How Did We Get Into This Crisis?
VELSHI: Well the banks are on their way to getting their bail out, but the root of all the financial kasius actually could lie in the families who in many cases simply could not afford to remain in their homes. Before you start throwing things at me I'm not saying that they were necessarily at fault, but it does start with the home owner and their inability to pay their mortgage.</s>ROMANS: Who can bailout the home owners when they need a capital injection of their own? The answer may surprise you. Carol Costello has a look.</s>CAROL COSTELLO, CNN CORRESPONDENT (voice over): In the Macomb County, Michigan $150,049. There's a fire sale going on.</s>UNIDENTIFIED FEMALE: $75,600.</s>COSTELLO: Hundreds of homes seized by banks are being auctioned off.</s>UNIDENTIFIED FEMALE: $49,000.</s>COSTELLO: At bargain basement prices.</s>JENNIFER WARD, BANK FORECLOSED ON HOME: That just breaks -- breaks my heart. It does. You know, seeing it like it is.</s>COSTELLO: The Ward's lost their home to foreclosure in 2007 after refinancing. They say they thought the interest rate was fixed. It was not. Today their lost family home sits empty, bought at auction by a bank for $20,000. It's not only devastating for the Ward's, but to their former neighbors who are seeing the value of their own homes plummet. It irks real estate agent Donna Caumartin.</s>DONNA CAUMARTIN, SCHULTES REAL ESTATE: This home went up on the market and it was listed for $109,900. Now it's listed for $45,000. It's the same house. It's a tremendous loss to the bank. Why wouldn't they try to do a loan modification or something or refinance it at different terms?</s>COSTELLO: Why do you think the banks won't negotiate with people?</s>CAUMARTIN: I don't know. I really don't know.</s>COSTELLO: Groups that help troubled homeowners say it's because many banks don't own the mortgages. They simply handle the paperwork for investors.</s>BRUCE MARKS, NEIGHBORHOOD CORP. IF AMERICAN: The servicers who the homeowners make their mortgage payments to, they're overwhelmed and they're not willing to staff up and frankly they have no skin in the game. So if someone goes to foreclosure, they don't lose anything.</s>ROMANS: The Ward's did try to renegotiate with their lender, Washington Mutual, a bank seized by the federal government last month because it handed out so many bad loans.</s>KEITH WARD, BANK FORECLOSED ON HOME: I spend hours, days on the phone with our finance company, our bank asking them what I can do, and the only thing they told me was they need, in the amounts of $20,000 up front and then they wanted to double our house payment also. On New Year's Eve at 4:00 in the afternoon a gentleman came and put a notice on my home that there was a sheriff sale on my home.</s>COSTELLO: Both presidential candidates want to help people like the Wards. John McCain wants to use taxpayer money to buy and refinance troubled mortgages. Barack Obama wants a 90-day payment break for struggling homeowners. But it's too late for the Wards. Their house has already been auctioned off. They rent now, nine blocks from their old home and yes, they found a way to cope.</s>K. WARD: A lot of patience and a lot of love. It's the only way we can do it. Carol Costello, CNN, Macomb County, Michigan.</s>ROMANS: So, is it the banks? Is it the home owners? Who's to blame? We turn once again to our panel; Stephen Leeb is president of Leeb Capital Management. Diane Brady is a senior writer with "Business Week" and Louis Barajas is a personal wealth adviser. You hear each of these individual tales and you get frustrated and there are millions of people out there who didn't get into a mortgage that they couldn't afford, that knew what was in the paperwork and you wonder about if we bail out home owners who have these bad mortgages, what about the people that play by the rules? It's a knot. You said it's a knot.</s>BRADY: I think it's easy to blame homeowners. I think there were a lot of deceptive marketing practices I can tell you when I went to get a mortgage, a 30 year jumbo; they pushed us to get an adjustable rate mortgage because the rates were better. People assumed values would go up, zero money down. I think the blame has to lie primarily with the people who marketed these loans to a very vulnerable population.</s>LEEB: I don't want to say Diane was smarter than I was because I did take an adjustable rate mortgage initially and then I said uh-oh, things are not going stay this way and I refinanced and got a fixed rate mortgage.</s>ROMANS: You manage money for a living.</s>LEEB: I do.</s>VELSHI: That's the story.