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YOUR BOTTOM LINE
Donating Money to Haiti; Finding Legitimate Charities; New Rules for Taking Out an FHA Loan; Taking a Swipe at Credit Card Swipe Fees
Aired January 23, 2010 - 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: Every Saturday morning on YOUR BOTTOM LINE, we talk about how to save you money. Today on a far more serious note, we want to talk about giving money.
The tragedy in Haiti has brought out the very best in us, as so many are opening up their wallets to donate to those affected by the quake. On an extended edition of "LARRY KING LIVE" Monday night, donations to UNICEF and the American Red Cross totaled nearly $9 million.
And last night on "Hope for Haiti Now" that was a commercial-free telethon broadcast on more than two dozen networks, even more money was raised for folks who need help now and will continue to need it for years to come.
Well, you needn't look any further than CNN.com for the latest breaking news or any other of the day's headlines. But one feature of our site you may not be all that familiar with is "Impact Your World."
It's one of our proudest accomplishments across all of our CNN platforms and CNN International's Errol Barnett joins us now to walk us through it.
ERROL BARNETT, CNN INTERNATIONAL CORRESPONDENT: Gerri, CNN has revamped its charitable Web site to accommodate the more than two dozen aid agencies with people there on the ground in Haiti trying to help. So, let me show you what you'll find now when you head to CNN.com/impact.
First of all, we've indexed all the charitable organizations based on what their focus is -- Over here, providing basic needs, the American Red Cross; providing medical aid, you may find this familiar, Doctors Without Borders; providing food, the World Food Program.
Another thing we're doing is highlighting ways that you can now text your donation, the Red Cross is one organization doing this. Over here you'll find more information on how to donate through them. Simply text the word "Haiti" to 90999. That will be a $10 donation.
Yele, that is the foundation from the singer from Haiti, Wyclef, has a foundation as well. You can text y-e-l-e to 501501 that will be a $5 donation. But, as we know, there are those who want to take advantage of people's generosity during these times.
In fact, the FBI is warning against scams in the wake of Hurricane Katrina, they found almost 5,000 charitable Web sites and the FBI was suspicious of most of them. So, we must let you know how we've vetted these groups.
We've worked with an independent group called charitynavigator.org. and they rate based on two criteria, effectiveness and financial stability. And that's some information that you can use.
Whenever you see a charity and you're suspicious, they advise you make sure you get the name, the address, and the phone number for the organization, that you ask what percentage of the money that you give actually makes it to people on the ground, and the third bit of advice, do not give your personal or financial information.
But, of course, you can circumvent all of that and head to the one-stop shop to help those in need in Haiti and head to CNN.com/impact.
From the CNN Center, I'm Errol Barnett. Gerri, back to you.
WILLIS: Well, that is great stuff. Errol, thanks.
CNN's Impact Your World site lists all the organizations vetted by our very own journalists for credibility. But if you're looking to give to a charity or organization not on the list, how can you determine if they're legit?
Stacy Palmer is the editor of the "Chronicle of Philanthropy" and she's joining us now from Washington. Stacy, I want to start right there, how do we know if those organizations are legitimate?
STACY PALMER, CHRONICLE OF PHILANTHROPY: Unfortunately, that is a really important question to ask because, sadly, at these times, scams do pop up. So you want to make sure that the organization already has people on the ground in Haiti. Many, many groups have been working there for years and already have a history.
So, one way to tell that they're not some fly by night thing is to be able to figure out that they've got a history. Ask them what their track record is, what they've been doing and how they can prove it.
WILLIS: So, you want to see a track record, history on the ground in Haiti. You know, as this whole story has unfolded we've noticed so many of these organizations are talked about on the Web and particularly, on social networking sites. Should I trust these organizations that are talked about on FaceBook, on Twitter?
PALMER: Some of the best information is actually coming on Twitter and FaceBook because word of mouth in some ways, if you were talking to experts, that's actually a terrific way to be able to find the good groups. So, there's some reliable information.
