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Open House

Feds Crack Down On Mortgage Fraud; Holiday Shopping Tips To Prevent Going Broke; Design On A Budget

Aired December 17, 2005 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

FREDRICKA WHITFIELD, CNN ANCHOR: Tens of thousands of bus riders in New York may have to find another way to get to work on Monday. That's when the first phase of the Transport Workers Union strike is scheduled to begin. The union wants an eight percent pay hike per year for three years.
The Emmy Award-winning actor who played the president's chief of staff on NBC's hit show "The West Wing" has died. John Spencer's publicist says he had a heart attack and died in a Los Angeles hospital. He was 58 years old. Spencer appeared in more than 40 television series and movies.

And this holiday season, you want to stay within your budget, but also make your house beautiful. CNN's Gerri Willis shows you affordable and unique holiday decor.

We'll be right back at the top of the hour for President Bush's radio address on the Patriot Act. That's live.

"OPEN HOUSE" begins right now.

GERRI WILLIS, CNN ANCHOR: It's the week before Christmas. You may be worried about sticking to that holiday budget.

Good morning, I'm Gerri Willis. Today on OPEN HOUSE, we'll show you how to keep your spending in check. We'll also look at some last- minute affordable but novel ways to decorate your home.

But first, a major story unfolding this week out of Washington. It involves hundreds of millions of dollars, and some very long prison sentences. The Feds are cracking down on mortgage fraud.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Tawana McFarland (ph) is disgraced, disbarred, and at the start of a 30-year prison sentence, the longest ever handed down for mortgage fraud. This former Atlanta-area attorney was convicted in August on charges ranging from identity theft to inflating appraisals. She cheated homeowners and companies out of almost $12 million on more than 100 properties.

And authorities say it's becoming a nationwide epidemic. Known losses from cases prosecuted during the past four months alone top $600 million.

ANDREA MARTIN, IRS DIRECTOR OF OPERATIONS: You have a very hot market for a number of years running now in the real estate industry. You couple that with the explosion in refinancings. You just have the, you know, the perfect climate for criminal activity.

WILLIS: Mortgage fraud is most common in California, Nevada, Utah, Arizona, Colorado, Missouri, Illinois, Maryland, Georgia, and Florida. To combat the problem, authorities announced Operation Quick Flip this week, a joint program of the FBI, IRS, Department of Housing and Urban Development, and other agencies. It's aimed at stopping those who swindle homebuyers, especially fly-by-night mortgage brokers who popped up with the real estate boom.

CHRIS SWECKER, ASSISTANT DIRECTOR, FBI: I think it is a function of volume. I think it's also a function of the willingness on the part of people who haven't been in the business that long, and who come into the business strictly to -- pretty much to exploit, you know, the vulnerabilities in the system.

WILLIS: Authorities also say they want the mortgage industry itself to crack down on the culprits, something industry insiders say they've been doing.

KURT PFOTENHAUER, MORTGAGE BANKERS ASSOCIATION: We're working with law enforcement to train them in all facets of the mortgage transaction, so that they can understand how the fraud is being perpetrated. We're also attempting to educate our membership, the lenders themselves, to be on the lookout for different types of fraud.

WILLIS: But the criminals are looking at mortgage fraud as easy money, and that means even as markets cool, fraud could continue to rise.

(END VIDEOTAPE)

WILLIS: One of the authorities who announced this crackdown is Ken Donohue, inspector general of the Department of Housing and Urban Development. He's joining us now from Washington.

Ken, thanks for being with us.

KEN DONOHUE, INSPECTOR GENERAL, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT: Well, thanks for having me.

WILLIS: Now, mortgage fraud is a really broad term. Specifically, what kinds of scams are being perpetrated?

DONOHUE: We've seen scams from identity theft to foreclosure fraud, misrepresentation to flipping. And it has become a significant problem within white-collar crime fraud area.

WILLIS: And what about bogus appraisals, phony loan apps? How does this stuff work?

DONOHUE: Well, it's very simple. What's happening is, they're going into appraisals that inflate the value of the property, and go back in to a mortgage lender and get the property at that point, and then go back out to some prospective buyer to buy into this property, often with no down payment whatsoever.

WILLIS: Wow. OK, well, you know, the market overall is cooling. You'd think that there'd be fewer scams. But you're saying that's just not the case.

