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YOUR BOTTOM LINE

Banks Suspending Foreclosures; Voting With Your Wallet; Some Politicians Looking to Scrap Minimum Wage; Personal Bankruptcy & Your Credit; Winter Proof For Less

Aired October 9, 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: Foreclosures halted -- why a major U.S. Bank is suspending foreclosures in all 50 states.

Plus, your job search could lead to some pretty major tax write- offs. We'll explain.

And prepping your home for the cold months ahead will help you get a head start to protect your wallet this winter.

It's the show that saves you money and it starts right now.

Well, big news on the foreclosure front. Bank of America became the first bank to halt foreclosures in all 50 U.S. states. Allied, JPMorgan, and PNC have halted foreclosures in 23 states. We're looking at a serious, serious impact on the U.S. housing market.

Mark Zandi is chief economist for Moody's Analytics and CNN's Christine Romans is host of "YOUR $$$$$" and author of "Smart is the New Rich."

Thank you both for being here. Mark, let's start with you.

First of all, talk about the broader implications here of this. And also, this isn't just Bank of America, this isn't one bank. Other banks, other banks are suspending foreclosures, and one of the lawyers that I talked to that is working pro bono for the folks getting evicted from their homes said, look, this is the tip of the iceberg.

MARK ZANDI, MOODY'S ANALYTICS: Well, it is broadening out. A larger number of institutions are being engulfed in this. And at the very least, it suggests that the foreclosure process that already was pretty mucked up is going to be even more mucked up.

It's just going to take longer to work through all of these problem loans, which in the near term might mean less of a house price declines, the housing market won't get hit as hard by these distressed sales. But down the road, of course, when these homes do go to market, and get distressed sales, it will put pressure on housing values.

So, the bottom line is, it means that the -- this is going to take a lot longer to work through this nightmare that we've been in.

HARLOW: And as if we need anything to add to the nightmare. I want to read everyone out there the statement that came in from Bank of America on this. It says: "Bank of America has extended a review of foreclosure documents to all 50 states. We will stop foreclosure sales until our assessment has been satisfactorily completed. Our ongoing assessment shows the basis of our past foreclosure decisions is accurate. We continue to serve the interests of our customers, investors, and communities providing solutions for distressed homeowners remains our primary focus."

That's, you know, what you would expect, right, Christine, from Bank of America, But bottom line, this is huge.

CHRISTINE ROMANS, CNN NEWS CORRESPONDENT: This is a big deal. And as Mark said, he called it a nightmare. It has been an absolute mess, this whole thing. And it means that this mess is going to continue to drag out for a period of months or more years.

What that means for housing prices and people who are trying to buy and sell homes, it means there's still more uncertainty out there. For those of you who are sitting home wondering, wait, does this mean that if my loan is serviced by Bank of America, I don't need to -- I may be a couple of months behind, I was going to pay, I was going to write the mortgage bill this month. You still have to pay your bills. I want to be very, very clear. You still have a credit rating that can be hurt. You still have a future that you're trying to repair in this home.

There might be some more breathing space for many people who are in this situation to get things together so you can try to get ahead of the foreclosure process, again, if you are in foreclosure. What this means is that Bank of America isn't going to sell your house out of foreclosure right now. It does not mean that you are free and clear from the foreclosure process.

HARLOW: And we don't know that it doesn't mean you won't get evicted from your end. You're talking about sales here, Bank of America.

So also, folks, you all have to make sure to check with your bank, no matter what bank it is to see what the latest is from them. The story's been going on for a few weeks. It's changing day by day by day.

Mark, I would ask you what you think the broader implication is here on bank lending. So, this is going to dramatically hurt banks' already crippled, bottom line, so what about when it comes to their lending?

ZANDI: Well, I think it's premature to conclude that. I mean, it is -- the issue is broadening out. But the key is how the court system interprets all of this. I mean, if they decide this is more of a paperwork issue, then at the end of the day, I don't think it's going to have a significant impact on the housing market, on lending, on the broader economy.

Now, of course, as the court system interprets it differently or if this is just as you said the tip of the iceberg, then we've got more of an issue and it could hurt the banks and could hurt lending. But at this point, I don't think that's the case. I don't think we're going to go -- it's going to be that difficult and that bad.

