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YOUR BOTTOM LINE
American Recession; Health Care Reform; Allied Financial Suspends Foreclosures; Museum Day
Aired September 25, 2010 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
POPPY HARLOW, HOST: Well, good morning, everyone.
Big changes this week to your health insurance, what it all means for your bottom line. And credit card use is down, debit card use is up. We're going to tell you why and what it means for you. And also straight ahead, the very latest on your No. 1 investment, your house. It's a show that saves you money and it starts right now.
All right. Well, you would think that news the recession is officially over would be welcome. The National Bureau of Economic Research says the recession technically ended in June of last year. But what economists say and what Americans are feeling on Main Street are two very different things. Take a listen.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Guess the top economists don't live in the different communities everybody else lives in. I think the recession is ongoing. I think there's some communities it's more like a depression.
UNIDENTIFIED FEMALE: Until I either get a job or get a job interview it's not over.
UNIDENTIFIED FEMALE: I have a master's degree and haven't found a job yet. I graduated in May and I'm working retail and I also -- my other roommate is working retail and we do live paycheck to paycheck.
UNIDENTIFIED MALE: Look around. I don't know. I don't see many people here at the restaurant, so it may be coming back, but it's coming back slow.
(END VIDEO CLIP)
HARLOW: Slow to say the least. What does the official end of the recession really mean for your bottom line? We have a great panel of guests here joining us, John Ulzheimer, the president of consumer education for Credit.com. Manisha Thakor is the author of "Get Financially Naked: How to Talk Money with Your Honey." And Ilyce Glink, the author of "Buy, Close, Move In!"
Guys, thank you for being here, appreciate it. You all have different expertise when it comes to this recession, it's across the board jobs, housing. I want to start with you, Ilyce. And it's interesting, this was the longest official recession since the Great Depression, since the 1930s, it lasted 18 months, but we even heard Warren Buffett say this week, look, the recession isn't over and that's because for the average person it certainly isn't over.
ILYCE GLINK, AUTHOR, "BUY, CLOSE MOVE IN!": I think people are really feeling like it's not over. You look at the Pew Research Center, a couple of months ago, came out with a study, 55 percent of Americans are earning less than three years ago. Their houses are underwater so they feel poorer than they actually are. We saw the national poverty rate go up. This is not really the hallmark of a healthy economy by any stretch of the imagination.
We're not seeing the big engines of growth. Unemployment rate shot up against this week, so we were seeing increased levels of initial unemployment claims, plus you've got mortgage rates falling. The only reason they should be falling any further this week is, of course, that everybody else in the world thinks we're better off.
HARLOW: Yeah, and if this is a recovery it is certainly a jobless recovery. Look, almost 15 million Americans, Manisha, as you know, out of work. Many, many Americans underemployed. As Ilyce said they are making less than three years ago. Not enough to get by, for a lot of people. Your take on the job market, right now?
MANISHA THAKOR, AUTHOR, "ON My Own Two Feet": Yeah, Poppy, I mean, I feel like Americans have this sense that both the job market and the credit markets are saying to them, you know, we're just not that into you, literally. You know, I mean, and if you are able to get a job right now, what I'm saying, the big trend I'm noticing is perma-lancing and so yeah, you get a job, but without any benefits, you're working the same full-time hours and you're willing to do it because it's the only thing you can get.
HARLOW: Well, and you're often working for less because employers can get you for less.
THAKOR: And on top of that you're working for less and the safety gap that you used to be able to rely on for better or worse, which was credit, you no longer have access to because banks don't want to lend to people who don't need money.
HARLOW: Yeah, and interesting, Donald Trump in a very fascinating interview with our Wolf Blitzer, this week, talking about the fact that he can get credit, but the average person can't get it and he can get it extremely cheaply. So, there's a disconnect, here, between Main Street and the people that don't need as much help. What do you think when it comes to credit and credit card use? It's interesting statistic, it dropped 31 percent from 2007 to 2009. People are using more debit cards. Is that going to affect their credit score? I mean, they're obviously trying to say only spend what we have -- John.
