Realty Check
Tough talk on all things housing -- booms, busts, bargains and more -- from "Nightline" correspondent Vicki Mabrey
Vicki Mabrey is a correspondent for "Nightline" based in New York. She covers real estate as well as a range of national stories.
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A day with Suze Orman and Mellody Hobson
July 11, 2008 11:05 PM
What a rollercoaster ride on the stock market today. Freddie, Fannie and Indy - a bad day for the "Macs" (and a Mae).
But it provided a real learning experience for us at Nightline - especially for me, getting to interview two of the finest minds in personal finance: Mellody Hobson, president of Ariel Investments; and Suze Orman, she of the fabulous jackets, perfect tan and drop-dead blunt advice. We interviewed Mellody by phone from her office in Chicago; Suze just happened to be in New York today (yeah!), and she was gracious enough to come over for a sit-down interview in our office. Is she as personable, friendly, knowledgeable, and brutally honest as she is on TV?? You betcha. Wouldn't you love to have her as your college professor? Even better, how 'bout your financial advisor?!
Anyway, we wanted to find out seven things (I know, it's an arbitrary number) you need to know to survive the economic slowdown
1) What if you're trying to get a mortgage?
Suze Orman warns that banks are getting less and less willing to lend.
"You will pay a higher interest rate.You may be turned down.You may not get terms that are favorable to you," she says. "It may cost you a few points just to get a mortgage, when a little while ago people were saying, 'Need a mortgage?Here little boy, here little girl, mortgages for sale.Weâll give it to you, no money downâ¦.' Well, guess what? It ainât there no more."
2) What if you want to sell the home you've already got?
"Why are you selling your home?" Suze asks. "Do you want to sell it because you are just afraid real estate is gonna crash, and therefore you want to get out of a home that you love, but you just want to get whatever you can?If thatâs the reason, donât sell now."
If you canât afford your mortgage payment, though, you might have to slash your prices, or even sell the home for less than you paid.
3) What if you're in danger of losing your home?
If you have a fixed mortgage and can make payments, youâre in good shape.But Suze expressed concern for those who bought homes planning to refinance:
"Even if you are in good stead with your mortgage - the truth of the matter is, your home value has gone down, because your next door neighbors have all lost their homes," she says. "Now you are in a situation where now your adjustable rate mortgage is coming due."
Those who depended on refinancing could be in a very tough spot.
If you have a fixed mortgage and can make payments, youâre "in the catbird seat," says Mellody. But if you do have an adjustable ARM, she advises not to panic, just call your lender right away.
"With this news about Freddie Mac and Fannie Mae, if you do have an ARM that's resetting, the terms and deal may not be as favorable as you'd like," Mellody says. "There isn't a whole lot of room right now for negotiation.But that said, lenders want to do everything they possibly can to help keep you in their home."
She points out that the typical foreclosure costs a lender about $40,000.
"Should the stock stop going down at this point?I think we have probably have seen the bottom in Fannie Mae and Freddie Mac - if what was said today is true," Suze says.
But she warns that average investors shouldn't put money in stocks that they want to have available within a decade. On the other hand, younger investors shouldnât give up on their 401k contributions.
Just make sure, Suze says, that you invest in the right things: "Good quality mutual funds.Low expense ratios.No loads - you don't want to be paying a financial advisor right now 5 3/4 percent to buy a mutual fund. That mutual fund has to go up 5 3/4 percent just for you to break even. Now is the time.No load mutual funds, low expense ratios, anything under a percent, OK. But don't go over a percent right now," she warns.
5) What if retirement is just around the corner?
For soon-to-be-retirees who are watching their savings drop, both Mellody and Suze have a sobering message: Be prepared to work longer. Suze says she remembers this happening in 2000, 2001. " I remember women in particular writing in to me saying, 'Suze, I am 70 years of age, I was about to retire. I just lost half of my money. What am I gonna do now?'"
"You need to move the amount of money that needs to be safe and sound." That may mean lower-yielding bonds, Suze advises. "Don't get greedy, people.Not in a economy like this."
6) What does it all mean for students who need a loan to go to college?
"The truth of the matter is, student loans have dried up in some places," Suze says. "There are many schools that aren't offering student loans the way they used to.When there is a credit crisis, there is a credit crisis.Credit is what?Credit cards, automobile loans, student loans, personal loans, home mortgages.Itâs everything." That said, Mellody advises that the government has added some "significant" programs, so all is not lost. But, as Suze always advises on The Suze Orman Show, try not to get private student loans -- they usually carry a higher interest rate.
7) What if you're living off your Credit Card?
Stop now! That came from both of these bright ladies. Suze even recommends a magic trick: If you're earning 2% interest on, say, $5000 in your bank savings account, use it to pay off $5000 of your credit card debt, and give yourself an automatic 18% raise.
Next time Mellody's in New York I look forward to shaking her hand and saying thank you. And then picking her brain for more advice.
As for Suze, she was mobbed as we stood on the corner in front of ABC shooting our last bit of b-roll. She basked in the attention, asked questions, probed people's financial moves (even tried to look over one woman's shoulder at the ATM machine in our lobby), and never seemed to tire of dispensing advice to any and all passers-by. The last thing I asked her was whether we're out of the woods on this Fannie Mae and Freddy Mac stuff. No, she told me. "But here is the other thing: stop worrying about the 'other thing.' Starting worrying about what you are doing. Are you out of debt? Do you have a will? Do you have a trust, do you have the right type of insurance? Do what you can to take control of your own financial life, "so you don't end up like the government," she winked.
So I ask you: Do you agree with this advice? What other knowledge do you need to steel yourself for the economic slowdown? In other words, what questions would you like answered?
Big props to Eliot Caroom, an intern from City University, who helped enormously with my understanding (and compilation) of this information.
July 11, 2008 | Permalink | User Comments (5)
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I am watching Nightline at this moment and listened to Ms. Orman state that no one can touch your money market funds. I was recently informed by a banking institution that "the law states" anyone can touch your money in the bank. Now what or whom should I believe? Should I put my money in my mattress or coffee can?
Posted by: JD | Jul 11, 2008 11:55:05 PM
p.s. I would like to read a reply concerning the touching of money market funds. Here is my address again: lovedocktor@yahoo.com
Posted by: JD | Jul 11, 2008 11:57:10 PM
I watched the show and I noticed that Suze Orman questioned why are you selling your house? My situation didn't fit her comments. My situation is that the foundation on my home is severely damaged beyond repair according to a major contractor from the flooding last month. We pay our mortgage on time and we have never been late. We are in fear of a major disaster. My son’s bed room is over the severely damaged foundation. According to the contractor the house isn’t worth fixing. I was told by the mortgage company that they would rather us not pay then work something out. We have started the paper work for hardship assistant program. I don’t want to walk out but I do want to be safe. What should we do?
Posted by: Rosalind Davis | Jul 12, 2008 12:39:14 AM
There are many types of personal loans available in the market. Its very important to examine all your options first before settling with your final choice. Thanks for the info!
Posted by: personal loans | Jul 12, 2008 12:54:38 AM
Rosalind,
Please email me with more information:
vicki.mabrey@abc.com
Posted by: Vicki Mabrey | Jul 12, 2008 10:41:13 AM
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