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Open House

Insurance For Flooding; Real Estate Prices Drop In Some Markets; Mortgage Brokers Profitable

Aired October 15, 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: In Pakistan, prayers today for the victims of last weekend's massive earthquake. The latest official death toll in Pakistan has been revised to 38,000. An estimated two million people are homeless. And to make things worse, winter has arrived in the mountainous region.
And in Washington, this weekend marks the 10th anniversary of the Million Man March. Today's commemoration of that event is called the Millions More movement. Just under five hours from now, Nation of Islam leader Louis Farrakhan, who organized the Million Man March, is expected to speak.

Straight ahead on "OPEN HOUSE," we will tell you what to do if your home floods, and how to keep you from sinking your investments.

Tony and I will be back at the top of the hour with more of our extensive live coverage of the Iraqi elections. The polls are expected to close in about 30 minutes.

"OPEN HOUSE" with Gerri Willis is next. But as you watch "OPEN HOUSE," we will be showing you live pictures of voting in Iraq.

GERRI WILLIS, CNN ANCHOR: What if your roof leaks, or your basement fills with water? Or, worse, you have a real flood, like what you see all over the Northeast right now?

Good morning, I'm Gerri Willis.

Flooding is one of the biggest threats to homeowners, whether you live near the water or even far inland. Today on OPEN HOUSE, we'll explore what you can do if you get flooded.

We begin with Chris Huntington.

(BEGIN VIDEOTAPE)

CHRIS HUNTINGTON, CNN CORRESPONDENT (voice-over): From New Hampshire, the site of the worst flooding in 25 years, to the Gulf Coast, where town after town is still in ruin after Katrina's floods, to California, where places like La Conchita are digging out 10 months after massive mudslides, floods and flash floods threaten all 50 states.

MICHAEL SCHLACTER, CHIEF METEOROLOGIST, WEATHER 2000: Happens all over the country, Northwest, Southwest, Northeast, Southeast. The weather mechanisms that cause the flooding might differ from region to region, but flooding by far is the most frequent damage to your home in the U.S.

HUNTINGTON: Insurers say it's an even greater danger than fire, but flood insurance is only available through the government, provides only a maximum of $250,000 in coverage on the house, and $100,00 for possessions. And only a minority of homeowners even have it.

BOB HARTWIG, CHIEF ECONOMIST, INSURANCE INFO. INST.: If you live in one-in-100-year flood plain, your odds of being flooded in a 30- year period, the course of a typical mortgage, are 26 percent. That's pretty high.

HUNTINGTON: And it doesn't have to be as bad as this week's floods to do serious damage. The government's flooding Web site, Floodsmart.gov, estimates only one inch of water seeping into a house can cause an average of $7,800 damage to carpeting, walls, and possessions.

Floodsmart.gov can also give you a personal estimate. Just type in your address to see if you're in a flood hazard area, though what you see may not be a complete picture. FEMA, which oversees the maps, acknowledges they're outdated, and is embarking on a math modernization program.

(END VIDEOTAPE)

WILLIS: So Chris, why are these maps outdated?

HUNTINGTON: Gerri, one of the biggest problems has been rapid development in what had naturally been flood plain areas, grassy flood plain areas around rivers and streams now crowded with houses. It's been a particular problem in the last 20 years or so. You know, the mapping program began in the mid-'70s, and they may have gotten through the first stage with some accuracy. But, of course, that's been overrun by developments since then.

WILLIS: Wow. You've been covering these floods all week long throughout the region. What are homeowners doing?

HUNTINGTON: Gerri, it runs the gamut. You know, earlier in the week, we were up in New Hampshire, Alstead, New Hampshire, just hit by just ferocious wave of water that came down a steep gorge, wiping out homes. In fact, in some areas, absolutely wiping out the land.

In those kind of situations, the people don't have a choice of rebuilding. They simply have to move.

Here in New Jersey, an area that is regularly flooded, people are either stubbornly resilient, or finally giving in. We spent some time with a family that, frankly, said they've had enough, and they are moving out, in fact, maybe even moving out of the state.

WILLIS: Wow, Chris, I got to ask you, the problem in the Gulf Coast, not many people had flood insurance. Do people there have flood insurance?