JOHN ULZHEIMER, CREDIT.COM: Look, there's nothing wrong with having less credit card debt than we used to have, but the challenge is understanding why do we have less credit card debt? It's not necessarily that we've been hit up the side of the face with that frying pain and seen the credit epiphany and now we're spending less and paying off our credit cards at a more aggressive pace. That's not what's happening, Poppy. More are settling their debt, more people are finding their debt charged off, more people are filing bankruptcy and discharging their debt. More people are having their homes foreclosed so there is now available money at the end of the month to throw towards the debt. It's not just business (ph).
HARLOW: Is it a good thing for them that they are using debit cards more than credit cards when it comes to the credit score?
ULZHEIMER: It is and its isn't. it's a two-sided story. Debit card usage does nothing to help improve your credit, because a debit card is really nothing more than a plastic check and your checking account information is never reported to the credit reporting agencies. The fact that you're not getting into more credit card debt, obviously, is a good thing, but there's this raging debate as to what's better, debit card or a credit card. You clearly have more protections with a credit card.
HARLOW: What about advice, Manisha. You know you're all about advice for people. Your advice when it comes to credit in this market.
THAKOR: So, I mean, I go back and forth, I mean, I think John hit on a key point which is that you want to get to the root issue of is your behavior changing? And so, I like to see people actually use charge cards because then they get the benefit of both. They're building their credit history, but they also have a little bit of flexibility if they need it, if something comes up. But what I'm really noticing is a trend toward mindful spending which gives me a sense of optimism, because it's harder for people to open new credit cards, they've really had to think about, you know, do I have lifestyle creep? Is there stuff that's come into my life that I really don't need and I can stop spending on?
HARLOW: What do you need versus what do you want. It's great advice, guys. Thanks so much. Stay with us Ilyce, Manisha, John, thanks so much.
And also, major changes to your health care, this week. We're going to break down what it all means for your bottom line, that's straight ahead.
HARLOW: All right, well, this Thursday marked the six month anniversary of health care reform. It was also the day that several key changes kicked in. Here with all the details about how it affects your insurance because it's very, very important is our good friend Andrew Rubin from NYU's Langone Medical Center and SIRIUS XM Doctor Radio.
Thanks for being here, Andrew, appreciate it.
ANDREW RUBIN, NYU LANGONE MEDICAL CTR: Good to be here.
HARLOW: I think the first thing people need to know is that especially if they have employer-based health care, it may not change because it's grandfathered in. What does that mean for people?
RUBIN: Basically that means is that during health care reform the president said if you like your insurance you can keep it. So, this a little provision that snuck in there that basically says employers don't have to implement all the changes that we're going to talk about in a minute. They have to implement some of them, but not all of them and over time they have to change, but it's going to take a good eight years to get there.
HARLOW: Not until 2018, that's amazing. I think one of the most important changes that's going to affect at least people I've spoken with is the mandated coverage for adult dependence up to age 26. So, if you are on your parents' insurance you can stay on it until you're now 26 years old.
RUBIN: That's a big deal. So, dependent children, you could be married and not living in your parents' house, but still be covered. The family can't be covered, but you can be covered. But here's a little catch with the grandfathered provision, if you're a child and your employer offers you health insurance and you don't take it because you can't afford it you still can't go on your parents' policy.
HARLOW: Gee, to the total loophole?
RUBIN: It's a total loophole.
HARLOW: Children no longer denied coverage for preexisting conditions. What's interesting is this week alone we've seen major insurers come out and say all right then, we are not going to allow child-only plans because they're too expensive. They're getting around it.
RUBIN: They're getting around it. and the White House is saying, well, you made a commitment to us that you wouldn't do this, so we'll see how it plays out. But, the intention is to make sure the children don't get dropped in their parents' coverage.
HARLOW: One thing that happened a number of times before reform is that people would submit medical claims and the insurer would drop them. They would look back on records, they would find something possibly nonrelated and say you didn't report this and we can drop you. They can't do that anymore.
RUBIN: They can't do that anymore. If you're honest the way you fill out insurance forms when you apply for health insurance, they can no longer drop you when you get sick and submit a claim. And they have to keep paying those claims.
HARLOW: That's critical. Preventive care. I mean, we heard the White House say so much health care reform will save Americans money, it will save this country money. Free preventive care, one of the things that kicks in this week. Is that going to save money in the end? Is that the goal, here, at least?
RUBIN: Preventive care, we've talked about on the show, will save money over time, but let's put this into context. No. 1 it's not free because you're still paying your premiums for your health care insurance. No. 2, under grandfathered plans employers don't have to offer this kind of free care, if you want to call it free care. So, co-insurance and deductibles will still apply to those people who in grandfathered plans, which is a good chunk of Americans.