You want to take it a second step. Check out the groups you hear mentioned, Google them or use another search engine, put their names in. One of the things that scam groups do is play on the names of very well known groups so they just will change one or two words in the names of the group, Partners in Health is a big group in Haiti.
You can play a lot of games with that kind of name and so, you want to make sure that you're giving to the right group. Check out that there are articles about the group online, that they're being mentioned. Do a little homework before you give. You don't have to give right away. While everybody's impulse is to gives a fast as possible, you can give to legitimate big groups right now but you can do your homework on the other groups and take a little bit of time.
WILLIS: And of course, as we've been saying, Charity Navigator is a great Web site to go to check out you legitimate some of these organizations are.
Now, some of these groups, they sort of over-hype what they do. They may tell you, for example, that 100 percent of your money is going to victims. Is that even possible, Stacy?
PALMER: What they're doing most likely is saying out of these solicitations 100 percent is going, but they're paying for the overhead in some ways because it costs money. Somebody's got to fly the planes to get the relief supplies in, to buy the relief supplies, to do all those kinds of things, to pay the staff that's there.
So, when you think about all the costs that the average business has to do its job, think about that kind of overhead, that's what charities have to pay. So, 100 percent of your donation, it doesn't really make sense to think of all of that going directly to the program, it's going to the things that make the program run and, in part, to spread the word and pay for newspaper advertisements all those things to solicit donations.
So, there's plenty of legitimate overhead costs. What you don't want to see is somebody spending 90 percent of the money on raising the money and only 10 percent on actually giving to the cause. You know, those are the kinds of things that should make you perk up and say don't give.
WILLIS: All right, if it sounds too good to be true, it probably is, obviously. What is the best thing to give in this circumstance, this horrific earthquake, do you give money, do you give food, do you give clothing?
PALMER: All the experts say it's very important to give money, right now. And cash goes a lot further. If you think about the amount of time and effort somebody would have to take if you donate a bunch of blankets here in the United States to a charity group they have to get it to Haiti. They would spend so much money doing that it wouldn't do very much good. So, it's a bad idea to give goods. Give cash as generously as you can. One thing people can do is start trying to hold fund-raisers instead of gathering a lot of goods and trying to collect them, it would be great to raise money from friends and relatives and start pooling your money. There's going to be a long rebuilding period. Haiti is going to need money for a long time. So, people really need to start thinking about that, as well.
WILLIS: Well, Stacy, great thoughts. I hope everybody takes your advice today. Thank you so much.
While the events in Haiti have captured the attention of the world, there's news that will affect a good deal of folks in this country as it relates to the economy, nege changes to a plan that is supposed to help the housing market bounce back. The important details you need to hear, next.
WILLIS: If you're looking to buy a home with an FHA loan or you took advantage of that home buyer tax credit, there are some new rules you need to know about. Here's with the latest is Greg McBride, he's a senior financial analyst with Bankrate.com, joining us now from North Palm Beach, Florida.
Greg, great to see you, as always. OK, first of all, FHA agency that insures mortgages, they don't issue them themselves. But they're making it more expensive for some people. Let's talk about that.
GREG MCBRIDE, BANKRATE.COM: And the reason for this is that the FHA program has really become the de facto lowdown payment program. In 2006 FHA loans costs the tune of two percent of the new loans being issued, but that's grown to 35 percent to 40 percent over the past couple of years. And that's happened at a time when home prices are falling. So, you marry lowdown payments with falling home prices, and you can predictably see that there's going to be a big rise in defaults.
WILLIS: You know, FHA is the lending market right now, pretty much. They control most of it. They are the player. But, increasing mortgage insurance for some players here, this is going to cost people more money out of pocket who are using those FHA-backed mortgages, in some cases thousands of dollars.
If you have a low credit score, 580 or lower, you're also going to pay more, too. So, it's going to cost people a little bit more to get that FHA loan. Let's talk about why this is happening because I think it's gotten lost in the conversation. FHA is in a lot of financial trouble, right now.
