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Open House
Interviews with Chris Swecker, Doug Flynn, Danny Lipford
Aired February 12, 2005 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BETTY NGUYEN, CNN ANCHOR: A suicide car bomb exploded this morning in a town south of Baghdad, killing 17 Iraqis and wounding 26. The blast occurred at a police checkpoint, which was near a hospital, and six of those killed were security guards.
Want to give you a live picture now of New York's Central Park, which is flowing with fabric, as you can see. A massive art exhibit called "The Gate" has opened this morning. It features thousands of pieces of saffron-colored fabric attached to the tall gates. The massive work of art stretches for 23 miles. It'll be up for 16 days. So if you're in the area, go see it.
"OPEN HOUSE" is next. But first, we want to give you a quick break.
ANNOUNCER: Today on OPEN HOUSE, even the most savvy homebuyers can fall victim to mortgage fraud. Find out how you can protect yourself.
Then, winter may be the slow season for real estate, but it's actually a great time to find deals. We'll show you how.
And our weekend project, crown molding. A little trim can do a lot to spruce up any room.
Next, on OPEN HOUSE.
GERRI WILLIS, HOST: Hello, and welcome to CNN OPEN HOUSE. I'm Gerri Willis.
From buying and selling to renovation and design, we show you how to get the most value out of your biggest investment, your home.
Part of protecting that value is avoiding scams, specifically mortgage fraud, which can fool even the most educated homebuyers. These scams are on the rise, and they are becoming more and more elaborate.
That was the case in Allentown, Pennsylvania, where scam artists swindled more than $1.5 million from their victims.
David Haffenreffer has the story.
(BEGIN VIDEOTAPE)
DAVID HAFFENREFFER, CNN CORRESPONDENT (voice-over): Patrick Dolf (ph) and Donald Stone (ph) are facing more than 50 years in prison after pleading guilty in an Allentown, Pennsylvania, real estate scheme that duped hundreds of locals into buying houses they couldn't afford, including Angie Sosa.
(on camera): Hi, Angie.
ANGIE SOSA, HOMEBUYER: Hi.
HAFFENREFFER: How are you?
(voice-over): She faces as 30-year mortgage she can't afford, a balloon payment, an interest rate of 11.9 percent, and state and local taxes.
SOSA: It's a dream for everyone to buy the house. And then they destroy it, in a way, they destroy everybody's dream, because we don't know how longer we can hold up to our house.
HAFFENREFFER: It worked like this. Dolf and Stone bought foreclosed properties for next to nothing, then jacked up the value of the homes with bogus appraisals. After finding an unqualified buyer, they'd falsify mortgage applications and employment histories just to get a bank to say yes to a loan.
Community activists worry their case could go well beyond subprime borrowers.
ALAN JENNINGS, COMMUNITY ACTION COMMITTEE: If the perpetrators, the predators, the scumbags that did this deal could get away with it as many times as they did, and for the system to fail them as much as it did, then I can only shudder to think of the number of cases of lesser degree of abuse, of mistreatment that's occurring in the real estate market. The FBI is calling it an epidemic. If our experience is any indication, it's got to be pandemic.
HAFFENREFFER: Jennings says it's not only the criminals who are at fault. He says lenders are also to blame.
JENNINGS: They allowed fraud to occur in a way that is so unbelievable that it's almost impossible to imagine that the lenders didn't know it was going on. They have culpability in this case, and need to make the borrowers whole by writing down their mortgages to the legitimately appraised value of the properties.
HAFFENREFFER: And victims aren't just those who were scammed. Mortgage fraud can lead to foreclosures, which can send surrounding property values plummeting.
UNIDENTIFIED MALE: A homeowner who can't afford the mortgage has that home foreclosed. The home suddenly goes off the market, turns into a rental property, or a property that is even abandoned. And suddenly, it creates the incentive for people in an entire block to want to pick up and move out.
What predatory lending does to a community is really tear at the heart of the structure and integrity of that community. HAFFENREFFER: For Sosa, it tears at the heart of her family.
SOSA: I don't want to give up yet. This is, like -- this is a dream for everyone, this is my children's home. This is what I have to offer them. So I don't want to give up.
HAFFENREFFER: For OPEN HOUSE, David Haffenreffer, CNN, Allentown, Pennsylvania.
(END VIDEOTAPE)
WILLIS: Knowing what to look out for is often the best way to protect yourself from mortgage fraud. Here with some advice is Chris Swecker. He's assistant director at the Criminal Investigative Division of the FBI. He's in Washington.
Hey, Chris, welcome.
CHRIS SWECKER, FEDERAL BUREAU OF INVESTIGATION: Good morning, Gerri.
WILLIS: Let's start with the 101 on mortgage fraud, and the types of mortgage fraud, specifically property flipping.
SWECKER: Unfortunately, it is very prevalent. Our caseload has actually increased about fivefold over the last three years in the mortgage fraud area. And property flipping is the most common type of mortgage fraud.
It involves multiple sales of property in a short period of time, either picking up a property through foreclosure, or some other way, or obtaining a contract to buy a property, and then, in turn, selling it very quickly to a buyer who can't really afford the property, or grossly inflating the value...
