Return to Transcripts main page

Open House

Uptick in Predatory Lending; Lenders Start Raising Bar for Borrowers; House Warming

Aired February 10, 2007 - 09:31   ET

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

GERRI WILLIS, HOST: Good morning and welcome to OPEN HOUSE.
We're tracking the progress of recovery at the site of the Florida tornadoes.

Plus, we'll show you how to deal with cold weather problems in your home.

But we begin with mortgage meltdown.

We've been telling you for some time now about the uptick in predatory lending in this country and the surge in foreclosures. This week, the Senate Banking Committee acknowledged that there's a problem and held a hearing on the matter.

The Reverend Jesse Jackson was a key witness at those hearings.

Well, Reverend Jackson, there are already laws on the books that protect people from this kind of thing. What else needs to be done?

REV. JESSE JACKSON, PRESIDENT, RAINBOW/PUSH COALITION: Maybe the laws are not adequate because, for example, when the banks will not let you in because of a low credit score, for example, then they drive you into the predator, with the bank's finance, I might add, and they tend to overcharge. And often, there's not -- there's deceptive counseling.

You counsel people to get a loan that you know that they cannot pay back, and then they lose their home to those who are misdirecting them (INAUDIBLE). So the law is not working.

We need legal protection for victims of predator vultures, but also, I'll tell you, a rescue for them. When you lose 55,400 -- 55,000, its impact on, say, Detroit and Dearborn and Youngstown, Ohio, they don't need -- they need -- they need a job. They need rescue funds.

WILLIS: Well, you bring up an interesting point, because one of the criticisms out there from the Department of Housing and Urban Development and others is that, you know, some education would make everything right. The people in the subprime lending category don't really understand the loans they're taking out.

What do you say to that?

JACKSON: Well, sometimes they don't understand, but that is no excuse to, in fact, exploit them because they do not understand. Even the -- even the unlearned should be protected by -- from vultures and from predators.

All subprime lenders are not bad guys, but many of them have a disproportionate impact of exploiting people. So, in some sense, banks drive it all.

Banks are slow to fund CRA (ph), community reinvestment, but quick to fund predators. And so we need the Senate to do at least two things -- be sure there's sufficient oversight when there's such a high rate of home foreclosure. On the other hand -- but I submit to you, when people lose their jobs with no place to go, they need a rescue fund. If we can have a rescue fund to bail out Iraqis, why not Americans?

WILLIS: How much money would it take?

JACKSON: Well, it's according to the impact of the economic downturn. When you lose three million middle class jobs and you export jobs and import cheap product and cheap labor, it has a devastating impact. And while there may be a transition, there must be some investment in the transition.

After all, a working America is a taxpayer and is more productive. I say to you that schools cost less than jails, and jobs cost less than unemployment. So when people have these economic cracks, there must be some commitment to aid to protect them from vultures, as well as some commitment to rescue.

WILLIS: Reverend Jackson, I want you to respond to a couple of comments that were made at these hearings the other day that you attended. One from Senator Chris Dodd.

He says, "I do not believe that all subprime or exotic lending is predatory or abusive. To the contrary, subprime credit can be a valuable tool in helping people become homeowners and in unlocking the equity in their homes."

Do you agree?

JACKSON: Well, it can be. I mean, subprime, somebody might -- can't fit in the front door because of a low credit score, and their risk is too great. And subprime, if properly protected and unexploitative (ph), can be their way back in. But often subprime lenders set the precedent (INAUDIBLE). But it need not be the case, but so often it is.

WILLIS: All right.

I also want you to respond to a comment from the industry itself. Doug Duncan, who is chief economist for the Mortgage Bankers Association. He said, "Recently...there have been claims that these (mortgage) products are themselves bad for consumers and have driven foreclosure rates to a state of crisis. Some advocacy groups seek new rigid underwriting standards. MBA is concerned that these approaches, which might look reasonable at first, will stifle innovation and take good financing options out of the hands of homeowners."