HARLOW: What's also interesting, Bank of America's saying, look, they think that all the decisions on past foreclosures were accurate. Christine, Ally Banks said this a few weeks ago saying we think all this paperwork is correct. Maybe it wasn't all verified, but basically said we still think these people should be in foreclosure.

ROMANS: And you're talking about is sort of this fundamental problem that in 23 states where you go to court where there's a foreclosure that some of these servicers and banks were actually doing sort of robo --

HARLOW: Signing.

ROMANS: Robo-signing of documents and they can't do that. So there's questions about these document.

But you're right, some of the banks are saying that the people deserved or fell into foreclosure in the first place. I think that maybe this gives people some breathing space so they can -- if you're in a position that you can save your house, it gives you a little bit of breathing space here. But we know that the paperwork problems have been just horrific from the very beginning.

I mean, when I first started covering the story in 2005, even then people were sitting at a table in these ballrooms for these foreclosure rescue conferences saying, wait a minute, this isn't how much money I make.

And what -- I don't understand. There's an interest rate here that I don't even understand. So from start to finish, there have been paperwork problems in this huge boom of just lending money like crazy.

HARLOW: And it's clear it's going to continue for a while.

Christine, thank you so much. Mark, thanks for joining us.

Coming up next, folks, why more and more Americans are likely to vote with their wallets this year. And of course, what it could mean for those critical midterm elections.

(COMMERCIAL BREAK)

HARLOW: Well, 24 days until Election Day, and campaigns are heating up across the country. It is time to talk about those midterm elections. And if you want to really understand the pulse of America, think about this, voters are voting with their wallets.

This is the man who is going to talk to us about all of it, Paul Steinhauser, deputy political director for CNN.

Paul, thanks for coming in, appreciate it. First of all, want your take on the pulse of people going to the polls right now. Obviously they're thinking about issue number one, the economy, who got us into this mess, who can fix it.

What are you hearing?

PAUL STEINHAUSER, CNN DEPUTY POLITICAL DIRECTOR: A couple things our polls are showing and other polls from other organizations, as well, Poppy.

First, the economy, by far, hands down, the top issue with Americans, been that way since basically December 8, 2007. Definitely still that way right now.

But as you asked, who do Americans blame? Which party do Americans blame right now for getting us into this economic mess?

Our most recent CNN/Opinion Research Corporation national poll suggests that more people plurality blame the Republicans rather than the Democrats for getting us into this mess. But, I guess more importantly now who do Americans think will do a better job fixing the economy?

And, again, the Republicans on top, a plurality by a couple of points. More people said the Republicans would have better prescriptions to get us out of this economic mess than Democrats. And that could be crucial come November 2, Poppy.

HARLOW: Absolutely crucial given how a lot of people are upset about health care reform. There's all that talk. But it's issue number one, the economy, and if they think Republicans are going to get us out of this, they're likely to vote with that. So interesting to watch how that heats up in the next few weeks.

Another critical thing here come the midterm elections is what will their representatives do with the Bush tax cuts? How will they vote whether to extend those bush tax cuts or not? And if to extend them, for whom? What are you hearing on that -- Paul.

STEINHAUSER: You know, this is interesting because a couple of months ago, nobody was even really talking out on the campaign trail or even here in Washington that much about the Bush tax cuts, but they have become a huge topic on the campaign trail and also right here in Washington.

And the big argument is whether to extend those tax cuts for all Americans or just those middle class and lower-income Americans. Republicans want to extend the tax cuts which you're supposed to sunset at the end of this year, for all the Americans including the wealthiest Americans.

That's where President Obama and most Democrats differ with the Republicans. They say let's extend the tax cuts for families making $250,000 or less, but not for that wealthiest two percent of Americans.

Some Democrats, Poppy, though, are now breaking away from the White House and Democratic leaders in congress saying we should temporarily extend those for everybody. It's become a huge political football, Republicans bashing Democrats, Democrats bashing Republicans. We'll hear a lot more of that between now and Election Day -- Poppy.

HARLOW: And it's a huge economic issue because you look at the deficit in this country and if you extend those tax cuts, you know, we see the deficit go up, that's a huge concern, especially among Republicans. It's interesting, Paul, I was in D.C. earlier this week interviewing Warren Buffett on (INAUDIBLE) and weighed in on taxes and folks, Warren Buffett has always said, look, raise taxes even more on the very rich, people like himself, but what he hasn't said before this week, when he sat down with us, is that taxes should be cut even more for the middle class and perhaps even the upper middle class. Here's why.