HARLOW: And on Wednesday this week, the president spoke at the home of someone who had before a limit on their coverage, now there are no lifetime limits on the amount of health insurance coverage you can have. The president really touted that this week saying this is a critical change.
RUBIN: Doesn't happen often, but people when they have a catastrophic illness or a newborn is born and they're on their parents' policies they will quickly hit their lifetime caps which usually run between $1 million and $2 million. Sounds like a lot of money, but when something bad happens it's not a lot of money. And there are also new rules about annual limits, not as common, you don't see them as often, but a lot of plans have annual amounts and there new rules that phase in over time that raise the amount the insurers have to cover every year.
HARLOW: In terms of choosing your doctor, you know, I'm always grappling with in network, out of network, who I can use that will be covered mainly by insurance. This is changing, as well.
RUBIN: This is changing. So, under health care reform, if you're not in a grandfathered plan an obstetrician, OB/GYN, for a woman, or a pediatrician is considered a primary care provider. So, if you're in a tightly managed network where you have to be in network, you don't have to go to your primary care physician internist to get a referral to go see your OB/GYN. It's such a pain, it's a big deal. This should make it easier for a lot of people.
HARLOW: In terms of emergency room visits, those actually really add up. It's also something that really added to the health care cost for America in general because people were going to emergency rooms that didn't have health care insurance before. That changes now, as well.
RUBIN: This happens to be one of my favorites, but it's a little bit complicated, especially you go to a hospital that's in network, you're going to see an emergency room physician. They may not be in network. So, a lot of people are going to the emergency room who thought they were going to an in network hospital only to find out the doctor was out of network and they have these large bills that they have to pay.
There are new rules, if you're not in a grandfathered plan, that says how insurance companies have to reimburse the physician. And remember, even if you see an out of network physician, which is not your choice, they can still balance bill you. You also don't need an authorization when you go to the emergency room, anymore.
HARLOW: You know, it's interesting when, I mean, there will still be bickering over claims, that's still going to exist between people and their insurance companies, but the appeals process has changed in favor of patients when it comes to these claims.
RUBIN: They basically turned the tide. They used to say -- the insurance company could say we're denying this for whatever reason and the individual had to fight with the insurance company to get the claim paid, in the interim they were being chased after by the doctor or the hospital. We turned that around now and now the insurance company has to pay the claims until the dispute is resolved and they have to have a published and understood process for repealing claims. Grandfathered plans, don't apply.
HARLOW: Grandpa, that's key, here. I mean, a lot of people will have these plans that are grandfathered in and a lot of this won't change for them. For other people, it will change.
Let's open it up to everyone, guys, again.
John, to you. You know, 50 million Americans without health insurance still, according to the census. You're still on the fence about health care reform. Why?
ULZHEIMER: I am still on the fence for a couple of reasons. "A" everything you said sounds really, really expensive and I think it's going to make it more expensive for everyone's health insurance. Second, as a small business owner, I am terrified about someone telling me that I have to insure somebody. It keeps me from hiring people.
HARLOW: If you have 50 employees or less, though, that won't happen, at least not yet.
ULZHIEMER: That's exactly right, but it's an incentive for me not to hire No. 51.
HARLOW: Good point.
ULZHIEMER: And that's something that as a small business owner, that unknown and that uncertainty keeps me from spending.
HARLOW: And you talk about cost, you know, Ilyce, you also said your family premium is incredibly expensive and has gone up because of health care reform, you think?
GLINK: Yeah, I think so. I mean, I'm hearing from people on my radio show, all the over the country, that people are seeing their individual plan premiums jump. Mine jumped. We're now paying, as a family, something like $2,200 a month and that's for a family of four. I think the reality -- and we don't have -- this is the so-called gold-plated plan which is not gold plated, doesn't have dental, doesn't have vision ,doesn't have orthodontics. I'm sure that we have to pay some more if we go to the emergency room. So, when you look at what's actually available out there for individuals, you know, this whole benefit that we're all going to be getting from this is really lost on me. I have yet to see anything positive.
