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Open House

Three Major Bureaus Announce Changes In Computing Credit Scores; D.C. Housing Market; Mortgage Rates On The Rise; Deciding On The Right Mortgage; Dog Whisperer Training Tips

Aired March 18, 2006 - 09:30   ET

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

GERRI WILLIS, CNN ANCHOR: Here's the deal. There's one thing that everyone needs to know about you before they lend you money. It's your financial DNA. And yes, that's your credit score.
Good morning. I'm Gerri Willis. Welcome to OPEN HOUSE.

You may not know it, but a big change is underway in how lenders look at your credit. In today's show, we'll take a look at who benefits. And believe me, that may not be you.

Also, buying and selling season is heating up, despite climbing rates. We'll tell you the best ways to get the best deals.

Plus, is your dog driving you nuts? Well, we'll tell you how to cope.

But first up, your credit score.

The three major credit bureaus announced this week they are changing the way they compute your credit score. They say understanding your score is going to be easier. Your score is critical, of course, because lenders use it to quickly judge whether you're a good risk for a loan, and employers use it too. They want to see if you are responsible.

But what goes into your score? Well, how long you've had credit cards, how quickly you pay your bills, how much money you owe, how many different credit cards you have, and other bills, like your mortgage.

Now, you're going to have two credit scores, the new one, created by the credit bureaus, and another one, created by a company called Fair Isaac. But what's the difference, and why should you care?

Craig Watts is public affairs manager with Fair Isaac in San Francisco.

Craig, welcome.

CRAIG WATTS, PUBLIC AFFAIRS MANAGER, FAIR ISAAC: Hi, Gerri.

WILLIS: Good to see you.

All right. Clarify this for us. Why do we need yet another credit score? WATTS: Well, in fact, each of us has a lot of credit scores, not just one. FICO score is the one that most lenders are using these days. But, in fact, lenders develop their own credit scores, and these credit bureaus have introduced lots of different credit scores over the years. The one that seems to rise to the top is the FICO score. It keeps getting more and more popular.

WILLIS: Well, full disclosure here, that's your company. You're complete -- you're a competitor with the other companies we're talking about right now.

But, you know, I got to tell you, I'm a little suspicious when somebody says, Hey, this is going to be to the consumer's benefit. We're doing it for you. Beforehand, these companies had three different credit scores. Now they have one. What's wrong with that?

WATTS: No, in fact, they have three credit scores. Even this new VantageScore that they announced this week will still be provide -- produced by each of the three credit bureaus. So you'll still have three credit scores.

The confusion for consumers doesn't need to take place now. It'll be years before the industry decides whether this VantageScore really has any merit, and whether lenders begin using it.

In the meantime, consumers can learn their scores today, the scores that lenders are using, and start taking steps to manage those scores better.

WILLIS: Well, that's always important. What I don't understand is, why don't you guys just decide A, B, C, D, F ratings, just like in high school? That would be an intuitive way to do it. But yet you do these complicated numbers, and they're really hard to understand.

WATTS: What's the old line, New York City is a city of seven million stories, everybody has their own story. With credit scores, it's the same situation. We're all very different people. And our credit risk, in the eyes of lenders, is very different. So the finer that lenders can divide consumers into good risks, bad risks, maybe in-between risks, the happier lenders are, and the better decisions they can make, and more aggressive they can be in pricing their credit cards and loans and so on in their offers to each of us.

WILLIS: All right. Well, it sounds like a lot of this new stuff is pretty much inside baseball. Your competitors are really trying to get their number in front of lenders and get a really competitive product out there.

But I think the real innovation that would help consumers, frankly, is if all of you were more accurate in your numbers. Let's face it. A lot of these reports are not accurate, and that means the credit scores are not accurate.

WATTS: No, I don't disagree at all. Now, remember, Fair Isaac is an applied math company. We create the formulas, but we don't produce credit reports. The three credit bureaus have been producing FICO scores and lots of other scores over the years to lenders.

And I agree with you, it would be more convenient for everyone if there was simply one score, today, the FICO scores, the de facto standard. But the scores differ from bureau to bureau depending on what information is in each credit bureau report, and that's not going to change with this new score. You're still going to see differences between your VantageScore at one bureau versus a different bureau.

WILLIS: Well, this is a topic I'm sure we'll be following. Craig, thanks for joining us today. I appreciate it.

WATTS: Thank you, Gerri.

WILLIS: Remember, last week, OPEN HOUSE took you on the road to Vegas and Detroit. Today, however, we're going to the nation's capital.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Two and a half years ago, Trish Kyle (ph) and her husband traded in their suburban Maryland home for this house in the center of Washington, D.C.

