So, we've got to go back to the old rules. The ratios that we used to use of 28/36, meaning, the amount of money that you're borrowing should be no more than 28 percent of your income, and the total amount of the mortgage plus your other debts, like car payments and student loans should be no more than 36 percent of your income, 28/36 are the two key numbers as you're seeking for that new loan, today.

WILLIS: Yeah, but when I'm out in the marketplace, I'm searching for that loan. Obviously, I probably want to go's to as many places as possible to have people to compete for my business. But, let's say I'm refiing, should I start with my existing mortgage holder first?

EDELMAN: You should. That's a great idea, because you already are a customer of that lender, and call them on the phone and say, hey, will you refinance and if so, what's the new rate, what's the cost? Because the lender realizes if they don't refinance you, you'll leave and go somewhere else, so it's in their best interests to keep you as a customer, so it's a great place to start.

WILLIS: Ric Edelman, thank you very much for helping us out today. We appreciate it.

EDELMAN: Anytime, Gerri.

WILLIS: Well, despite indications that the current recession is coming to an end, many Americans are still reeling from their earlier losses. We found one family who was hit hard and is making some big changes to cope with this economy.


WILLIS: The stock market rebound is beginning to heal some of the financial wounds investors suffered, but the financial crisis still has left a deep imprint on Americans.

Allan Chernoff introduces us to one couple, how they were hit hard, and how they've responded.


ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT (voice-over): Not only were Kevin and Lucy Aikman heavily invested in the stock market last fall, but Kevin's employer, AIG, nearly collapsed. Kevin is in a stable end of the business, home insurance assessment. So, the dual crisis, rocking his investments and employer, was especially jarring.

KEVIN AIKMAN, AFFECTED BY THE RECESSION: First thought is fear. What about all these years I've put in to the hard work, all the money I've invested, is there going to be anything left at the end of the day?

CHERNOFF: For Lucy, the financial crisis has been terrifying.

LUCY AIKMAN, AFFECTED BY THE RECESSION: Terrible anxiety. I ended up having to go get pills, because I couldn't sleep, so much anxiety.

CHERNOFF: Lucy lost her job as a trader on the floor of the New York Stock Exchange two years ago and hasn't worked since. Her grown daughter also lost her job as did Lucy's sister, who worked at Bear Stearns when it collapsed.

L. AIKMAN: Everybody's fearful, and everybody's falling like soldiers around me.

CHERNOFF (on camera): Just a few days before the stock market began collapsing last September, the Aikman's hired a contractor to chop down trees and excavate a pond near their home. Today, more than seven months later, it's still a hole in the ground. The project is on hold.

(voice-over): The hole in the ground was like a hole in their pockets, it had cost $10,000, so the Aikman's chopped their spending, they gave up their personal trainer and now exercise on their own. They postponed plans to build a screened porch, don't go out to dinner as much and planted a vegetable garden.

L. AIKMAN: One of the biggest expenses is food. I mean, it sounded strange, but we eat a lot of fresh produce, and as you know, to eat healthfully, it cost money.

CHERNOFF: They've become more conservative investors with help of financial planners Doug Flynn and Rick (ph) Zito who reduced their exposure to stocks.

DOUG FLYNN, FLYNN ZITO CAPITAL MGMT.: And we've taken all the way down to about 15 percent stocks. If you're losing sleep, then you probably don't have the right portfolio, we need to find the right portfolio for you.

CHERNOFF: To sleep better, the Aikman's bought extra insurance and Kevin is shelving his dreams of retiring in just 10 years when he'll be 55.

K. AIKMAN: The 401(k) just about fell in half, so when that happened, I -- I reassessed and said, well, maybe you're going to need to put a few more years in.


CHERNOFF: The Aikman's realize they can't control the economic environment that affects all of us, but by cutting spending, boosting insurance and becoming more conservative with their investments, the Aikman's feel that they are controlling what they can and that should help them weather the financial storm while still being positioned to profit as it begins to pass -- Gerri.

WILLIS: Allan, your heart goes out to them, both of them, in this economy just struggling so much. Let's get some advice, though, for our viewers here, really drill down on what they've done. You know, they changed their insurance. How do they do that? How do you do it when you don't have any income?

CHERNOFF: They were very smart. They took a lot of steps that many of our viewers probably should take, right? The economic -- the economy now is still in a crisis situation. You simply do not want to risk losing it all, so, with the insurance aspect, they got umbrella coverage that's extra coverage to help you out, just in case there's a major crisis.

They added to their home insurance, they added to their auto insurance, making sure that if for some reason there was an accident, that they would be covered on the liability end. So that they would not suffer a megahit on top of what they suffered in the stock market.

WILLIS: All right, Allan, great ideas and I'm sure people can really take away a lot from that.

As always, we thank you for spending part of your weekend with us. YOUR BOTTOM LINE will be back here next weekend on CNN. You can catch us on HLN every Saturday and Sunday at 3:30 p.m. Eastern Time.

And you can hear much more about the effect 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.