HARLOW: Well, there are those that say, you know, more Americans will hopefully be covered, but the cost is going to go up and the cost hasn't been tackled yet. So, we have to keep a very close eye on that. When it comes to people's plans, open enrollment, Manisha, what's your advice as they look through the employer-based plans next year.
THAKOR: Yeah, we're heading into that key season where you can make some very vital decisions. And the one thing that's shocking to me, you know, Andrew pointed out in these grandfathered plans that you're still going to be responsible for co-pays and various other out of pocket expenses is that four out of five Americans that have access to flexible spending accounts, right now, aren't using them. and so they're literally leaving up to 40 percent off coupon on the table, so I want to encourage everyone to check with their HR departments, see if you have a plan and just to get a sense there are over 100,000 items that are FSA eligible and you can go to the Web site called SaveSmartSpendHealthy where you can see a list of the (INAUDIBLE) of things you can use FSA spending for.
HARLOW: A huge debate ahead. We could go on and on with this, guys. Thank you so much.
Well, all right, if you are a small business owner, if you buy health insurance yourself or if you're a senior citizen, you're going to want to check out this story on CNNMoney.com. Take a look, right there.
And up next, the glimpse into the wild ride that is, of course, the American housing market. Should you buy? Should you have sell? Should you renovate? We're going to answer all those questions, coming up.
HARLOW: All right, well lots of housing news this week. Let's get back to our panel, John Ulzheimer, Manisha Thakor and Ilyce Glink. Guys, thanks for being here.
And I want to talk about something that came out in the middle of the week, Allied Financial, formally GMAC, the fourth largest home lender in the U.S. Here's what happened. One of the heads of the departments, in terms of the people that sign off on foreclosures at Allied, did so and said this in deposition, without verifying the paperwork, without reading through all of it, so some people were foreclosed upon without this verification, now Allied has taken, obviously, extreme precautions. They have suspended all residential foreclosures, evictions in 23 states. And I want to read you what a spokesperson for Allied said to be fair, here. She said there is, "No evidence of any factual misstatements or inaccuracies concerning the details typically contained in these affidavits such as the loan balance, its delinquency and the accuracy of the note and mortgage on the underlying transaction." She is saying that just because there was not verification does not mean these people should not have been foreclosed upon.
OK, but I talked to the lawyer representing some of these folks and he says that's not the case, I found situations in which their underlying facts were wrong. So, you have all of this going on. And to you, Ilyce, first, I mean, what do struggling homeowners need to know right now, especially if it looks like this could be a systemic problem and not just Allied Financial's issue.
GLINK: You know, the lawsuits are just going to begin. I wrote a blog on "Money Watch" this week, about it, called "Loan Modification have Lawsuits." And this really -- I've been looking at this issue now for the last year and a half. The loan modification programs from the government aren't worked. The supposed modifications from the individual lenders are starting to re-default. There are errors all over the place. The thousands of people who have commented on these blogs can't all be wrong. and even if it's a tiny drop in the bucket, compared to four million people who have maybe been helped in some way shape of form, it's still thousands of people who shouldn't be faced with this.
HARLOW: Do you think this would may result in a lot of homeowners getting back into their homes if this is indeed a systemic problem across banks?
GLINK: It's a nightmare. How do you take back a home that's been sold to another owner who may now have already sold the home? You're rewinding. How many transactions do you unwind to get somebody back to where they are? But we're -- I'm getting e-mails daily now from people who are saying my house was sold out from under me and I was still supposedly in a loan modification mediation. How does that work?
HARLOW: What do you think, Manisha, when it comes to this and also just the housing market, in general. We saw some interesting numbers, housing starts rose, 10.5 percent in August, but then compare that with home prices, down another 0.5 percent in July. So, you know, the numbers are all over the board here, no consistency. People don't know what to do.
THAKOR: Well, and I think the root problem is people don't know what to do. And if I rewind the clock and I think what was going on five or 10 years ago when people were spending the minute and a half signing the paperwork that they hadn't read that started the whole process, to me the root issue here is that most Americans don't really understand how much house they can comfortably afford to begin with and that's a lot...
HARLOW: Do you think still that's the case?
THAKOR: I still -- Poppy, I can't tell you how many I meet, where my favorite metric comes from, Elizabeth Warren, she says, "50, 30, 20 are the numbers to remember." No more than 50 percent of your income can be devoted comfortably to your needs without something else having to go. And I meet people who consistently, even still, think that they can buy houses that will put that number well over 50 percent.