WILLIS: Right.
SWECKER: ... of the property, and...
WILLIS: All right.
SWECKER: ... through a fictitious appraisal.
WILLIS: You say that another problem is falsifying documents. Now, what do you mean by that?
SWECKER: A lot of times they prey on those that, you know, that natural desire to own a home. And they seek out people who wouldn't necessarily be able to afford the home that they are trying to get them in because they've in, number one they've inflated the value of the property. And, number two, it may be just more expensive than they can afford. And they dummy up the quote, the application documents, the earnings statements. All of the document application paperwork that's required to get a loan is falsified.
WILLIS: What do you mean by mortgage elimination scheme? SWECKER: Often, when someone's mortgage is about to go into foreclosure, or if you just want to -- if you fall for one of these late-night get-rich-quick schemes, advertising that you can just eliminate your mortgage debt, you can get caught up in a mortgage -- or some type of scam where you either sign your property over to someone else during a foreclosure, or you incur additional debt.
And what it, what you end up doing is paying rent to someone for a while, who actually takes ownership of your property, with the promise they'd give it back to you at some point in time. And the property end ups going -- ends up going into foreclosure, because they don't pay the mortgage that they promised you they would pay.
WILLIS: Wow.
SWECKER: They don't salvage your mortgage for you.
WILLIS: Chris, in...
SWECKER: In debt elimination, they do the same thing. They just say they'll help you pay off your mortgage real, in a very facile way or easy way. They don't pay off the mortgage.
WILLIS: I guess the rule of thumb is, if it sounds too good to be true, it probably is. Let's talk about some more warning signals that you could be facing a problem. What should consumers watch out for?
SWECKER: They should watch out for property that just sold recently. They need to know who their seller is. Often, an unscrupulous mortgage broker or scammer will pick up a piece of property on contract. They will contract to buy the property, and then two days later they'll sell you the property. But they've inflated the value of the property by about 100,000, some astronomical amount.
And so you get property that isn't worth what you think it is. And you are not actually buying from the -- or you are not dealing with the seller of the property. You are dealing with somebody who has a contract to buy the property. So you have to be very careful about taking an assigned contract. You should be dealing directly with the seller.
WILLIS: You know, I understand that you are saying no money down is another warning signal. Why is that?
SWECKER: Yes.
WILLIS: Lots of people have mortgage deals where they put no money down.
SWECKER: Yes, no money down is not illegal in itself. It's just, you have to be very careful with the no money down investment schemes or purchase schemes, because most of the time, it is too good to be true. And what's happening is, they're inflating the value of the property, and then that inflated value is your down payment. So it really -- the bank thinks that you made a down payment of $20,000, $30,000 on a home, when in fact that property was inflated, and the appraisal was inflated to that amount...
WILLIS: All right.
SWECKER: ... and it's reflected on the closing statement that you actually paid that money.
WILLIS: And people are sometimes pressured into a sale, as well, right?
SWECKER: That's right. They'll rush you to closing. They'll show documents to you and not want you to read those documents. They should have been provided to you ahead of time. The HUD form should be carefully reviewed. Everything should match up exactly the way you understand it to be. No surprises at closing.
WILLIS: Well, Chris, I appreciate your help today. Thanks so much for being with us.
SWECKER: Thank you very much.
WILLIS: Coming up on OPEN HOUSE, don't wait till spring to buy your dream house. Now is a terrific time to find deals, from new construction to movers. We'll show you how.
And our weekend project, crown molding. It's a small detail that offers big results, next.
But first, your tip of the day.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Keep closing costs down. Title fees, appraisal fees, document preparation fees, sealing the deal on your home can really add up. But you can curb those costs. Get a good- faith estimate. All lenders are required to give you an estimate of your closing costs within three days after you apply for a loan. And while it's no guarantee, it will give you an idea of how much you will be expected to shell out.
Question all the fees. Make sure you know what each item is, and whether it's required. And don't be afraid to ask for reasonable cost breaks. You may be able to negotiate a better price on some items. So get an estimate, and always ask questions.
That's your tip of the day.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
WILLIS: Right now, we're in the midst of the real estate off- season. Every year across the country, home sales drop off considerably during the winter months. But with new construction still available, and homes for sale, it makes it a terrific time for a buyer to negotiate.
(BEGIN VIDEOTAPE)
WILLIS: Stephen and Beatriz Mills fought a blizzard to shop for their dream home.
STEPHEN MILLS: Right before it started snowing, we met with David, like, it was -- was it around 11:00?
BEATRIZ MILLS: We, around 11:00, we went right back to the place that we knew we wanted to make an offer on.
STEPHEN MILLS: Yes, exactly.
BEATRIZ MILLS: But we wanted to see it one last time.
STEPHEN MILLS: Yes, he drove us out there. As he was driving, it started to flurry a little bit. And probably by the time we were done, there was already, I'd say...
BEATRIZ MILLS: I would say three or four inches of snow.
STEPHEN MILLS: ... three, four inches of snow on the ground.