What do you make that have? JACKSON: Well, there's such a pattern of exploitation of seniors, of spouses on military bases, of people of color. And we need to be protected by law, not by the good will of those who make a profit from exploiting the least able and then they're not accountable for the -- for the violations. People need, I tell you, two basic things -- three.

One, careful oversight when you see this ballooning of home foreclosures. Secondly, they need the protection by law from vultures. And three, those who lose their jobs with no options need a rescue fund.

It's a good thing.

WILLIS: Well, some practical solutions to some very big problems.

Reverend Jackson, we want to have you back to talk about this issue again. Thanks for being with us.

JACKSON: Thank you.

WILLIS: We're not done talking about lending. Coming up, we'll tell you why borrowing money from your bank may soon be much more difficult.

The tough road to recovery is getting easier for some Mississippi homeowners. More than 100 State Farm policyholders received checks this week from the insurance company, all part of a settlement stemming from State Farm's refusal to cover destruction from Hurricane Katrina.

We recently reported that State Farm had agreed to pay about $80 million to settle the lawsuits by the 640 homeowners. Attornqney Richard Scruggs represents all of the policyholders, and he says that the rest should receive their checks by next week.

But as State Farm settles some claims, they are can backing out of renewing coverage for about 2,600 policyholders along the Alabama coast. State Farm has the biggest market share along that state's coast and is the largest home insurer in Alabama. Many of those affected are owners of beach condominiums.

State Farm's reasoning, according to Karen Carter, Alabama VP for State Farm, "The catastrophes in 2004 and 2005 show that we must continue to manage our property loss exposure along the coast for the sake of all of our policyholders."

Letters to those losing their homeowner policies were mailed out this week.

Coming up on OPEN HOUSE, why getting a loan could soon be more difficult.

Also, the massive cleanup in central Florida one week after deadly tornadoes tore through that state. We'll check in to see what's being done. And the frigid weather gripping much of the country could take quite a toll on your house. We're taking you to the International Home Builders' Show in Orlando to learn what you need to do to protect it.

But first, your "Tip of the Day."

(BEGIN VIDEOTAPE)

WILLIS (voice over): As your life changes, so do your insurance needs. For example, in 2006, more than half of homeowner policies undervalue the properties they insured. That means, if there were a catastrophe, the owners would be on the hook.

The Insurance Information Institute has 10 questions to help you determine if you need to update any of your insurance coverage. Among them, have you signed a new lease or done extensive renovations? Also to consider, if you decided to buy a second home.

That's your "Tip of the Day."

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: It's been one week since tornadoes touched down across four counties in central Florida, and folks there are still picking up the pieces, assessing the damage, and beginning the process of moving on.

At least 20 people died, and thousands of homes were destroyed. The majority of them mobile homes.

Lake County was the hardest hit. There alone, the damage currently stands at $25 million.

Those with insurance face a maze of bureaucratic claims forms. Those without face an even more uncertain future.

And another big question today, what plans government officials will put forward to ensure an adequate alert system is in place to prevent future catastrophes.

As foreclosure rates are sharply rising across the nation, easy-to-get mortgages are quickly becoming history. With pressure from the government, lenders have started raising the bars for some borrowers, and some homeowners with existing mortgages, well, they can get caught in the middle.

Mark Zandi is the chief economist at moodyseconomy.com in Washington.

Mark, good to see you.

MARK ZANDI, CHIEF ECONOMIST, MOODYSECONOMY.COM: Good to be with you.

WILLIS: All right. First off, what's going on with the lending standards? ZANDI: They're being tightened. Lenders are nervous about the erosion in credit quality. Delinquencies and defaults are up, and regulators are very nervous and asking lenders to tighten up on their standards.

WILLIS: Let's talk a little bit about what this means for me if I'm trying to, say, refinance. Is it possible that I might not qualify for a mortgage that I might have held a month ago?

ZANDI: Yes, that's exactly right. A year ago, you would have had no trouble refinancing, even if you had a blemished credit history or other -- some kind of problem. But now you're going to have a great deal of difficulty, particularly qualifying under these new terms, because the rates you're going to have to qualify under are much higher.

WILLIS: You know, it's ironic. The feds are trying to help us out, but for some people, it can create more problems.