HARLOW: And of course, Elizabeth Warren, the champion for consumers, she's helping the president set up that consumer protection agency, right now.
What do you think, John? I mean, you say, two more years for major pain for the mortgage market and individuals out there.
ULZHEIMER: At least. This illustrates that we have not -- there is no silver lining in the credit crunch and the mortgage meltdown. There are still many vintages of adjustable mortgages that are still yet to reset, which will likely make them unaffordable because they owe now included principal requirement versus just an interest requirement, which means that you'll have people defaulting for at least the next 24 months. HAMP is a disaster, I think we can agree.
And now what we're seeing -- and HAMP is the government sponsored load mod program -- you have consumers who have applied for these loan modifications who don't understand if they truly have a hardship and they're not finding out not a couple of weeks later, they're finding out nine months later that their application has been denied. Oh and by the way, foreclosure proceedings have begun and you're $10 or $15 thousand past due and your credit is destroyed and I have paid a lower payment because through the trial period because a my lender told me to, I didn't choose to miss the payment, my lender instructed me to. It is an abject failure, it's a disaster (INAUDIBLE).
GLINK: There were all sorts of lies that went into this at the beginning. I reported because the government told me, government sources told me at the beginning that if you were current with your pavements when you went in for a loan modification program, you would not be reported as late or underpaying to the credit reporting bureau and it didn't happen that way and millions of people's credit have been destroyed.
HARLOW: And look at how many parties are involved, here. You have the government loan modifications, you have all of the different banks and let's not forget the homeowners, a lot of them, they got themselves into these situations. Depressing conversation for a Saturday morning. We have to leave it at that. We're going to have fun, OK, when we come back. We'll have a little fun. Get ready, everyone, for a fun free day for your family. What's happening in all 50 states today that is not going to cost you a dime. That's next.
HARLOW: All right, so what is better than something free for the entire family? Today we've got something special for you. It is the Smithsonian magazine's sixth annual "Museum Day." A lot of participating museums across the country. Take a look, here. The Intrepid Sea, Air and Space Museum, also the Cooper-Hewitt Museum in New York, the Adler Planetarium in Chicago, the Franklin Institute in Philadelphia, the Dallas Museum of Art, and in L.A. the Autry National Center.
Now, with 1,300 museums and counting in 50 states across the country, there is something fun and free for everyone, today. All you need to do is log onto the Smithsonian Museum Day Web site, print out an admission card that is good for two free visitors, entrance the museum of their choice.
So guys, what are the favorite free things to do with your family? We'll start with you, John.
ULZHEIMER: My wife and I both have passes on the Marta, which is Atlanta's rapid transit system. We love to go on the weekends and take our son, our 3-year-old and just ride up and down the north (INAUDIBLE). He loves it. It's like a roaming play free-for-all.
HARLOW: What about you, Ilyce?
GLINK: You know, we really like to do long walks in the Chicago Botanic Garden which is very near our house and so, we'll walk there, we'll walk the whole garden. It's free for anybody who walks in. You have to pay if you drive, but you can always walk in for free. And it's just lovely, hundreds and hundreds of acres of sculpted gardens.
HARLOW: You don't have to pay to have fun, right Manisha?
THAKOR: You don't. And I want to encourage people to go to libraries.
HARLOW: What are those?
THAKOR: You remember those? They're museums of ideas. And one of the other things I love about libraries is they are a lot of Americans that can't afford the Internet, right now for their younger children. You get free Internet and you can teach them how to use the Internet for educational purposes.
BLINK: But, they've got wonderful videos there, as well. They've got DVDs, they've got video, they've got all kinds of educational trips. Want to go to Italy? Just rent the video for them for free for a whole week, of Italy. It's really actually a very wonderful resource.
THAKOR: I heard someone say, you ask a young child in India what they want to be when they grow up, they say a software engineer. You ask a young child in America, they say famous. So, get your kids to the library, encourage them to dream bigger.
HARLOW: That's great advice. Guys, have a fun weekend. Thanks so much for being with us. That is going to wrap it up for us this morning. But, don't forget to tune into YOUR MONEY at 1:00 p.m. Eastern and tomorrow at 3:00 for Ali Velshi and the return of our very own Christine Romans. Time now, though, for a check of your top stories, CNN SATURDAY continues, right now.