(BEGIN VIDEO CLIP)

WARREN BUFFETT, BERKSHIRE HATHAWAY: We're taking in about 15 and a fraction percent of GDP and income in the United States. That isn't enough. We're going to have to get more money from somebody. Now, the question is do we get more money from the person who's going to serve me lunch today or do we get it from me? I think we should get it from me.

(END VIDEO CLIP)

HARLOW: You can see a lot more of what Warren Buffett said on that in our interview on CNNmoney.com. but I want to go back to you, Paul, because, look he's even weighing in, but it's a political issue, of course, not up to him, this is up to politicians.

Also very critical economic issue that is getting a lot of political debate now is the minimum wage. There are some Republicans talking about what to do with the minimum wage right now in this country. Clarify this debate for us because I think it's gotten, you know, rather obscured in the debate.

STEINHAUSER: Yes, there are some Republican candidates now, some conservative Republican candidates who are saying maybe we should scrap the minimum wage and it's become a big issue.

In Connecticut, in the Senate battle up there, a seat the Democrats are trying to hold on, the Republican candidate has been accused now by the Democrat in that race of saying she wants to scrap the minimum wage. She denies that.

In West Virginia, Robert Byrd's old Senate seat, boy the Republican candidate there telling our Dana Bash that he does want to scrap the minimum wage.

Take a listen to this.

(BEGIN VIDEO CLIP)

JOHN RAESE (R), WEST VIRGINIA SENATE CANDIDATE: Minimum wage is something that Franklin Delano Roosevelt put in during the Depression. It didn't work during the Depression, it certainly hasn't worked now.

(END VIDEO CLIP)

STEINHAUSER: With comments like that, you can imagine the Democrats are going to try to use to their advantage saying hey, don't vote for the Republicans, they're going to scrap your minimum wage.

HARLOW: On that point, Paul, I mean, is that fair? Because I've read that some Republicans are saying, look, I'm saying it because I want to help all of those unemployed and perhaps if we change or get rid of the minimum wage, you help put people to work. Some Republicans saying it doesn't matter what the minimum wage is if people don't have jobs at all.

STEINHAUSER: That is a big argument the Republicans are using. You're also hearing that from a lot of Tea Party activists as well as and other conservatives, fiscal conservatives who are saying the minimum wage is detrimental.

And also, unemployment extension, extending unemployment benefits too long just keeps people on the unemployment rolls and doesn't push them to look for a job. So, it is an argument, it's an argument that out there and very popular among Tea Party types, other conservative and fiscal activists.

We'll see how it plays out with the total general electorate on November 2 -- Poppy.

HARLOW: A lot to keep an eye on in the next few weeks up to those midterms. Paul, thanks so much.

And also while we're on the topic of Washington, let's talk about taxes because after all, we're here to save you some money. Christine Romans has job search tax write-offs that you may have never known you could deduct.

Good morning, Christine.

ROMANS: Hi, Poppy.

So you're one of the almost 16 million Americans looking for that next paycheck. There may be a little help from Uncle Sam in that search. First, you ought to save every job hunting receipt. You may be able to write of some of the expenses come tax season.

You need to grab publication Number 529 from the IRS Web site, IRS.gov. Got it right here. Last year's was 24 pages long, but here's a quick and easy reference for you.

Grab a pen and paper, here's what you can deduct from your job search on your taxes. You can deduct your resume and your cover letter printing and preparations.

You can deduct travel to another city to research companies. Not a vacation, folks, but travel to legitimately research companies. Fees paid to an employment agency, also believe it or not, you can deduct babysitters to take care of your children and travel expenses while you go on your job interviews.

Now, if you're a recent college grad, you are out of luck on deductions. Anything related to that initial job search, you cannot deduct. That also goes for anyone buying new clothes or technology.

No, you cannot deduct your laptop. And if you've been out of work for a long time or you're looking for a new career, no deductions there.

So remember, if you are trying to switch careers, you're retraining to an entirely new field, you cannot deduct those expenses for a job search.

Now, there are restrictions, so you definitely should consult a tax preparation professional if you plan on doing this. You're not going to get a whole ton of cash back, but any little bit helps for the unemployed right now.