DONOHUE: I think it's on the increase. I'm not so sure we've seen the iceberg or the tip of the iceberg. And the next couple years going to tell a lot.

WILLIS: Ken, who's doing this? Is it the mortgage industry? You guys called on the industry to police itself. Is it big operators, small ones, mortgage brokers, bankers? Who's responsible?

DONOHUE: These lenders are -- it's a competitive field, and they're out there. There's crooks out there in this industry. They're in big companies and small companies alike. They see the opportunity, have no anticipation of what might happen to them. And what they do is, they bring this business to the door. And I'm afraid that these industries are not watching this stuff closely.

WILLIS: How much money is lost?

DONOHUE: Well, we're talking about over $600 million in the last several months. We're probably thinking about a billion dollars this past year. So it's a significant amount, as best we can tell, and I'm afraid it still continues to grow.

WILLIS: What are you doing to protect us?

DONOHUE: We joined up, our office, with the FBI and other federal agencies as well to focus this issue, to try and mass our resources together and target this stuff in eight task forces throughout the country.

WILLIS: All right. Ken, I want to talk about what consumers can do to protect themselves. What do you advise? I mean, how do you know that the lender or the broker you're dealing with is a scam artist?

DONOHUE: Consumers got to be aware. You know, it's like my mom used to always say, If a deal's too good to be true, it's too good to be true.

WILLIS: All right.

DONOHUE: They have to go back and question these appraisals. They have to question these closeouts. When they go back and see these prices come to them, that their truth in lending at the loan time, they have to be aware of it. And they have to question when people come up to them and say, Listen, I got a great deal from you...

WILLIS: Right.

DONOHUE: ... I can remove you from your foreclosure problems. And they need to contact the authorities and let them know. WILLIS: So you're to watch out for high-pressure sales tactics, obviously. That's a sign something is going wrong. But you're saying you also have to do a lot of due diligence. You need to know comp sale prices in the area so you don't overpay. Is that right?

DONOHUE: You bet. You bet. And the industry has to do a better job. You know, they got to walk the walk, not just talk it. They got to go back and make sure that they're focusing on due diligence with their lending institutions and their lenders. They have to go back sure that they refer these issues to us, suspicious activity reports, and they have to go back and make sure they're policing their own industry closely to make sure they do quality control.

WILLIS: Now, you say, make sure that the name on your application and on any document matches the name on your ID. Why is that?

DONOHUE: You bet, because the fact is, what we're seeing is identity theft, people misrepresenting themselves. There's been exchange of information. We've had situations where lenders have gone back to a fraudulent lender and provided all sorts of information, from everything from their business pay stubs to the rest to misrepresent themselves, and send that on to some mortgage company for a mortgage.

WILLIS: Now, Ken, one last thing here. You say, don't sign any document with blanks on it. Why is that?

DONOHUE: You bet. I mean, it's just a good business practice, because once you go back and sign your signature to this documents, you're held responsible. That property goes into foreclosure, you're the one left on the hook, and that's the last thing we want to do. People work too hard in this country to try and have a house over their head, and they need to make sure they're doing the right thing.

Any question, they need to contact the authorities and make sure they're dealing with right people.

WILLIS: Well, Ken, thanks for putting us on the right track.

DONOHUE: Listen, thank you so much for having me.

WILLIS: Coming up in OPEN HOUSE, looking for luck in all the wrong places. We'll show how to shop smart for your home this holiday season, and stay within your budget.

And later, you won't believe what one architect fit in this shipping container. We'll show you one box you'll want to move into.

But first, your tip of the day.

(BEGIN VIDEO CLIP)

WILLIS: What's the best time of year to buy a house? Experts agree that the spring months, April through July, are peak season in the real estate business. So avoiding that buying frenzy may sometimes work out better. During off-season dealings, when home loans are in less demand, lenders are more likely to waive some of the fees they typically charge. The period between Thanksgiving Day and New Year's Day, in particular, is when you can do some of your best negotiating. Sellers are more inclined to accept an offer to avoid interruptions during the holidays.

And remember to keep tax consequences in mind if you do choose to buy late in the year.

And that's your tip of the day.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

WILLIS: So you're making your list and checking it twice. The holiday spend-a-thon is on, and if you're not careful, you could end up with a debt hangover. But you can do your holiday shopping without going broke.