WILLIS (voice-over): But the Mills are in the home-buying minority. The National Association of Realtors says only one in five homes are sold in winter, compared to almost a third in the summer. That means off-season buyers can catch a break, and not just from sellers. In winter, banks may drop interest rates by a quarter-point.
BOB BOULTON, PRESIDENT, AMERICAN MORTGAGE GROUP: We generally find some lenders offering pricing incentives when volume is low. In the winter markets, we have banks coming in to us, saying, If you can bring us more buyers, we'll give the buyer a break on their interest rate. So there's also an incentive to the buyer to buy a house in the winter.
WILLIS: Another off-season break, it's easier and cheaper to find movers.
REVITAL DRUTAN, GENERAL MANAGER, SCHLEPPERS: Most moving company gives between 5 to 20 percent off the cost of the move during the wintertime. But you can get much more for your money. It's not just a percentage that we take off. You can get boxes for free. You can get better dates to move.
WILLIS: But there are downsides. The lack of inventory in the winter may make it tougher to find your dream home. And, even if you do, that lovely blanket of snow covering the grounds means you won't be able to see landscaping underneath.
Still, any unseen problems with the exterior of the home can be covered by a contingency clause at sale.
(on camera): I think people feel like they maybe have a little less pressure in the buying process. DAVID FIALK, BROKER OWNER, CHOICE REALTY: And that is real important. The marketplace we've had in the past three years, where we've had more buyers than homes on the market, there were multiple offers, competitive bidding situations. And right now, with not as many buyers looking at that same home, there aren't as many contract offers, and the buyer can step back and truly think out the purchase, rather than acting on it on the spot.
(END VIDEOTAPE)
WILLIS: Even so, if you'd rather wait till spring, there are things you can do now, from securing a preapproval letter to locking in a mortgage rate.
Here to sort it all out is Doug Flynn. He's a certified financial planner with Flynn Zito Capital Management.
Welcome.
DOUG FLYNN, CERTIFIED FINANCIAL PLANNER, FLYNN ZITO CAPITAL MANAGEMENT: Thanks.
WILLIS: Good to have you here. I think the biggest thing that people want to do first is check out their credit. But what's the best way to do that?
FLYNN: Well, you could actually go to each of the credit agencies. But an easier way might be just to start thinking about mortgage process now, contacting your lender, and go through a prequalification process.
One of the things they'll do is run your credit report and see if there is anything that might need cleaning up, as well as give you an idea, based on how much you're putting down and what your income is, what you truly would qualify for in terms of a mortgage.
WILLIS: And they'll probably do that for free, rather than playing the -- paying the bureaus themselves.
FLYNN: That's true. You -- they'll do it for free. You don't necessarily need to do the formal preapproval process. A prequalification is typically all you'll need. And in there, you'll find out if you had an ex-spouse or an old credit card that you never closed, but you thought you did, things that might lower your credit scores you can get cleaned up.
And you have plenty of time to do that. If you wait until you are in contract and then apply for the mortgage, you don't have enough time to get that off your credit rating.
WILLIS: All right. Right. Well, (UNINTELLIGIBLE) big question, I know, for a lot of people out there. They overbuy. They buy too much house. How can I know how much house I can afford?
FLYNN: Well, there's a number of calculators online that you can begin with. But a good rule of thumb is, basically at around 6 percent for every $1,000 of income that you have, you can afford $47,000 worth of a mortgage. So a typical person that makes $5,000 a month can purchase about $235,000 worth of a mortgage.
You add that to your down payment, you get an idea of how much you can afford.
The last thing you want to do is start looking at $400,000 homes when truly all you can afford are $300,000, because you are going to be disappointed.
WILLIS: Do you like the calculators on the Web, Doug?
FLYNN: I think they are a good place to start. The problem is, most of the advertising rates that you see online, as well as on TV, are only for the top tier preferred people who qualify across the board in every best possible scenario. The way that you really need to do it is go through that process. So you find out, if you're not a top tier person, what rate you really would get. It could be a quarter to a full point higher than what you see.
WILLIS: All right. Well, how do you find the lender?
FLYNN: Well, the best way, I think, is through referral. Much like any other professional, you want to talk to your friends and family and see who's had good experience. You may want to use a bank. You want -- may want to use a private lender. They're all available to you. You can talk to your other professionals, your accountant, your CFP, find out who they might know.
You just want to watch if there's any referral arrangements that are disclosed, if there's any residual compensation. You want to know about that, if there is.
But basically, look to the people that you know that have had good experiences.
WILLIS: All right. Well, let's talk about locking in a rate. Everybody's worried about rates rising. How early can I make sure that I've got a good rate?
FLYNN: The only problem with locking in is, it's typically only available for 60 to 90 days. And beyond that, they're, they're going -- you're going to pay a fee for that. So I wouldn't even entertain locking in until you're actually in contract. And actually, once you're in contract, that's when you go about the process of getting the actual mortgage.