HUNTINGTON: Gerri, we ran into a guy yesterday who had a perhaps, maybe it's a local joke or a local myth, if you will. He said he talked about people living in relatively inexpensive homes, driving expensive cars. He was alluding to the fact that people here do tend to have flood insurance, at least perhaps more than what you might see nationally. And they've been able, to a certain degree, at least in this guy's estimation, take advantage of that.

The fact is, though, nationwide, as you well know, very, very few people have flood insurance where it might be necessary. And we certainly found that the case up in New Hampshire. People were very surprised to be hit by a river that, in the local knowledge up there, hadn't crested to that level in more than 100 years.

WILLIS: Well, Chris, thank you for that report. It's good to hear at least some people out there have flood insurance.

And, of course, flood insurance is essential for covering the cost of fixing your damage.

Joining us from Washington with the lowdown on buying your own policy, Madelyn Flannagan of the Independent Insurance Agents of Brokers of America.

Madelyn, welcome to the show.

MADELYN FLANNAGAN, INDEPENDENT INSURANCE AGENTS OF BROKERS OF AMERICA: Thank you.

WILLIS: Now, a lot of people do not have flood coverage. Is it because it's too expensive?

FLANNAGAN: I think it's -- might be -- it's expensive for some folks, but some folks don't even know that it's available.

WILLIS: Well, it's available through agents, right, like the organization you represent?

FLANNAGAN: It's available through agents. It's also available through insurance companies that represent the National Flood Program.

WILLIS: And the big question here, though, if your house is destroyed by a flood, at the end of day, even the flood insurance policy isn't going to make you whole.

FLANNAGAN: Well, it's not going make you whole. But, as I said, you might want to make sure that you understand that your flood insurance policy covers your building, but you still own the lot that it sits on. And that still has value. So when you add together the value of your lot and your home, you might have enough coverage.

WILLIS: It's cold comfort if only the lot is covered.

Well, let's talk a little bit about the 101 on what actually is covered. We're used to seeing these disasters, obviously flood insurance steps in there. But what if I break a pipe in the bathroom and have a flood, will the -- is that covered as well? FLANNAGAN: It's covered in your homeowner's policy, if a pipe breaks in your wall and water gets all over the floor, and you have mold and those types of things, then you have coverage under your homeowner's policy for that.

WILLIS: Now, what about, let's say, I have some kind of obstruction in my gutter, something I could have controlled. Then do I have to pay for the damage, or will my insurance?

FLANNAGAN: Well, typically, your insurance will pay for water that pushes in under the eaves of your house, that type of thing, if it's driven by the wind. That would be covered under your homeowner's policy. Typically, flood insurance is talking about a groundswell of water or mud that typically coming from an area that's not usually covered with water.

WILLIS: OK. So it only covers in certain situations. Give us a quick list of when I can expect to have flood coverage kick in.

FLANNAGAN: Well, any time that water seeps in, in your basement, any time a groundswell of water pushes into your home, any time mud pushes into your home, you can expect flood insurance to pay for that.

WILLIS: So water from the bottom up, obviously, is what we're talking about.

FLANNAGAN: Right.

WILLIS: Who do you recommend buy flood insurance?

FLANNAGAN: I recommend that everybody buys flood insurance, because if -- whether you're a low-risk, a moderate-risk, or a high- risk area, flood insurance is most likely available to you, and as you've seen from all these floods around the country, it can happen to anyone.

WILLIS: Well, that's absolutely true.

I think a lot of people out there think, boy, you know, I'll have FEMA pick up my cost if I have a flood. But that may not necessarily work.

FLANNAGAN: Absolutely. It may not work if that's not a disaster declared in your area. So, you know, if no disaster is declared, then flood, you know, then the disaster aid may not kick in, but flood insurance would pay.

WILLIS: OK, very good to know.

And what's the delay? Once I sign on the dotted line with my insurance agent, is there a window, a period of time, where I won't get coverage?

FLANNAGAN: You have, typically have a 30-day waiting period once that you've signed that contract, paid your premium, and put it in force. Now, if you do have a federally backed mortgage that requires that you do carry flood insurance, that coverage goes into effect right away.