</s>BARAJAS: The point is right now we're all blaming -- everybody -- somebody is responsible for all of this. We have to take personal responsibility because if people are in your home you have to do something, if the banks aren't negotiating go to the Internet and go to hope now. I would call that number, I would double check that somebody would pick up the line and they did.</s>VELSHI: But there are a lot of people who don't qualify under the hope now provision.</s>ROMANS: If you defaulted on a payment you don't qualify.</s>VELSHI: The people who call us are in trouble and I go through that list with them on hope now, there is a bunch of criteria you have to meet.</s>BARAJAS: Right.</s>VELSHI: There are a whole lot of people in trouble.</s>BARAJAS: OK, but we have to respond and we can't react. We're all panicking and responding. Look, if I can get help then we have to ask. Fear is paralyzing everybody.</s>VELSHI: Here's a question. I think Carol Costello's point is right. Both candidates would like to somehow find a solution to this problem. I'm not sure if I'd get John McCain's solution entirely because it is going to mean renegotiating mortgages, and he wants to renegotiate mortgages at a rate that's reflective of the value of the home. Barack Obama would like a moratorium. I don't know what that solves because it sounds to me like that you get yourself 90 days more and then you got yourself in the same pickle. Diane you looked at these, is one of these the solution or does the solution lie somewhere else?</s>BRADY: I think there is probably a combination of the two. Obviously, we've seen the government take radical action in the last few weeks. They can take action to make sure we can renegotiate mortgages. People talked about how in bankruptcy court your primary home cannot be renegotiated, but your yacht can in terms of the loan. That can change. There's a lot of impetus right now in Congress to basically make sure that the homeowner gets some relief. You probably need some combination of the two. People will need longer to pay. That's why you restructure your debt.</s>LEEB: He said fear paralyzes and that's true. There are probably are people that no longer qualify for hope now, but there are a lot of people that do that are just sitting back just so fearful and they don't know where to turn. People are scared to death right now, and I have to say one thing, come November 4th, whatever happens, we're going to probably have someone, almost know is who will unfreeze fear to some extent because he will be much more popular than the current president. This has been one of the problems here. We have somebody with a 20 percent approval rating, deserved or not, I'm not making a comment on that. You can't inspire people with that kind of approval rating, so there is some hope out here.</s>BRADY: It's not just fear because in the last ten years Americans have overspent by $3 trillion. $3 trillion. We bought things we could not afford whether it was the flat screen TVs or whether it was the homes. There are a lot of people out there who simply cannot afford to live the lifestyle.</s>VELSHI: Are we changing the behavior?</s>BARAJAS: As soon as the economy goes back up. They'll go backs to doing the same thing they have always done. I waited such a long time not to buy those shoes and they start getting them and going back to the old habits.</s>BRADY: It is not just the consumer, the government over borrowed and business over borrowed. So this is not just a question about the consumer. All of us were living this giddy, Rome is burning lifestyle and it's now come back to haunt us and we will have to pay and I don't think it will be over in six months.</s>LEEB: I actually, do and I think that over in the sense that we'll be out of a recession within six months because of the money being poured into the system and also because of the emerging economies will keep things going, but, you know, the consumer issue is a very difficult one because, one, people are taught that the American dream should be more and it's the fact that actual wages and income in real terms were not going up and people except expecting that to change, so I don't think that the consumer was really spending -- the consumer was living the American dream I don't think excessively.</s>ROMANS: It was a dream, actually, an actual dream. It was an American dream.</s>LEEB: Wages were not rising in real terms and -- that, you know, was what went wrong in this country.</s>ROMANS: Stephen Leeb, thank you so much. Diane Brady, Louis Barajas, thank you so much all of you for joining us.</s>VELSHI: Well all signs indicate we could be in a recession. We'll tell you how you can start saving right now even if your wallet is stretched to the limit and how to protect your retirement money when we come back on this special how to protect yourself against a recession in this edition of YOUR MONEY.