What you want to do is try to prepare ahead of time for that. But once you're in contract, you can take a look and see if rates are really starting to rise, you might want to pay to extend the rate lock if that's something that's important to you. But typically, you're going to close within 60 to 90 days. You don't necessarily need to spend the money on a rate lock unless rates are really going up very fast.
WILLIS: What's better, prequalification or preapproval when you're shopping for the home?
FLYNN: Prequalification is typically free. They get used interchangeably in terms of the terms. Preapproval is the very formal process where you're probably going to pay a fee to the lender, and they're going to put a stamp on their letterhead that says you've been preapproved for a certain amount. It's not a very common thing that you need. Most people will go and be OK with a prequalification number.
But still, I think that's a good exercise to go through, because you'll find very clearly how much you can afford, but it also tells the person you might be buying the house from how much you can afford as well.
And it's not going to necessarily help you in terms of getting it. But if you don't have it, and another person is also interested in the same house you are has it, it could be worked against you. So I think it's something you should have.
WILLIS: Doug, thanks so much for being with us today.
FLYNN: Thank you.
WILLIS: Coming up on OPEN HOUSE, our weekend project, crown molding. It's the perfect finishing touch for any room. Make it your weekend project, next.
(COMMERCIAL BREAK)
WILLIS: Welcome back to OPEN HOUSE and weekend project, where we take on a two-day project that you can finish yourself.
(BEGIN VIDEOTAPE)
WILLIS: Today, we're starting with crown molding. We're in Oyster Bay, New York, at the home of Barbara and Ted Solomon. We're in their dining room. And we have Danny Lipford from "Today's Homeowner."
Danny, welcome to the show.
DANNY LIPFORD, HOST, "TODAY'S HOMEOWNER": Hi, thank you, Gerri.
WILLIS: We're going to get a lot of help from you today. What are the steps when you're putting up crown moldings?
LIPFORD: Well, first of all, measuring the room and deciding what size crown molding that you want to go with, because there are several different kinds.
In a room like this, it's about 12 by 14, the homeowner's picked the perfect size by going with a three-and-a-quarter inch crown molding. And fortunately, these days, you can buy crown molding, like they've done here, already painted and ready to go.
WILLIS: What other materials do I need? LIPFORD: Well, tools-wise, you'll want to pick up some caulk, some spackling, also putty pencils are very convenient, even with a white coloring like this. You can get the white putty pencil. And probably the thing that will make the project go the easiest, a motorized miter saw.
WILLIS: Well, let's get started.
LIPFORD: Great, sounds good.
WILLIS (voice-over): Before you buy your molding, measure the length of the walls you'll be trimming, and add 10 percent to the total to account for waste and mistakes.
When setting the molding, search for the studs in the wall and place a nail in the molding every two to three feet.
Cutting corners can be the trickiest part of the project.
LIPFORD: Our strategy is that we have the square cuts done here. What we'll do is take the next piece and do the coping joint in there.
WILLIS: Here's how it works. Run the first piece of crown molding into the corner. Next, (UNINTELLIGIBLE) cut the second piece that will form the corner angle in the shape of the profile of the molding. Think of it as two puzzle pieces that are joined together. These cuts can be easily made with a miter saw, and excess wood can be cut away with a coping saw.
(on camera): You know, this isn't the old-fashioned molding.
LIPFORD: One of the advantages of the plastic and manufactured- type moldings, you don't have the shrinkage, the expansion and contraction that you have with -- that can a problem with wood.
WILLIS (voice-over): After the molding is put up, use wood putty to fill visible nail holes and small gaps for a seamless look.
(on camera): So Danny, you've got this project done. It looks great.
LIPFORD: Thank you.
WILLIS: Is there anything left to do?
LIPFORD: Well, after everything dries as far as the putty that we put over the nail holes, a little bit of caulking, caulking the molding to the ceiling. And that really should be all that's necessary.
WILLIS: So it took you under three hours. But tell me what the price was.
LIPFORD: Well, under $200 for the materials, so fairly reasonable for that. And it really didn't take us much time, because the painting was already done. WILLIS: Great advice, as always. Danny, thank you.
LIPFORD: OK, thanks, Gerri.
WILLIS (voice-over): For the Solomons, crown molding was a great way to give their dining room a polished look.
TED SOLOMON, HOMEOWNER: So, Barbara, you think Danny and I did a good job?
BARBARA SOLOMON, HOMEOWNER: I think it looks great. It really finishes the room.
(END VIDEOTAPE)
WILLIS: If cutting the corners seems like a tough job, buy molding with miterless corners that are already precut.
Coming up, a look at next week's show. We'll be right back.
(COMMERCIAL BREAK)
WILLIS: Coming up next week on OPEN HOUSE, your home may be worth a lot more than you paid for it. Is it time to cash out? We'll take a look.
Plus, flipping, buying a property, fixing it up, and selling it. Is it really a moneymaker?
And our weekend project, a kitchen facelift on a budget, small upgrades that make a big improvement.
And we want to hear from you. Send us your comments, your questions to openhouse@cnn.com.
Thanks for watching OPEN HOUSE. We'll see you here next Saturday.
Coming up, "DOLANS UNSCRIPTED." But first, a look at the day's headlines.