TRISH KYLE, WASHINGTON, D.C., RESIDENT: We had a huge house, two acres of land. There was a big pull here in D.C. The mayor was doing a lot of great things to reduce crime, tax incentives, all those sorts of things. And culturally, it was building, and we wanted a lifestyle change, and it was time.

WILLIS: The Kyles moved to the U Street corridor, a neighborhood that is still scarred by the race riots of the 1960s. But in just past few years, the neighborhood has reinvented itself. Home prices around U Street have soared. Now, this rejuvenated area of Washington attracts lots of new residents.

RICHARD NEWTON, KEN TAYLOR REAL ESTATE: We're getting a lot more retail, and not just high-end retail, but we're getting boutiques, we're getting new dry cleaners, we're getting new convenience stores. So the services are definitely coming in with the homebuyers.

WILLIS: Although prices fell in the fourth quarter for the first time since the boom started, the average home in the Washington area still costs $430,000. That's up 20 percent from over a year ago.

This U Street loft goes for $650,000.

NEWTON: We don't have any land here, and there's just been this pent-up demand for new construction and for new projects and new condos in new houses. And when you have the demand outstrips the supply, obviously it's going to drive the prices up.

WILLIS: The changes on U Street are just a few years old, but developers are already targeting D.C.'s next hot neighborhood. The area southeast of the Capitol used to be known for its open drug markets. But condos, hotels, and offices are replacing boarded-up homes. A new home for baseball's Washington Nationals will transform the view.

The rebirth of downtown Washington and a reliable local employer are expected to keep area home prices on the rise.

HOLLY WORTHINGTON, GREATER CAPITOL AREA REALTORS ASSOCIATION: With the government here, it's a stable place economically, so I don't really think that you are going to see too much difference. There are people that like to live way outside of the city, and people that like to live way in the city. We'll see a few examples of prices that are slightly less than they were about eight months ago, but we really are not seeing wholesale prices going down.

There's so much job growth here, and household creation, and the number of new homes being built is so much less than that, that there really is not a negative outlook for the Washington area that way.

(END VIDEOTAPE)

WILLIS: Well, I guess the government's not going anywhere soon.

Next week, we're off to the Left Coast. Find out why the Los Angeles area is one of the most compelling markets, and how homeowners are coping.

Peter Viles looks in his back yard and will let us know what's going on there.

That's next week, on OPEN HOUSE.

Coming up, let's talk about the money. If you're in the market right now, you may be obsessing over rising mortgage numbers. But there's no going back to the rates of yesterday, so we'll move on and show you how to deal with the new environment.

And later, when your pet rules your home, it's time to call in the Dog Whisperer.

First, though, your tip of the day.

(BEGIN VIDEO CLIP)

WILLIS: Now that you know how much house you can afford, why not get prequalified and preapproved for a mortgage loan?

It will give you negotiating leverage with sellers, and when you're ready to buy, you'll save time by being two steps ahead in the closing process.

With prequalification, you provide the lender with details about your finances, and the lender estimates how much mortgage you can afford.

Preapproval goes one step further. The lender will verify your financial history, and issue a letter stating approval for a certain mortgage amount within a certain time frame.

Gain a buying edge by getting prequalified and preapproved.

And that's your tip of the day.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

WILLIS: If you're in the market to buy a new home, or are simply thinking about refinancing the one you have, mortgage rates make all the difference.

Yes, the rates are higher, but did you know that 25 years ago, rates were triple what they are today?

Here's some perspective.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Any recent homebuyer can tell you, mortgage rates are on the rise recently, albeit from the rock-bottom levels of the past few years. Thirty-year mortgages hit a low of about five percent in June 2003, and have been inching up ever since.

These days, they now stand at about 6.25 percent. The projection for the rest of the year, more of the same.

DOUG DUNCAN, MORTGAGE BANKERS ASSOCIATION: It's been a fairly flat rate environment for 2004 and 2005. Most of us are expecting modest increases in 2006, ending the year at around 6.5 to 6.75 percent.

WILLIS: Mortgage rates have been pushed up by rising interest rates, not just in the United States, but in Europe and Japan as well. And analysts don't project mortgage rates easing any time soon, not with the Federal Reserve likely to raise U.S. short-term rates again soon.

"Business Week" chief economist Michael Mandel says rising interest rates mean that consumers should steer clear of adjustable- rate mortgages and put their money squarely in the fixed-rate 30-year market.

MICHAEL MANDEL, "BUSINESS WEEK" CHIEF ECONOMIST: These are still low rates in historical terms, so that when the mortgage brokers or real estate brokers say, you know, these are still good rates, they're right.

WILLIS: In fact, mortgages haven't been this low since the 1960s. To put it into perspective, mortgage rates are currently one- third of the early 1980s, when inflation drove rates up to 18 percent.