I listed all of this in my new book, "Smart is the New Rich," along with ways to get an interview, to get a job, and once you've got the job, excel at that job, and important advice for what majors young people should be considering, what kind degrees you should try to get to survive in the new labor market.

That's "Smart is the New Rich." You can pick up a copy in bookstores, now.

(COMMERCIAL BREAK)

HARLOW: Folks, a lot of news this week that could have a big impact on your bottom line.

Carmen Wong Ulrich is a personal finance author. Jack Otter is the executive editor of MoneyWatch.com.

Guys, thanks for being here. I appreciate it.

I want to start with you, Carmen, on bankruptcies, because given the state of the economy, the fact we're not really seeing meaningful improvement, personal bankruptcy's up 11.3 percent, so far, 1.2 million filing this year alone.

Some people say that's shocking. Other people would say, look, it's an easy way out. Bottom line, people need to know the consequences, right? -- of filing.

CARMEN WONG ULRICH, PERSONAL FINANCE AUTHOR: Sure. Absolutely, but absolutely not shocking at all. I'm shocked it wasn't above 11 percent. Absolutely, we're talking about 10 percent unemployment. Housing, your equity is gone. All your safety nets are gone, your retirement fund.

So people don't have anywhere to go, which traditionally you could tap your equity to pay off some loans. So what are they going to do? They're going to file for bankruptcy.

And, yes, it should be the last resort, and it does ruin your credit 10 years it's on your file, it's hard to get out of it. But for a lot of folks they don't have a choice.

HARLOW: So what are the consequences that people need to know of? I mean, it stays on your record for what, seven years?

ULRICH: Ten actually. That will stay on there for 10 years. Here's the thing, more and more people are using your credit report to judge you as a risk, including employers, insurers, everybody and the more credit reports and credit scores out there now than anything. So, this is really running your life.

However, if you don't have a choice, especially with medical bankruptcy, it's something you need to do, get help. Get a nonprofit credit counselor to work with you. And really, you can get out of it and within another three years or so you will be back online and on track to get credit again.

HARLOW: So it's a necessity for some folks, now.

JACK OTTER, MONEYWATCH.COM: And the worst thing would be to not do, exhaust your retirement savings, get even worse in debt and then three years later file for bankruptcy.

HARLOW: Talking about retirement savings, Jack, 24 percent of parents are planning to dip into their retirement funds to pay for kids' college, six percent already have. You're not a fan at all of doing this. Why is that --

OTTER: I don't think Carmen is either. Yes, it's terrible. And in fact, I saw that stat and you know, the same number of people are dipping into retirement as are using 529 plans and 529 plans, of course, have so many advantages.

Where retirement you get hit with a 10 percent penalty, you're going to pay full income taxes on that money, and the most important thing is in retirement you have no other options. I mean, Social Security, we hope will be there, pensions are gone. So sit down with your kids and say look, I'm sorry, but here's the situation.

HARLOW: And a lot of people don't look closely enough at community colleges, which the president was just talking about this week. They don't look at local state universities that can be just as good and a fraction of the price.

OTTER: Financial aid. Financial aid, people don't realize that Princeton, people making up to $200,000 are getting financial aid.

(CROSSTALK)

ULRICH: Here's the thing, when you're sitting down with your kids, also say to them, do you want to take care of me later on? Do you want me to move in with you? They have a lot longer time to pay off the debt than you do, so focus on your retirement first. HARLOW: Also, I think if they put money in, they care more about their education and doing well with it. Just my opinion, there.

OTTER: A great rule is like an airplane, put the oxygen mask on yourself before your child. Same rules with retirement and college.

HARLOW: Guys, thank you so much. Appreciate it.

All right, smarter spending now means bigger savings later. Next, how to prep your home for the chilly months ahead and save money before it's too late.

(COMMERCIAL BREAK)

HARLOW: All right, whether you like it or not, it is officially fall, temperatures are cooling off. And now it is time to get your home ready for the colder months that are right around the corner. You can do a lot of it for under 100 bucks.

Lou Manfredini is a home improvement expert at Ace Hardware's "Helpful Hardware Man." He joins us now with some tips.

Thanks for coming in.

LOU MANFREDINI, ACE'S HELPFUL HARDWARE MAN: Yes, thank you.