Have a great weekend.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
Aired February 12, 2005 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BETTY NGUYEN, CNN ANCHOR: A suicide car bomb exploded this morning in a town south of Baghdad, killing 17 Iraqis and wounding 26. The blast occurred at a police checkpoint, which was near a hospital, and six of those killed were security guards.
Want to give you a live picture now of New York's Central Park, which is flowing with fabric, as you can see. A massive art exhibit called "The Gate" has opened this morning. It features thousands of pieces of saffron-colored fabric attached to the tall gates. The massive work of art stretches for 23 miles. It'll be up for 16 days. So if you're in the area, go see it.
"OPEN HOUSE" is next. But first, we want to give you a quick break.
ANNOUNCER: Today on OPEN HOUSE, even the most savvy homebuyers can fall victim to mortgage fraud. Find out how you can protect yourself.
Then, winter may be the slow season for real estate, but it's actually a great time to find deals. We'll show you how.
And our weekend project, crown molding. A little trim can do a lot to spruce up any room.
Next, on OPEN HOUSE.
GERRI WILLIS, HOST: Hello, and welcome to CNN OPEN HOUSE. I'm Gerri Willis.
From buying and selling to renovation and design, we show you how to get the most value out of your biggest investment, your home.
Part of protecting that value is avoiding scams, specifically mortgage fraud, which can fool even the most educated homebuyers. These scams are on the rise, and they are becoming more and more elaborate.
That was the case in Allentown, Pennsylvania, where scam artists swindled more than $1.5 million from their victims.
David Haffenreffer has the story.
(BEGIN VIDEOTAPE)
DAVID HAFFENREFFER, CNN CORRESPONDENT (voice-over): Patrick Dolf (ph) and Donald Stone (ph) are facing more than 50 years in prison after pleading guilty in an Allentown, Pennsylvania, real estate scheme that duped hundreds of locals into buying houses they couldn't afford, including Angie Sosa.
(on camera): Hi, Angie.
ANGIE SOSA, HOMEBUYER: Hi.
HAFFENREFFER: How are you?
(voice-over): She faces as 30-year mortgage she can't afford, a balloon payment, an interest rate of 11.9 percent, and state and local taxes.
SOSA: It's a dream for everyone to buy the house. And then they destroy it, in a way, they destroy everybody's dream, because we don't know how longer we can hold up to our house.
HAFFENREFFER: It worked like this. Dolf and Stone bought foreclosed properties for next to nothing, then jacked up the value of the homes with bogus appraisals. After finding an unqualified buyer, they'd falsify mortgage applications and employment histories just to get a bank to say yes to a loan.
Community activists worry their case could go well beyond subprime borrowers.
ALAN JENNINGS, COMMUNITY ACTION COMMITTEE: If the perpetrators, the predators, the scumbags that did this deal could get away with it as many times as they did, and for the system to fail them as much as it did, then I can only shudder to think of the number of cases of lesser degree of abuse, of mistreatment that's occurring in the real estate market. The FBI is calling it an epidemic. If our experience is any indication, it's got to be pandemic.
HAFFENREFFER: Jennings says it's not only the criminals who are at fault. He says lenders are also to blame.
JENNINGS: They allowed fraud to occur in a way that is so unbelievable that it's almost impossible to imagine that the lenders didn't know it was going on. They have culpability in this case, and need to make the borrowers whole by writing down their mortgages to the legitimately appraised value of the properties.
HAFFENREFFER: And victims aren't just those who were scammed. Mortgage fraud can lead to foreclosures, which can send surrounding property values plummeting.
UNIDENTIFIED MALE: A homeowner who can't afford the mortgage has that home foreclosed. The home suddenly goes off the market, turns into a rental property, or a property that is even abandoned. And suddenly, it creates the incentive for people in an entire block to want to pick up and move out.
What predatory lending does to a community is really tear at the heart of the structure and integrity of that community. HAFFENREFFER: For Sosa, it tears at the heart of her family.
SOSA: I don't want to give up yet. This is, like -- this is a dream for everyone, this is my children's home. This is what I have to offer them. So I don't want to give up.
HAFFENREFFER: For OPEN HOUSE, David Haffenreffer, CNN, Allentown, Pennsylvania.
(END VIDEOTAPE)
WILLIS: Knowing what to look out for is often the best way to protect yourself from mortgage fraud. Here with some advice is Chris Swecker. He's assistant director at the Criminal Investigative Division of the FBI. He's in Washington.
Hey, Chris, welcome.
CHRIS SWECKER, FEDERAL BUREAU OF INVESTIGATION: Good morning, Gerri.
WILLIS: Let's start with the 101 on mortgage fraud, and the types of mortgage fraud, specifically property flipping.
SWECKER: Unfortunately, it is very prevalent. Our caseload has actually increased about fivefold over the last three years in the mortgage fraud area. And property flipping is the most common type of mortgage fraud.
It involves multiple sales of property in a short period of time, either picking up a property through foreclosure, or some other way, or obtaining a contract to buy a property, and then, in turn, selling it very quickly to a buyer who can't really afford the property, or grossly inflating the value...