MCBRIDE: The surge in defaults has really depleted the reserves. And so, it's come at the same time that the volume of loans that they're doing has expanded greatly. So, you know, they're guaranteeing a lot more loans now at a time when they have much lower reserves because of all the defaults.
So, how do they replenish that? Well, you do that a couple of ways, you do that by raising the fee. You mentioned that upfront fee which is going to go from 1-3/4 percent to about 2-1/4. Some of that is going to be spread through the life of the loan, so it's not all going to be payable up front.
But the other thing that you do is you tighten down the underwriting requirements and cut your risk that way. And for borrowers with a credit score below 580, the down payment requirement is going to go up. It's not going to be 3-1/2 percent, it's going to be 10 percent.
WILLIS: OK, so ouch. But ultimately it's going to help the system survive. I want to talk about that first time home buyer tax credit. It was recently extended to April 30, but there are some things going on with the IRS that's made it harder for people to claim it. Now, how did this get screwed up? What's going on?
MCBRIDE: Well, let's blame this on a few bad kids that get their whole class in trouble. And what that is that there were some scam artists that were trying to claim this credit, even though they hadn't actually purchased the homes or done what they needed to do to qualify for it. So, it's increased the burden of proof on anybody that does actually want to claim this tax credit.
The paperwork that you have to submit has changed. So, you have to submit proof of residency, utility bill, phone bill, copy of your driver's license, and a copy of the HUD statement or closing statement. Those aren't the type of things that you can do via the e- file, so you have to do it the old fashion way, print it out, make copies, go to the post office and mail it.
WILLIS: E-filing is so much better, let me tell you. I want to show people this is the new form, 5405 that you're going to need. This is the thing that took so long to get out. The IRS took its own sweet time getting this thing out. I just want to ask you one follow- up question about this, which is, do you expect a lot of people to take advantage of this?
MCBRIDE: Yes. Particularly existing homeowners, the move up buyer or the downsize person who is looking at downsize to a smaller home. You know, the first time home buyer has -- you know, really took advantage of the tax credit last fall when it was exclusively available to them. Now that it's been expanded to include existing homeowners, that's where I think the majority of this pool is going to come from over the next several months.
WILLIS: Greg, great to see you. Thank you so much.
MCBRIDE: Thank you, Gerri.
WILLIS: Still ahead, taking a swipe at credit card swipe fees and a financial calculator you just can't live without.
WILLIS: While consumers are outraged about sky-high credit card fees, businesses across the country are feeling the crunch, too. CNN national political correspondent Jessica Yellin joins us now to break down interchange fees.
JESSICA YELLIN, CNN NATIONAL POLITICAL CORRESPONDENT: Gerri, I didn't know these fees existed until I reported this story. Banks make money every time you or I use a credit card. They charge merchants a fee just for accepting the card and, no surprise, businesses pass that cost on to you and me.
According to the National Retail Federation, in 2008 the average household spent $427 on these interchange fees, alone. And some in Congress are finding it hard to change that.
YELLIN (voice-over): It's a hidden cost store owners say is crippling business, it's called a swipe fee. Each time a customer uses a visa or MasterCard, business owners like Keith Lipert have to pay a fee and that's passed on to consumers.
(on camera): That's $125?
KEITH LIPERT, GALLERY OWNER: That's $125. So the interchange on $125 would be about $2.
YELLIN (voice-over): The fee can be as much as three percent of your purchase, and it adds up. Lipert says swipe fees cost him as much as rent and health care.
LIPERT: As a shopkeeper, I'm getting a service or a convenience for the credit card companies, and that is -- that is fair. My objection is that I'm not allowed to negotiate...
YELLIN: Credit card companies say it's the cost of processing transactions.
(on camera): What are they really getting for that fee? What's the service that's being provides?