WILLIS: But if you're listening to the radio and you're hearing a hurricane warnings and hoping to get coverage in the next 24 hours, forget about it, right?

FLANNAGAN: Forget about it. You're going...

WILLIS: All right.

FLANNAGAN: ... to have a 30-day waiting period.

WILLIS: All right. Well, Madelyn Flannagan, thanks for your time today.

FLANNAGAN: Thank you.

WILLIS: Coming up on OPEN HOUSE, it's happening in key areas around the country. Housing prices are dropping. We'll tell you where.

Plus, portable generators can be a lifesaver after a power outage, but they can also be deadly. We've got vital information on your safety.

And don't get ripped off. Know what you're paying for when you go to a broker.

(COMMERCIAL BREAK)

WILLIS: Finally, no more speculation, but real facts about real estate prices. For the first time in a long time, prices are headed lower, at least in some markets.

For details, we turn to our own Allan Chernoff.

(BEGIN VIDEOTAPE)

ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): Chris Brunt has been trying to sell his home in suburban Detroit for nine months. The three-bedroom home is in good condition. Still, Brunt has had to lower his price several times.

CHRIS BRUNT, HOMEOWNER: We expected to have it sold, you know, four to six months ago, and we currently are paying two mortgages, which is a big challenge.

CHERNOFF: Last week, he finally signed a contract to sell for $145,000, a price at which Brunt says he'll lose about $20,000 on his investment, not what Brunt anticipated when he bought three years ago.

Detroit's housing market is suffering, Realtors concede, along with other cities that have weak job markets, like Cleveland and Rochester.

PATRICIA TEELEY, GMAC REAL ESTATE: This year, it is quite common that homes are absolutely taking much longer to sell. CHERNOFF: Now, even some of the nation's hottest markets are beginning to show signs of softening. The supply of homes for sale is up in Northern and Southern California, Las Vegas, Washington, D.C., and New York. Even if demand remains constant, that's a formula for prices to begin easing.

FRANK NOTHAFT, FREDDIE MAC: If you live in a place that's had double-digit house price appreciation for the last few years, don't expect that continuing. If anything, I expect that we're going see significant slowdown in house price growth...

CHERNOFF: In the nation's most expensive market, Manhattan, prices actually declined last quarter. The average sales price of Manhattan apartments was down 13 percent to $1.1 million. And the number of days apartments were on the market increased by 30 percent. The market is returning to normal after racing for years, says broker Dottie Herman.

DOTTIE HERMAN, PRUDENTIAL DOUGLAS ELLIMAN: If you're driving on the expressway and you're speeding, and you're doing 120 miles an hour, and then you see a state trooper, so you slow down, and do the speed limit, you feel like you're not driving anymore, you feel so slow.

CHERNOFF: It is still too early to say the nation's housing market is heading south, but if mortgage rates, now at 6 percent, continue rising, forecasters say it is likely that home price increases will become more the exception than the rule around the country.

(END VIDEOTAPE)

WILLIS: I don't think people have a loot of sympathy for people in Manhattan, who have, you know, home prices over a million dollars, I mean, let's face it. But when you see places like Detroit, and, of course, this has happened throughout the Midwest, where we've seen jobs fall, lots of layoffs, there are problems, places where there have been problems even through the boom.

CHERNOFF: Yes, of course. I mean, you've got to have a decent income in order to buy a home. And in these cities where the job market is heading south, the real estate market is following, no question. But keep in mind, these cities are the exception.

WILLIS: Right.

CHERNOFF: Nationwide, the housing market is still quite strong.

WILLIS: And even in places where you've seen prices go higher and higher and higher, and everybody is so afraid of the bubble bursting, you're saying that, I mean, come on, at the end of day, prices are probably going to rise more through the boom than they fall, if they fall at all, right?

CHERNOFF: That typically is what happens. But what's also important to note now is that price increases are moderating, at least. So that's maybe the first step toward seeing the housing market nationwide actually go down, seeing those housing prices increase, but not all that much anymore. People are seeing that, and a lot of folks are saying, uh-oh, I'd better get my house on the market. We're seeing more supply, and if you've got more supply, same demand, the prices will begin to come down, especially if interest rates keep going up.