Here to help is Ellen McGirt. She's senior writer with "Money" magazine.

Ellen, good to see you.

ELLEN MCGIRT, SENIOR WRITER, "MONEY" MAGAZINE: Thanks for having me.

WILLIS: What is the culprit here? Everybody overspends at this time of year, and then by January, you have the worst debt hangover imaginable. You end up paying for Christmas through...

MCGIRT: Right.

WILLIS: ... August, practically.

MCGIRT: That's right.

WILLIS: What's the culprit?

MCGIRT: If you're lucky. It's being human. Families and relationships and love and all that good stuff. It's crazy all times of the year, but this time of the year, it's the worst. The guilt, you're competing with other grandparents, you've got t prove to the new girlfriend that you're hipper than the last guy. Your mother's been great, your grandmother's been great, and you want to reward them

(CROSSTALK)

WILLIS: Yes, but it's not necessarily about the budget. You got to have a budget to start with, right?

MCGIRT: You have to focus on the budget. You have to focus on your goals and your needs for all year long, and then make that list and check it twice, and make sure that you're staying within that budget. And it's tough. But once you set those parameters, that's when you can get creative and express the love and not just the guilt.

WILLIS: Now, you say you should spend cash and not use a credit card. Is that right?

MCGIRT: Yes. We justify the credit cards because we think that we're going to be gathering miles or some other perks. But in fact, we're more likely to spend more, 30 to 50 percent more, if you use your credit card. So use your debit card. The protections are there. Or shop online when you're less tempted to buy other things, and you can comparison shop.

WILLIS: Thirty to 50 percent more with the credit card. Now, for some people, they've already made the choices.

MCGIRT: Yes.

WILLIS: They're already spending on their credit card...

MCGIRT: Right.

WILLIS: ... so they're building up a lot of debt.

MCGIRT: Right.

WILLIS: I know some people believe that it's better to shop online, because then you're not in the store and being faced with, you know, so many temptations. Do people spend less online?

MCGIRT: They tend to spend less online. They tend to spend more effectively online when it's convenient for them, when they're not tired, when they haven't been to a holiday party. And they can comparison shop. And there's such great deals these days. You can get free shipping or low-cost shipping from most retailers. You actually save money and time.

WILLIS: I love comparison shopping on the Web...

MCGIRT: I know.

WILLIS: ... because then I do less walking around myself.

MCGIRT: Right.

WILLIS: The machine does the work for me. It really simplifies your life.

MCGIRT: And it's safe, and the protections are there, and the stuff just magically arrives, and you can actually greet the holiday season a little less frazzled.

WILLIS: All right. So when setting that budget, how do you figure out how much to spend? I mean, I always think about, what does it cost? But you should probably start somewhere else. MCGIRT: It's that personal finance thing again. You have to start with you and what your needs are and what your goals are. Think about what it would be like if you were a new homeowner this year. Think about the energy costs that you're going to have to be dealing with for the first time.

WILLIS: Amen to that.

MCGIRT: Yes, I know. And you're cash poor, so you're going to have to be thinking about it from a different perspective. What do I need to meet my budget and my needs and my goals going ahead? And what can I actually afford to pay in cash?

WILLIS: Now, you have some creative ideas about how to spend less, different ways to give gifts...

MCGIRT: Yes.

WILLIS: ... especially, let's face it, some people aren't buying for family, they're actually college students, maybe they have no money coming in.

MCGIRT: That's right.

WILLIS: They have to be really creative.

MCGIRT: You really do have to think about it, and you do have to communicate what your limits are lovingly. So, you know, I'm up against it this year. I can't spend this much. Why don't we do something like something charitable together, do something that's philanthropic, that makes you feel good and reflects the season.

I'm a big fan of the Secret Santa. Even in families, even in big families, everyone just pulls one name, and you actually get to spend a little bit more on just one gift, and everything, everybody has something wonderful to open. And particularly parents, you're just going have to set some limits. Maybe it's $25, maybe it's $50, maybe it's creative gift giving.

WILLIS: You bet.

MCGIRT: Wouldn't a new homeowner like their February heating bill paid or something?

WILLIS: Oh...

(CROSSTALK)

WILLIS: Yes, that would be fabulous.

(CROSSTALK)

WILLIS: And I think reining in those kids' needs and expectations are critical this time of year.