TRISH WEXLER, ELECTRONIC PAYMENTS COALITION: So they'll get almost infant payment and guaranteed payment for it. Whereas my card issuer, I won't pay them for another 30 days, so there's the float on the funds, which is a big component.
YELLIN (voice-over): Estimates show that in 2008 banks collected $38 billion to $46 billion in wipe fees, alone. Some in congress say that's way too much and a sign that too few banks control the credit card business.
REP. PETER WELCH (D), VERMONT: What we've seen, really, is that the financial services industry has starting to make its money not so much by providing reasonable service, but by manipulating price by having a lot of hidden fees, by having a lot of extra transactions costs in running up their profits by doing that in taking advantage of monopoly power.
YELLIN: Several bills before congress would reduce these rates by allowing businesses to negotiate with card companies, but don't expect those bills to pass any time soon. The industry, which is spending big on lobbyists, insists lowering swipe fees would end up costing consumers in other ways.
WEXLER: If interchange rates are forced down below what is sustainable for a card program, then rates are going to have to go up or rewards are going to have to go away. Those are the facts.
YELLIN: But Lipert says that Washington should stand up to the banks.
LIPERT: We need, as a country, to address this.
YELLIN: Now, there's another reform some in Congress are push for now, they want to let retailers charge a lower price if you pay cash. And in a different slightly higher you use your credit card. That way at least only credit card users are paying these swipe fees, but Gerri, no surprise, so far banks and credit card companies are fighting that some banks and credit card companies are fighting that reform, too.
WILLIS: All right, so obviously we're seeing yet another fee being passed on to us through retailers. But, what can you do as a consumer?
YELLIN: There are two things you can do. If you have to use your credit card, use your debit card, the swipe fee on that is lower than actually using a credit card. And the other is, if you choose a card that doesn't have as many rewards on it, the sweep fee is lower, the banks are actually charging you for those rewards with that swipe fee.
WILLIS: All right, and you can always pay cash, there's always cash. What other reforms might happen?
YELLIN: Well, they're talking about, first of all, disclosing these fees, so that you know what you're paying. They're talking about also reducing the cost of -- fixing the cost of rewards charges so that you know what you're paying on rewards cards and they can't charge you more for that.
But here's the really important one. There's a discussion of allowing the Federal Trade Commission to determine if these practices with anti-competitive. That's because these big banks are getting all together and deciding what the swipe fees should be and some say that's colluding, that's monopoly and it should change.
WILLIS: Great story, Jessica, thanks for bringing it to us.
We're a little less than a month away from sweeping credit card reform and credit card issuers have been preparing for the loss of revenue by introducing new fees and policies. Now a growing number are starting to tack on new card fees like inactivity fees. Here's what's going on. In June, Fifth-Third bank began charging ar$19 fee if credit card borrowers had no account activity in 12 months, they hadn't used the card. And there are variations on this inactivity fee. Quasi- inactivity fees like CitiGroup's policy on some cards were if you don't spend up to a certain amount, you'll have to pay a fee of $90.
Bank of America will start experimenting with annual fees from $29 to $99 and Citi has a policy were credit card borrowers who pay late have to pay a reinstatement fee in order to redeem accumulated points for rewards.
You may also start getting charged if you receive a paper statement instead of an electronic one. So consumer beware, read every letter that comes from your credit card issuer, changes can be buried in fine print.
Experts we talked to say you could be receiving a lot more promotional APR deals. These offers will lure you in with low interest rates for a certain amount of time, but then, at the end of the promotional period you may be subject to an interest rate that is much higher than what you were originally paying.
So, for consumers the take-away is before you sign onto that promotional card, make sure you can pay off your balance before that rate expires.
You spoke up and we listened. YOUR BOTTOM LINE viewers put the 21-day financial fast to the test. How to be debt free and prosper.
WILLIS: Boy, we got an overwhelming response to a segment featured on this program. We spoke with Michelle Singletary, a columnist for the "Washington Post" and the author of "Power to Prosper." we talked about American's addiction to debt and our bad relationship with credit. She outlined her 21-day debt diet, a challenge to her readers and to our viewers.