WILLIS: Right.
SWECKER: ... of the property, and...
WILLIS: All right.
SWECKER: ... through a fictitious appraisal.
WILLIS: You say that another problem is falsifying documents. Now, what do you mean by that?
SWECKER: A lot of times they prey on those that, you know, that natural desire to own a home. And they seek out people who wouldn't necessarily be able to afford the home that they are trying to get them in because they've in, number one they've inflated the value of the property. And, number two, it may be just more expensive than they can afford. And they dummy up the quote, the application documents, the earnings statements. All of the document application paperwork that's required to get a loan is falsified.
WILLIS: What do you mean by mortgage elimination scheme? SWECKER: Often, when someone's mortgage is about to go into foreclosure, or if you just want to -- if you fall for one of these late-night get-rich-quick schemes, advertising that you can just eliminate your mortgage debt, you can get caught up in a mortgage -- or some type of scam where you either sign your property over to someone else during a foreclosure, or you incur additional debt.
And what it, what you end up doing is paying rent to someone for a while, who actually takes ownership of your property, with the promise they'd give it back to you at some point in time. And the property end ups going -- ends up going into foreclosure, because they don't pay the mortgage that they promised you they would pay.
WILLIS: Wow.
SWECKER: They don't salvage your mortgage for you.
WILLIS: Chris, in...
SWECKER: In debt elimination, they do the same thing. They just say they'll help you pay off your mortgage real, in a very facile way or easy way. They don't pay off the mortgage.
WILLIS: I guess the rule of thumb is, if it sounds too good to be true, it probably is. Let's talk about some more warning signals that you could be facing a problem. What should consumers watch out for?
SWECKER: They should watch out for property that just sold recently. They need to know who their seller is. Often, an unscrupulous mortgage broker or scammer will pick up a piece of property on contract. They will contract to buy the property, and then two days later they'll sell you the property. But they've inflated the value of the property by about 100,000, some astronomical amount.
And so you get property that isn't worth what you think it is. And you are not actually buying from the -- or you are not dealing with the seller of the property. You are dealing with somebody who has a contract to buy the property. So you have to be very careful about taking an assigned contract. You should be dealing directly with the seller.
WILLIS: You know, I understand that you are saying no money down is another warning signal. Why is that?
SWECKER: Yes.
WILLIS: Lots of people have mortgage deals where they put no money down.
SWECKER: Yes, no money down is not illegal in itself. It's just, you have to be very careful with the no money down investment schemes or purchase schemes, because most of the time, it is too good to be true. And what's happening is, they're inflating the value of the property, and then that inflated value is your down payment. So it really -- the bank thinks that you made a down payment of $20,000, $30,000 on a home, when in fact that property was inflated, and the appraisal was inflated to that amount...
WILLIS: All right.
SWECKER: ... and it's reflected on the closing statement that you actually paid that money.
WILLIS: And people are sometimes pressured into a sale, as well, right?
SWECKER: That's right. They'll rush you to closing. They'll show documents to you and not want you to read those documents. They should have been provided to you ahead of time. The HUD form should be carefully reviewed. Everything should match up exactly the way you understand it to be. No surprises at closing.
WILLIS: Well, Chris, I appreciate your help today. Thanks so much for being with us.
SWECKER: Thank you very much.
WILLIS: Coming up on OPEN HOUSE, don't wait till spring to buy your dream house. Now is a terrific time to find deals, from new construction to movers. We'll show you how.
And our weekend project, crown molding. It's a small detail that offers big results, next.
But first, your tip of the day.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Keep closing costs down. Title fees, appraisal fees, document preparation fees, sealing the deal on your home can really add up. But you can curb those costs. Get a good- faith estimate. All lenders are required to give you an estimate of your closing costs within three days after you apply for a loan. And while it's no guarantee, it will give you an idea of how much you will be expected to shell out.
Question all the fees. Make sure you know what each item is, and whether it's required. And don't be afraid to ask for reasonable cost breaks. You may be able to negotiate a better price on some items. So get an estimate, and always ask questions.
That's your tip of the day.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
WILLIS: Right now, we're in the midst of the real estate off- season. Every year across the country, home sales drop off considerably during the winter months. But with new construction still available, and homes for sale, it makes it a terrific time for a buyer to negotiate.
(BEGIN VIDEOTAPE)
WILLIS: Stephen and Beatriz Mills fought a blizzard to shop for their dream home.
STEPHEN MILLS: Right before it started snowing, we met with David, like, it was -- was it around 11:00?
BEATRIZ MILLS: We, around 11:00, we went right back to the place that we knew we wanted to make an offer on.
STEPHEN MILLS: Yes, exactly.
BEATRIZ MILLS: But we wanted to see it one last time.
STEPHEN MILLS: Yes, he drove us out there. As he was driving, it started to flurry a little bit. And probably by the time we were done, there was already, I'd say...
BEATRIZ MILLS: I would say three or four inches of snow.
STEPHEN MILLS: ... three, four inches of snow on the ground.