Ellen, thanks so much for being with us today. MCGIRT: Thanks for having me.

WILLIS: Switching gears, have you ever thought about living in a steel box? Adam Kalkin has (ph). The architect designs homes in shipping containers. His latest creation comes to life with the press of a button.

(BEGIN VIDEOTAPE)

WILLIS: How did you come up with this idea?

ADAM KALKIN, ARCHITECT: It's a good question. I've been fooling around with these containers for a long time, the idea that you could take these things, which hold things inside of them but are not intended as spaces themselves, to then to use it, actually, as a space that you can actually occupy becomes kind of -- it becomes an interesting sort of change of use.

WILLIS: The way this house opens up to the outside...

KALKIN: Right.

WILLIS: ... I think is interesting. The walls completely fall away.

KALKIN: Right.

WILLIS: Could you use this as a practical -- I mean, could you -- was this house meant to be a practical house?

KALKIN: Well, I think really what I was interested in is as a theatrical space. So there's something very magical about when you step through that implied fourth wall, which I was trying to kind of pull out in this, because even though it's a real space, and it really worked, it is, in a way, a work of fiction.

And so that's, in my architecture a lot, that's really what I'm interested in, is the relationship between fiction and, you know, practicality.

WILLIS: There's been a lot of discussion lately in the newspapers and elsewhere about temporary housing...

KALKIN: Yes.

WILLIS: ... affordable housing...

KALKIN: Right.

WILLIS: ... particularly for people who've been displaced by hurricanes...

KALKIN: Right, right.

WILLIS: ... other natural disasters. Is there any way some of your ideas could be applied to help a lot of people? KALKIN: Definitely. I -- there -- because there's -- Look, in the United States, people only pursue things because, basically because they're paid to. But in the world, obviously, there are millions, literally millions of displaced people that, you know, really have no place to live. But no one's really being paid or numerated -- remunerated to be thinking about that kind of stuff.

So let's say in this house, which is, you know, made ridiculous by the fact that it's, you know, the furniture in here costs probably more than, you know, the average house in the United States, there's still a lot of applications for the way you can use the modularity and some of the engineering in here for temporary housing.

Or creating quick villages, you know, where people need housing immediately, let's say in Pakistan now, where there are millions of people, winter's coming on. If they had a quick system that they could actually erect a village, you know, and give them some basic comfort, you could save a lot of lives, and that would be a wonderful thing.

(END VIDEOTAPE)

WILLIS: Up next, not in the mood to shop till you drop? Well, I can't blame you. We've got great finds for your home in unexpected places.

But first, here are the mortgage numbers.

(COMMERCIAL BREAK)

WILLIS: Designing on a shoestring sounds difficult, but with a designer's eye, you can find great things in unexpected places, like right here in Grand Central Terminal.

Joining me now is Chris Madden, a designer who's going to show us what we can find on that budget.

Chris, you've got a great idea here that commuters could buy on their way to work.

CHRIS MADDEN, DESIGNER: I know. Gerri, this is so terrific. It's a little paper lantern, opens up easy as can be.

WILLIS: That is so pretty.

MADDEN: Isn't it great?

WILLIS: Can you put the light in that?

MADDEN: You can put a light inside it if you want. You can hang it in your foyer, you can put it in a window, on a mantle. It's $15.

WILLIS: Cheap, cheap, cheap. I love that. And there are a couple of versions that we see, the white one and the red one.

MADDEN: Yes. They really just add so much to your home. They really make it into a haven without breaking your budget.

WILLIS: So Chris, you say it really makes a difference if people make their gifts personal and they think them through ahead of time. Give us some ideas here.

MADDEN: Absolutely. Now, I like to take sheet music, I always love to start with something very personal to my family. And you can find an inexpensive frame like this and put it right inside, so you could have Christmas carols, you could have family favorites, put them on a mantel, gather round, sing.

WILLIS: Sounds lovely.

How much is this frame?

MADDEN: This is $25.

WILLIS: That's a bargain.

MADDEN: Absolutely.

WILLIS: And when you personalize those gifts, I think they mean so much more.

MADDEN: They mean so much. They make your home into a haven.

WILLIS: Well, let's talk about Christmas ornaments for a second, because there's nothing like having fabulous Christmas ornaments that are really different, incorporate family heirlooms. You've got a great idea here, and not expensive.