(BEGIN VIDEO CLIP)
MICHELLE SINGLETARY, WASHINGTON POST: Well, the 21-day challenge is a 21-day financial fast. And essentially for 21 days, you can't buy anything that is not a necessity. So, that basically means food and medicine and when I say food I mean groceries. I mean, no eating out, no shopping, no window shopping, you can't get your hair done, forget the nails.
SINGLETARY: I tell you, it's -- I mean, we're saying shut down everything. And you can't use credit, including your debit card.
(END VIDEO CLIP)
WILLIS: Wow. No plastic whatsoever. Talk about tough love. Well, e-mails poured in from folks across the country. My favorite e- mail comes from Mary Jane in San Antonio. She writes:
"I've been doing frugal February for years. I don't use my credit card for anything. I use debit card for gas and food only." Mary Jane says she picked February because it's the shortest month after the holidays and suggests you choose your favorite month or birthday month since it's a gift, she says, to become debt free. Amen to that.
We also heard from Earl and Myrna in Washington state who shared their budgeting advice. They cut up all their credit cards and they're building a pantry and stocking up on food before prices go up due to the bad winter weather, they say. Earl is reading up on fix-it projects to cut costs and Myrna is couponing and learning how to cook better meals on a cheaper budget.
So, how can you master your money, dig out of debt and start repairing your own credit? Well, our friends at CNN.com have assembled a collection of calculators to help you stay on track or get back on track if you happen fall off the wagon.
All right, so let's take a look at it. Just go to CNNmoney.com, check out their calculators. You can see down here where you click. You want to check your financial health. All right, let's start plugging in some numbers.
Let's say you're 35-years-old and you make about $75,000 a year. All right, you just plug it in right there and you're going to start getting help to figure out what you should be spending. For example, a housing payment, let's say you spend $1,200 a month. Enter that, you're pretty much on track, congratulations.
Now let's say you have debt and if you're like most Americans you have something like $9,000 on your credit cards. Let's enter that and see how that goes. Well, the calculator doesn't like that. You're carrying too much debt.
Now let's say you have some emergency savings, maybe as much as three months of emergency savings. That's pretty healthy, I think. And the calculator agrees. Congratulations. You have ample savings.
Now I know a lot of people in the last few years, they've gotten worried about stocks, they don't trust them, maybe you only have 10 percent in your portfolio. Uh-oh. Your 401(k) is a little too conservative.
Finally, company stock, I'm not a fan, I don't buy it, it's doubling down on your risk. We're not going to buy any. Good work. Life insurance, you always want some life insurance to protect yourself and your family. Let's say you have half a million to cover you. Guess what, that's good news, rest easy.
And finally, retirement savings. How much money do you have and how much are you setting aside each month? Let's say you're just setting aside $500 each month and you have something like $35,000 on hand for retirement at age 35. Guess what, you're behind, according to this calculator. Let's get a grade and see how we did. Just a "B," we could make some improvements. But you can see how this calculator can help you find what you should be doing.
And a reminder, the 21-day financial fix segment is posted on our Web site, CNN.com/yourbottomline. While you're there, you can watch other highlights from the show, browse my top tips and even send me an e-mail. Again, that's all at CNN.com/yourbottomline.
We're also gearing up for a week-long CNN special event, "The Stimulus Project," today at 1:00 p.m. Eastern. Join CNN chief business correspondent, Ali Velshi for a special edition of YOUR MONEY for a look beyond the numbers.
And tomorrow on "STATE OF THE UNION" with John King, where has all the money gone, who is it helping and who is abusing the program? We want to hear your stimulus story. Give us a call at 1-800-CNN-news to tell us what's going on in your town.
We're going beyond the excel spreadsheet to tell the real story next week every hour only here on CNN. But up next, the very latest from Haiti and the rest of the day's top stories in the CNN "NEWSROOM." Have a great weekend.