WILLIS: And that's, you know, that's good news, really, for people who have been in the market, who have been trying to find a house to live in, and have had a really hard time doing it. Maybe you're going get a break here, and prices are going to moderate a little bit, even come down.

You know, the flip side of the equation, though, and I know, Allan, you know this, interest rates are expected to rise here. So at the end of the day, you may be paying more for that loan.

CHERNOFF: That's right. You have to factor out, what are you paying on a monthly basis? I mean, if mortgage rate goes up, housing prices have to come down somewhat, if mortgage rates really go up, and significantly. Historically, as you know, they're still quite cheap.

WILLIS: And, of course, it's always market by market. I think that's a hard thing for people to keep in mind is that even during the greatest boom we ever had, there were places where the prices were actually going down.

CHERNOFF: Yes. I mean, the price that we're seeing for Manhattan apartments, for example, that shows you how local real estate is. I mean, the prices are insane in Manhattan. They just couldn't get those prices hardly anywhere else on the planet. But, New York, that's one very special local market.

WILLIS: You bet, Allan. Thank you so much.

Ahead on OPEN HOUSE, portable generators are critical after a power failure, but you have to know how to use them right. In our weekend project, we'll have some lifesaving tips.

And later, making sure your mortgage broker has your best interests at heart.

But first, the mortgage numbers.

(COMMERCIAL BREAK)

WILLIS: Welcome back to OPEN HOUSE.

An electrical generator can be a lifesaver during a power outage, but used incorrectly, it can be dangerous, even deadly.

Here to talk about generator safety is David Dunbar from "Popular Mechanics."

David, welcome.

DAVID DUNBAR, "POPULAR MECHANICS" MAGAZINE: Thank you very much.

WILLIS: We know that the problems most people have with generators is carbon monoxide poisoning. How do we avoid that.

DUNBAR: It doesn't look dangerous, but a midsize rig like this puts out as much carbon monoxide as six cars idling.

WILLIS: Wow.

DUNBAR: So you'd never think of a -- putting an idling car in your house, but people do use these indoors. And when there's a lot of wind and rain, they try to put them in sheltered areas. And you ...

WILLIS: That's a bad thing to do, right?

DUNBAR: Well, that's OK as long as you're not near an open window, or an air conditioner vent, anything that can draw in the CO. And the CO is heavier than air, so it tends to pool. And what you should do, you should always be at least 10 feet away from your house. And a lot of manufacturers recommend heavy-duty, all-weather cable, called a gen cable, that's at least 25 feet long, and you plug that into the generator and...

WILLIS: So something even more...

DUNBAR: ... run it through a window.

WILLIS: ... heavy-duty than this probably.

DUNBAR: Even more heavy-duty than that.

WILLIS: The other big hazard, electrical. You can electrocute yourself, actually, on one of these if you don't use it correctly.

DUNBAR: Correct.

WILLIS: What do I need to know?

DUNBAR: You need to use it in a dry place, as well as well ventilated. And what you shouldn't do is run a line from the home generator directly into your service panel, your electrical service panel, because there's a problem with -- there's many problems with that. But one of them is that the electricity can leak back into the grid, and if a lineman comes to work on a downed -- on downed wire, he may think they're dead wires, but you're generating your own electricity, they can get electrocuted.

What we recommend as well, "Popular Mechanics," is use -- fuel -- refresh the fuel, so it's not sitting there all year. And also, you can put in fuel preservatives as well that you can buy at a hardware store.

WILLIS: What's the preservative for?

DUNBAR: It keeps it from settling out when you've got it in the tank over an extended period of time.

WILLIS: So David, as the reality with these things, though, is that you're going use them. Maybe there are hurricane warnings out, maybe there are no lights in the neighborhood. You're using them precisely under the conditions whereby the warranty says maybe you shouldn't be doing that. You shouldn't be wet, nothing should be wet. What can you do?

DUNBAR: Well, you should try and use it in a dry area that has ventilation. That's not always easy. But don't -- whatever you, don't take it indoors, and don't take it into your garage to find those dry areas. You can set up an awning over top of it. There are other options. But don't take it indoors to avoid the rain and the wet.