The big danger these days, according to analysts, is not that mortgage rates will shoot to the moon, but that they will rise enough to make refinancing or even homebuying a less attractive option, and weigh on the broader housing market.

(END VIDEOTAPE)

WILLIS: With rates climbing, how do you decide which mortgage is right for you?

Here to talk about that is Bob Moulton, president of Americana Mortgage.

Bob, good to see you.

BOB MOULTON, PRESIDENT, AMERICANA MORTGAGE: Good to see you too, Gerri.

WILLIS: I think the problem that consumers have right now, if they're in the market, on the one hand, rates are rising, but prices haven't declined yet. So they're in the worst of both worlds. What do you tell them?

MOULTON: Well, each time we make a consultation with a prospective homeowner, we take a look at what their financial situation is. And when we look at mortgage rates today, mortgage rates are about 1 percent higher than where they were four years ago.

WILLIS: Right.

MOULTON: So four years ago, we were at 5.25 percent. Right now, we're about 6.25. But there are some attractive alternatives today, such as adjustable-rate mortgages, a five-year adjustable, an interest-only mortgage, and a 40-year mortgage. So those are great alternatives to prospective homebuyers.

WILLIS: We just heard an expert say, though, that now is not the time for those fancy-smancy products, that you don't want to be in an adjustable right now, because those rates are going to go even higher for you. Should you lock into a 30-year fixed, knowing that, you know, at least you're going to be well below long-term averages?

MOULTON: Yes, the homeowner really has to take hard look in terms of how long they're going to stay in the house. If they're first-time homebuyers, maybe a dual income with no children, and they go into a two-bedroom house and plan on staying there three years, the five-year adjustable may work for them. And it'll save them about 8 percent on their monthly payment.

WILLIS: It's hard to know exactly how long you're going to stay in a house. But if you have a clear view, you can match your mortgage to how long you're going to be in the house.

But what about that 40-year? Instead of paying for your house over 30 years, you're recommending paying it over 40 years. That means a lot more in interest costs. That sounds like just a bad deal.

MOULTON: You know, it's begrudging to think about having a mortgage for 40 years. But the average homeowner only holds the house for seven years. And when you look at a prospective homeowner's payment, it's all based on cash flow. So they're looking at how much money they take home and how much they can put into a monthly mortgage payment.

When you put it into that perspective, the 40-year mortgage could be very attractive for the right homeowner.

WILLIS: Of course, you don't have any equity at the end of the day if you're paying over 40 years. You're paying even more in interest costs. That might make it unattractive.

I think people out there might think that one solution to the problem is that you just buy a cheaper house at the end of the day. Maybe you scale back your expectations.

MOULTON: Well, there is some talk about the inventory that's out there, and there are so many houses out there for sale today than there were a year ago. And with the old supply and demand equation, hopefully the sales price will come down a little bit, and maybe these homeowners can step up a little.

WILLIS: I know a lot of people are really hoping for that.

What's your outlook, though, for the balance of the year for mortgage rates? Are we going to get more of this, more rising rates? Which would mean maybe you should do it now, instead of waiting. I know a lot of people are weighing that option as well.

MOULTON: People always try to time the market. They try to time the market in terms of interest rates, they try to time the market in terms of house prices. If you like the house, and it's a quality-of- life situation, buy the house now. You can't not necessarily time the market.

So in terms of the end of the year, I think rates will be higher, probably close to 6.95 percent. I think housing sales will be down about six percent. And I think the prices might soften up a little bit.

But when the prices soften up and the rates are higher, you're probably going to be in the same place at the end of the day.

WILLIS: So some opportunity for some people.

Bob, thank you for that.

MOULTON: Thank you.

WILLIS: Now we're going to shift gears for just a moment. If you have a pet, especially a problem pet, listen up. I met up with the Dog Whisperer to get some pointers on how to get your dog out of the doghouse.

(COMMERCIAL BREAK)

WILLIS: Pets can be fun, but they can also be destructive. Maintaining a home when you have a dog, especially, can be hard.

So we are going to get some expert help. (BEGIN VIDEOTAPE)

WILLIS (voice-over): We met up with, who else but National Geographic Channel's Dog Whisperer, Cesar Millan.

(on camera): OK. We're about to talk to a woman who's having real trouble controlling her dog. She lives here in New York City. Big dog, tiny apartment. What are you going to do?

CESAR MILLAN, NGC'S DOG WHISPERER: Well, what I'm going to do is, I'm going t evaluate how that she brings me home, what is the rules, what are the boundaries, what are the limitations? You know, if the dog is a dog, or the dog is a baby.

WILLIS: All right, one of the problems people have, I know, all over the country, and our viewers in particular, they have trouble controlling that dog inside their house. Their dog is eating the furniture, the rugs. We get e-mails all the time. What can they do?