HARLOW: The gutters, they get clogged. You say this is a very cheap way to keep them clog-free.

MANFREDINI: Yes, I mean, the professional models work. I mean, you can get that done, contractor will come to your house and spend about $5,000 of your money to do.

This is an expandable foam, different manufacturers make it. you stick it into your clean gutters once and for all. So for those that are like "stop climbing up on the latter, you're going to get hurt, what's the matter with you?" You put this in there. You can do the average size house for $500 or $600.

And when this first came out, I tested it out. It really holds up. It takes buckets of water. So I mean, literally, you can just see the water run down. The leaves sit on the top and when they dry out, they blow away.

HARLOW: And about a tenth of the cost. And somewhere else talking about the roof space that you can save is this coating, putting this on your roof. You can do it yourself for cheap.

MANFREDINI: Right. If the budget doesn't allow for you to redo the roof, and roofing is definitely important. It's very expensive. This is a coating that is kind of a good patch.

And so, if you've got areas, it's electromagnetic that where it sticks and get in there, it's like a mastic, it's almost like a glue and it will seal up and give you a pretty -- you know, the problem is a fix, but it can last for several years. So it's not bad and you're talking not a huge amount of money, like less than $20 to do this.

HARLOW: OK, good. The lawn, heading into winter, it can be really tough on your lawn. If you're going to spend money on a sprinkler system, keeping it nice in the summer, you might as well protect it in the winter.

MANFREDINI: The little secret in lawn care is the best time and most important time to fertilize is in the late fall because as your lawn goes dormant, you want to promote healthy root growth and you don't want fungus to get in there. And by putting in a fertilizer in the fall, it help promotes deep darn root growth -- deep darn, what do I mean? Deep down.

HARLOW: Darn root growth.

MANFREDINI: Darn root growth, what's the matter with those roots? But then what happens in the spring it comes back more healthy and then you start on the four-step plan and then you really have like an envious lawn for the neighborhood.

HARLOW: Envious lawn, I like that. Energy bills. Mine, even here in New York are through the roof, even more where I'm from in Minnesota. Looking at these filters, I mean, how much can these help?

MANFREDINI: Well, this is a pleated filter. This one is actually by 3M. This is their Filtrete system. The beauty part of this is the indoor air quality suffers terribly in the winter months, because we're closed up, we're talking about sealing everything up. You were saying your parents do window film on the windows, which is really good, but we want to make sure that we have healthy air inside.

So, by using a higher quality filter like this, the indoor air quality is better, the furnace runs more efficiently when you change these.

HARLOW: So you're saving money.

MANFREDINI: Absolutely. They cost a little bit more, but the overall health benefit inside your home is huge.

HARLOW: All right, another way to save money on your energy bill is not let the hot air seep out through the window, through the doors, through all those gaps. So I know this is an expandable foam, do it yourself, pretty cheap. I want to see sort of how this works. It's kind of like whipped cream.

MANFREDINI: Yes, this is a latex base, so it's not as super sticky as the other ones. What you have to remember is when it goes on, it will expand.

And so, windows and doors, remember this, are your areas of the greatest loss in your home when it comes to heating bills. Siding that may be loose, gaps can allow rodents to come in, in the fall and so you don't want any of that.

These expandable foams, easy to use, be careful, you don't want to get it on your hands -- but not expensive, and can have a huge effect on lowering your energy bills.

HARLOW: And you put it all along the sides of the windows.

MANFREDINI: On the outside, any kind of gaps, there. This is not something you typically do on the inside, but maybe underneath the sink, on a kitchen sink if it's on an outside wall where the pipes come through and you feel a draft. That's an area as well you can seal up because that'll keep your pipes from freezing on those really cold days.

HARLOW: And you don't want that and that does happen sometimes.

MANFREDINI: Yes, it does.

HARLOW: Lou, thank you so much.

MANFREDINI: You're welcome.

HARLOW: Appreciate it.

All right, that's going to wrap it up for us here today. But check out "YOUR $$$$$" at 1:00 p.m. Eastern today on CNN. Our Christine Romans will be in the kitchen with the legendary Paula Deen. It is all about your kids, healthy eating and of course, saving you money. You definitely don't want to miss that.

Right now, though, time for the check of your top stories in the CNN NEWSROOM with T.J. Holmes.