WILLIS: Let's go over some of those tips once again, so everybody gets them.

Number one, you want to use them outdoors, is that right? Make sure they're really well ventilated. What else, David?

DUNBAR: Ten feet away from the house, at a minimum. Never run them directly into your electrical system.

WILLIS: And you want to make sure that there's an awning overhead if it's wet outside, because you don't want these to get wet.

DUNBAR: Right, and don't run them near windows, open windows, or vents that lead into the house.

WILLIS: And you say that children may be most at risk if you do have them indoors, because that CO2 is going to congregate all along the floor, right?

DUNBAR: That's right. It's going to pool down near the floor.

WILLIS: Very good. Thank you so much.

DUNBAR: Thank you.

WILLIS: Coming up, my tips on managing your mortgage the smart way.

More OPEN HOUSE is next.

(COMMERCIAL BREAK)

WILLIS: A state lending license, a computer, a phone -- that's pretty much all you need to become a mortgage broker. And many have chosen to do just that and made a fortune in the process.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): The booming real estate market has made a lot of money for a lot of people, especially the mortgage brokers, the men and women who pair borrowers and lenders. This year alone, the home mortgage business is expected to produce nearly $3 trillion. They're a group that has seen enormous growth.

ALLEN FISHBEIN, CONSUMER FEDERATION OF AMERICA: It's estimated that, in the prime market, between 25 and 30 percent of all mortgages are handled through brokers. In the subprime market, it's probably double that, as much as 60 percent or more of subprime loans are handled through broker channels.

WILLIS: According to Wholesale Access and Industry Research Company, there are about 400,000 mortgage brokers working in about 53,000 firms today. Compare that to 1987, where there were only 7,000 firms.

BRAD INMAN, PUBLISHER, "INMAN NEWS": There's a lot of people feeding off the volume of consumer loans, both refinancing and for sale. And so people can easily jump into this profession, put up a shingle, put up a Web site, easily get a real estate license.

WILLIS: And as home prices have risen, so have broker fees. Your best bet for minimizing the broker fee you'll have to pay.

INMAN: Ask your mortgage lender, your loan officer, or on the Internet the question as to whether you really have to pay that fee, and can they waive that fee?

(END VIDEOTAPE)

WILLIS: There is one fee your broker isn't likely to bring to your attention, yield spread premiums. Now, that's a charge assessed as a higher interest rate, and it's common in the industry. Critics say they're little more than a rebate from the bank to the broker for landing a customer willing to pay a higher rate of interest.

As always, if you see a fee you don't like, negotiate. The mortgage brokerage business is a competitive one these days. Use it to your advantage.

We covered a lot of ground in today's show, but wait, there's more. The president's tax advisory panel this week suggested cutting the mortgage deduction. That's right. The panel says that instead of allowing a deduction of mortgage interest on loans of up to $1 million, Americans should only deduct interest on loans sizes of $350,000 and less.

Some say the current system helps the wealthy way too much. You can tell that to homeowners in California, where buyers have to pony up more than $500,000 for just an average-sized house.

There is good news, though. The idea isn't expected to get much traction. But if Washington politicians come anywhere close to cutting your biggest tax break, you'll hear about it on OPEN HOUSE.

And if you have strong feelings about this, and I certainly, we want to hear from you. You can e-mail us at openhouse@cnn.com. Thanks for watching OPEN HOUSE. We'll see you here next Saturday.

Stay with CNN. The day's top stories are next.

And have a great weekend.

TONY HARRIS, CNN ANCHOR: The polls are closing all across Iraq at this hour. First reports indicate a very high turnout in this historic vote on a new constitution. Here is -- this a live picture? Sure it is -- of a Baghdad polling place. We'll take you there in just a moment.

And good morning, everyone. From the CNN Center in Atlanta, I'm Tony Harris.

NGUYEN: And I'm Betty Nguyen. It is 5:00 p.m. in Iraq, 10:00 a.m. here on the East Coast, on this 15th day of October.

Much more on Iraq's critical vote in just a moment.

But first, here are some of the day's top headlines.

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