MILLAN: Well, what is important to understand is that you have to claim your house. You have to play the alpha role. Everybody talks about the alpha role, but nobody implements the position, you know, nobody plays the leadership role. Everybody plays the, I'm dog lover first, and then I lead my dog, which that -- gives a dog access to become new alpha dog.

WILLIS: All right, well, Cesar, let's go and see what we can do.

MILLAN: Let's go.

MARY ANN BROWNING, DOG OWNER: Lance, no, Lance, no, wait. Lance, wait. Stop it. Wait. No. Wait. Wait.

MILLAN: How are you?

BROWNING: Hi.

MILLAN: How are you? How are you doing?

BROWNING: Hi, nice to meet you.

MILLAN: Nice to meet you.

BROWNING: Thank you.

MILLAN: Do you want to tell me what's going on with this guy?

BROWNING: OK, Lance is generally a good dog, until I take him outside and put him with little children and noise and rolling carts, and then he's a different dog. It's impossible. I'm trying to listen, you know, hold him tight, do all of the things, but ...

(CROSSTALK)

MILLAN: What about this excited dominant behavior that he showed right now? Did you -- do you ever see that as a bad thing? So if you enter, you enter, and you claim territory. You don't enter and say, I missed you, I'm sorry for leaving you 13 hours behind walls.

BROWNING: Sit on the sofa ...

MILLAN: You have to help them to recover balance, because when you leave animal behind walls, the mind gets frustrated, and frustration leads them into excitement and anxiety. So when you come back from the outside world, what you're seeing is an excited, anxious dog. The interpretation of my clients, Oh, you missed me so much, I missed you, too.

WILLIS: Well, it seems like people think of dogs as people, and not as animals.

MILLAN: Yes. One of the biggest mistake people make is that they humanize dog.

(CROSSTALK)

MILLAN: A giraffe want to be a giraffe, an elephant wants to be an elephant, and dog wants to be a dog.

WILLIS: If you have one thing you could tell people about controlling their dog and having the best relationship, what would it be?

MILLAN: Exercise, discipline, affection.

Love to them is exercise, though. Love to them is rules but limitations because this allows them to be balanced. See, dogs don't develop issues when they live in their own natural habitat. They develop issues when they live with us.

WILLIS: Next, we put Lance to the test in the outside world. The trick was projecting the right energy.

MILLAN: So why we came, at the moment, I enter into your house, what's entered (ph) the Dog Whisperer was energy.

BROWNING: Right.

MILLAN: He doesn't know I have a TV show.

BROWNING: No.

MILLAN: He just know that from the moment I enter into his house, I took over.

Show me some leadership.

BROWNING: OK, OK.

MILLAN: That's bad already.

Why do you think it's bad?

BROWNING: Because, I guess when I took it, I was, like, I wasn't in control.

MILLAN: So as you see the brain change at the moment she touched the leash. She didn't say anything, she touched the leash. So then I took the brain back, touch the leash, the brain got it.

BROWNING: Right.

MILLAN: That's the beauty of dogs. Rehabilitating humans takes years. Rehabilitating dogs is a matter of seconds.

BROWNING: OK.

MILLAN: But we have to be there. See, when I grabbed the leash, I grabbed the leash, and took over. When you grabbed the leash, you did this.

BROWNING: Right.

MILLAN: So you become tense instead of relaxed.

BROWNING: And he knows I was tense.

MILLAN: Yes.

(CROSSTALK)

MILLAN: All right?

(END VIDEOTAPE)

WILLIS: The new season of "The Dog Whisperer" airs on Fridays at 8:00 Eastern on the National Geographic Channel.

And the new season for summer rentals is already under way. I'll be right back with tips on how to find the perfect place for you and your family.

(COMMERCIAL BREAK)

WILLIS: It's that time, time to book your vacation. If you want to save some money, think about booking a vacation rental home rather than a hotel room. Now, hotel prices are rising, and your money can go much further in a rental home. Save even more cash by renting direct from homeowners. A rental agent will charge you up to 10 percent more.

Check out these Web sites, Vamoose.com, VRBO.com, and Cyberrentals.

One other thing, pay by credit card if possible, so that, if you have a problem, it will be easier to get your money back.

But if money is not a problem, you can rent this house for $100 grand, and that's just for one month of June.

Or take this one. The Hamptons summer house is renting for a cool $375,000 for the whole summer season.

Seriously, though, that's way out of reach for most of us. But next week, we'll take a closer look at summer rentals that may just fit your budget. Join us for that.

We want to hear from you. Send us your comments, your questions to open house@cnn.com. And for anything mentioned in today's show, check out our free transcript now at our new Web site, cnn.com/open house.

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.

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