MADDEN: Not expensive. And you can use a mirror here. This is only $18, and you could put your own family photograph in there, sort of like this. This is a little larger, so it's $20, but you can also buy some that are ready-made and hang them on the tree...

WILLIS: I love these.

MADDEN: ... every year. Are they adorable?

WILLIS: And they have little mirrors on the back.

MADDEN: Well, that's for us.

WILLIS: I love decorating the table, and there's nothing more fun than folding your own napkins using really fabulous handmade stuff at the table.

Look at this. This is so fabulous.

MADDEN: I love them, because they're like little flowers, little miniature flowers. Your guests could probably do this.

WILLIS: I like having the guest do the work.

MADDEN: You do? WILLIS: Yes.

Here's a nontraditional place to shop. We've come down to Chinatown, and we're in a store called Pearl River. They have great stuff in here.

MADDEN: Great stuff.

WILLIS: It's fabulous for the holidays. You said -- these little boxes. I love these.

MADDEN: You know, everywhere you look, you find something. But look at these. You put them at each person's place setting with just a little teeny gift, or maybe a...

WILLIS: How about a diamond ring?

(CROSSTALK)

WILLIS: It's a perfect setting for a ring.

MADDEN: That's a great idea.

WILLIS: So Chris, let's summarize what we learned today. First off, shop in unusual places.

MADDEN: Absolutely, like Chinatown. You wouldn't expect to do this for the holidays, but it works.

WILLIS: And it works, in part, because the color is right.

MADDEN: Absolutely. Color is your second thing to think about -- red, green, gold, yellow.

WILLIS: Anything works. And I love it when people really personalize their gifts.

MADDEN: Yes, you remember what we did in Grand Central with those wonderful frames? That's what you want to do, bring that spirit into your home.

WILLIS: Chris, it was so much fun to shop with you. Thank you.

MADDEN: Thank you.

WILLIS: We'll be right back. OPEN HOUSE continues right after this.

(COMMERCIAL BREAK)

WILLIS: With winter here and energy prices high, you may be thinking about buying a space heater. There are a few things you need to know.

Electric models are safer than kerosene. You're best off using newer electric models with safety features like indicator lights and heat guards. Older models may not have these options.

To prevent fires, keep them on an even surface three feet away from furniture and drapes, and avoid using extension cords.

Now, with kerosene heaters, don't keep the fuel in containers with traces of gasoline. It's an explosive combination.

And watch out for carbon monoxide poisoning. Burning kerosene creates the deadly gas. You can buy a detector at any hardware store for just dollars.

And, of course, make sure those carbon monoxide detectors are in top shape.

And finally, Howard and Jennifer Lynn are bunking in an unlikely place. More than a year ago, they bought two apartments with a plan to turn them into one. But so many construction and other delays have meant hopping from friend to friend.

Now, with no place else to go, they've moved in with the agent who sold them the place. Gives new meaning to the phrase "full- service broker."

We want to hear from you. Send us your comments, your questions, to openhouse@cnn.com. And you'll find more on today's guests and topics on our Web site, cnnmoney.com/openhouse.

Thanks for watching OPEN HOUSE. We'll see you here next week.

The day's top stories are next on CNN SATURDAY.

Have a great weekend.

TONY HARRIS, CNN ANCHOR: In just a few minutes, President Bush plans to address the nation live, responding to the Senate's decision to reject the extension of the PATRIOT Act. That rejection based in part on concerns that Mr. Bush may have abused his powers in the name of national security.

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

WHITFIELD: And I'm Fredericka Whitfield, in for Betty Nguyen this morning, on this 17th day of December.

And in moments, we will be taking you back to the White House, specifically the Roosevelt Room, where the president usually would be addressing the nation on Saturdays through a taped radio address. This time, we're going to be seeing a live presentation of his comments from the Roosevelt Room, and then when that does take place, we're going to be taking that live.

WHITFIELD: And then we will hear from Democratic Senator Russ Feingold, who will join us live for reaction.

First, though, let's take a look at other stories making news right now.

WHITFIELD: Right now, it's 11:00 p.m. in Hong Kong, where riot police are ready to march in the streets. You're looking at live pictures right now, what many of the protesters would consider to be an organized civil protest.

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