WILLIS (voice-over): But the Mills are in the home-buying minority. The National Association of Realtors says only one in five homes are sold in winter, compared to almost a third in the summer. That means off-season buyers can catch a break, and not just from sellers. In winter, banks may drop interest rates by a quarter-point.
BOB BOULTON, PRESIDENT, AMERICAN MORTGAGE GROUP: We generally find some lenders offering pricing incentives when volume is low. In the winter markets, we have banks coming in to us, saying, If you can bring us more buyers, we'll give the buyer a break on their interest rate. So there's also an incentive to the buyer to buy a house in the winter.
WILLIS: Another off-season break, it's easier and cheaper to find movers.
REVITAL DRUTAN, GENERAL MANAGER, SCHLEPPERS: Most moving company gives between 5 to 20 percent off the cost of the move during the wintertime. But you can get much more for your money. It's not just a percentage that we take off. You can get boxes for free. You can get better dates to move.
WILLIS: But there are downsides. The lack of inventory in the winter may make it tougher to find your dream home. And, even if you do, that lovely blanket of snow covering the grounds means you won't be able to see landscaping underneath.
Still, any unseen problems with the exterior of the home can be covered by a contingency clause at sale.
(on camera): I think people feel like they maybe have a little less pressure in the buying process. DAVID FIALK, BROKER OWNER, CHOICE REALTY: And that is real important. The marketplace we've had in the past three years, where we've had more buyers than homes on the market, there were multiple offers, competitive bidding situations. And right now, with not as many buyers looking at that same home, there aren't as many contract offers, and the buyer can step back and truly think out the purchase, rather than acting on it on the spot.
(END VIDEOTAPE)
WILLIS: Even so, if you'd rather wait till spring, there are things you can do now, from securing a preapproval letter to locking in a mortgage rate.
Here to sort it all out is Doug Flynn. He's a certified financial planner with Flynn Zito Capital Management.
Welcome.
DOUG FLYNN, CERTIFIED FINANCIAL PLANNER, FLYNN ZITO CAPITAL MANAGEMENT: Thanks.
WILLIS: Good to have you here. I think the biggest thing that people want to do first is check out their credit. But what's the best way to do that?
FLYNN: Well, you could actually go to each of the credit agencies. But an easier way might be just to start thinking about mortgage process now, contacting your lender, and go through a prequalification process.
One of the things they'll do is run your credit report and see if there is anything that might need cleaning up, as well as give you an idea, based on how much you're putting down and what your income is, what you truly would qualify for in terms of a mortgage.
WILLIS: And they'll probably do that for free, rather than playing the -- paying the bureaus themselves.
FLYNN: That's true. You -- they'll do it for free. You don't necessarily need to do the formal preapproval process. A prequalification is typically all you'll need. And in there, you'll find out if you had an ex-spouse or an old credit card that you never closed, but you thought you did, things that might lower your credit scores you can get cleaned up.
And you have plenty of time to do that. If you wait until you are in contract and then apply for the mortgage, you don't have enough time to get that off your credit rating.
WILLIS: All right. Right. Well, (UNINTELLIGIBLE) big question, I know, for a lot of people out there. They overbuy. They buy too much house. How can I know how much house I can afford?
FLYNN: Well, there's a number of calculators online that you can begin with. But a good rule of thumb is, basically at around 6 percent for every $1,000 of income that you have, you can afford $47,000 worth of a mortgage. So a typical person that makes $5,000 a month can purchase about $235,000 worth of a mortgage.
You add that to your down payment, you get an idea of how much you can afford.
The last thing you want to do is start looking at $400,000 homes when truly all you can afford are $300,000, because you are going to be disappointed.
WILLIS: Do you like the calculators on the Web, Doug?
FLYNN: I think they are a good place to start. The problem is, most of the advertising rates that you see online, as well as on TV, are only for the top tier preferred people who qualify across the board in every best possible scenario. The way that you really need to do it is go through that process. So you find out, if you're not a top tier person, what rate you really would get. It could be a quarter to a full point higher than what you see.
WILLIS: All right. Well, how do you find the lender?
FLYNN: Well, the best way, I think, is through referral. Much like any other professional, you want to talk to your friends and family and see who's had good experience. You may want to use a bank. You want -- may want to use a private lender. They're all available to you. You can talk to your other professionals, your accountant, your CFP, find out who they might know.
You just want to watch if there's any referral arrangements that are disclosed, if there's any residual compensation. You want to know about that, if there is.
But basically, look to the people that you know that have had good experiences.
WILLIS: All right. Well, let's talk about locking in a rate. Everybody's worried about rates rising. How early can I make sure that I've got a good rate?
FLYNN: The only problem with locking in is, it's typically only available for 60 to 90 days. And beyond that, they're, they're going -- you're going to pay a fee for that. So I wouldn't even entertain locking in until you're actually in contract. And actually, once you're in contract, that's when you go about the process of getting the actual mortgage.
What you want to do is try to prepare ahead of time for that. But once you're in contract, you can take a look and see if rates are really starting to rise, you might want to pay to extend the rate lock if that's something that's important to you. But typically, you're going to close within 60 to 90 days. You don't necessarily need to spend the money on a rate lock unless rates are really going up very fast.
WILLIS: What's better, prequalification or preapproval when you're shopping for the home?
FLYNN: Prequalification is typically free. They get used interchangeably in terms of the terms. Preapproval is the very formal process where you're probably going to pay a fee to the lender, and they're going to put a stamp on their letterhead that says you've been preapproved for a certain amount. It's not a very common thing that you need. Most people will go and be OK with a prequalification number.
But still, I think that's a good exercise to go through, because you'll find very clearly how much you can afford, but it also tells the person you might be buying the house from how much you can afford as well.
And it's not going to necessarily help you in terms of getting it. But if you don't have it, and another person is also interested in the same house you are has it, it could be worked against you. So I think it's something you should have.
WILLIS: Doug, thanks so much for being with us today.
FLYNN: Thank you.
WILLIS: Coming up on OPEN HOUSE, our weekend project, crown molding. It's the perfect finishing touch for any room. Make it your weekend project, next.
(COMMERCIAL BREAK)
WILLIS: Welcome back to OPEN HOUSE and weekend project, where we take on a two-day project that you can finish yourself.
(BEGIN VIDEOTAPE)
WILLIS: Today, we're starting with crown molding. We're in Oyster Bay, New York, at the home of Barbara and Ted Solomon. We're in their dining room. And we have Danny Lipford from "Today's Homeowner."
Danny, welcome to the show.
DANNY LIPFORD, HOST, "TODAY'S HOMEOWNER": Hi, thank you, Gerri.
WILLIS: We're going to get a lot of help from you today. What are the steps when you're putting up crown moldings?
LIPFORD: Well, first of all, measuring the room and deciding what size crown molding that you want to go with, because there are several different kinds.
In a room like this, it's about 12 by 14, the homeowner's picked the perfect size by going with a three-and-a-quarter inch crown molding. And fortunately, these days, you can buy crown molding, like they've done here, already painted and ready to go.
WILLIS: What other materials do I need? LIPFORD: Well, tools-wise, you'll want to pick up some caulk, some spackling, also putty pencils are very convenient, even with a white coloring like this. You can get the white putty pencil. And probably the thing that will make the project go the easiest, a motorized miter saw.
WILLIS: Well, let's get started.
LIPFORD: Great, sounds good.
WILLIS (voice-over): Before you buy your molding, measure the length of the walls you'll be trimming, and add 10 percent to the total to account for waste and mistakes.
When setting the molding, search for the studs in the wall and place a nail in the molding every two to three feet.
Cutting corners can be the trickiest part of the project.
LIPFORD: Our strategy is that we have the square cuts done here. What we'll do is take the next piece and do the coping joint in there.
WILLIS: Here's how it works. Run the first piece of crown molding into the corner. Next, (UNINTELLIGIBLE) cut the second piece that will form the corner angle in the shape of the profile of the molding. Think of it as two puzzle pieces that are joined together. These cuts can be easily made with a miter saw, and excess wood can be cut away with a coping saw.
(on camera): You know, this isn't the old-fashioned molding.
LIPFORD: One of the advantages of the plastic and manufactured- type moldings, you don't have the shrinkage, the expansion and contraction that you have with -- that can a problem with wood.
WILLIS (voice-over): After the molding is put up, use wood putty to fill visible nail holes and small gaps for a seamless look.
(on camera): So Danny, you've got this project done. It looks great.
LIPFORD: Thank you.
WILLIS: Is there anything left to do?
LIPFORD: Well, after everything dries as far as the putty that we put over the nail holes, a little bit of caulking, caulking the molding to the ceiling. And that really should be all that's necessary.
WILLIS: So it took you under three hours. But tell me what the price was.
LIPFORD: Well, under $200 for the materials, so fairly reasonable for that. And it really didn't take us much time, because the painting was already done. WILLIS: Great advice, as always. Danny, thank you.
LIPFORD: OK, thanks, Gerri.
WILLIS (voice-over): For the Solomons, crown molding was a great way to give their dining room a polished look.
TED SOLOMON, HOMEOWNER: So, Barbara, you think Danny and I did a good job?
BARBARA SOLOMON, HOMEOWNER: I think it looks great. It really finishes the room.
(END VIDEOTAPE)
WILLIS: If cutting the corners seems like a tough job, buy molding with miterless corners that are already precut.
Coming up, a look at next week's show. We'll be right back.
(COMMERCIAL BREAK)
WILLIS: Coming up next week on OPEN HOUSE, your home may be worth a lot more than you paid for it. Is it time to cash out? We'll take a look.
Plus, flipping, buying a property, fixing it up, and selling it. Is it really a moneymaker?
And our weekend project, a kitchen facelift on a budget, small upgrades that make a big improvement.
And we want to hear from you. Send us your comments, your questions to openhouse@cnn.com.
Thanks for watching OPEN HOUSE. We'll see you here next Saturday.
Coming up, "DOLANS UNSCRIPTED." But first, a look at the day's headlines.
Have a great weekend.
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