Other folks that might have trouble, if you're going to try to sell, this is going to take some people out of the market this spring, right?

ZANDI: It is. Particularly first-time buyers, people with lower incomes that have had credit problems in the past. They're just not going to be able to be out there buying. And of course this makes it harder for sellers to sell their homes to these potential buyers.

WILLIS: So I guess what we're looking at for the balance of this year really is a smaller pool of people out there who will be shopping around because of these problems with the loans.

ZANDI: Yes. That's just one more reason to suspect that the housing market is going to remain soft, at least through the balance of 2007, into '08.

WILLIS: So you're really extending your forecast for the weakness, right, in the marketplace? Because originally, you had said, well, maybe by the third quarter things will start to look up. But now it sounds like you've changed your tune a little bit.

ZANDI: Yes. And, you know, I think the key here is just the sheer level of inventory, unsold inventory that's out there. It's a lot larger than I thought just a couple, three months ago.

And sellers are going to have to get aggressive, cutting prices to work off that inventory. And it's going to take probably more than a year.

WILLIS: Thank you so much, Mark. Good to see you.

ZANDI: Thanks for having me.

WILLIS: Still ahead, it's cold outside. Protect those pipes and insulate your home. Everything you need to know about keeping your house warm this winter, next. And say you're too old to build this or build that? At least not to this woman. You will meet the handy granny when we come right back.

But first, your mortgage numbers.

(COMMERCIAL BREAK)

WILLIS: All across the country, and especially in the Northeast and the Midwest, temperatures have dropped to downright bone-chilling cold. That deep freeze can not only wreak havoc on you and your family, but also on your house as well.

HGTVPRO.com's Ed Del Grande is live for us at the international builders show in Orlando, Florida.

OK. It's looking pretty warm there.

ED DEL GRANDE, HGTVPRO.COM: Well, right now it's warm. I'm in my short sleeves.

WILLIS: I'm so jealous.

DEL GRANDE: But I live in New England. So I know it's cold up there now.

WILLIS: Oh my goodness. And we're all thinking about what we can do to stay safe in their homes.

You know, some people, their heat goes out in the middle of the night -- I'm not talking about anyone we know, except possibly me this week. What can you do if you have an emergency and you don't have power?

DEL GRANDE: Well, the first thing is to try to avoid that emergency. And one way you can do it -- and Gerri, this is becoming very popular -- is to get what's called a standby generator, so just in case your electricity goes off, the generator will automatically kick in by a transfer switch, and then that will charge up your heating system so it will stay running even if your power is off. So if you can avoid losing power at all, that's the best place to stay warm.

WILLIS: Are these things dangerous?

DEL GRANDE: These?

WILLIS: Are those things dangerous? Are there any problems with those? Do they give off any kind of, you know, bad chemicals or smells?

DEL GRANDE: Oh, standby generators?

WILLIS: Yes.

DEL GRANDE: Oh, you have to realize, that with standby generators, Gerri, the type that is taking over in the home industry is the natural gas-fired or propane-fired generators that run with the gas lines. So you're no longer stirring gasoline or cans of dangerous flammable liquids around your house.

So, yes, these are very safe to operate and very safe to use. And it's all automatic.

WILLIS: Oh, well that's good news. Are they expensive?

DEL GRANDE: Well, they do get a little pricey, because remember, this is a unit that gets fixed into place. So you can figure on spending anywhere from about $5,000 to $7,000 to get a starter generator that will come on automatically.

WILLIS: All right. Well, let's talk about pipes for a minute, because when the weather gets really cold, everybody is worried their pipes are going to freeze.

So what do you do?

DEL GRANDE: Well, again, it all relies on your heating system. Make sure that your heat stays up nice and high.

Now, even if you do have power, don't get complacent and turn down your thermostat to save energy, especially if you go on a long trip. Like, I've left my house now. I made sure that my heat is above 60 degrees at all times.

Get your thermostat, which we have right here, and make sure that you keep that thermostat up high. And if the house stays warm, it's going to stay warm in the pipes, and they won't freeze. So just don't lower the heat below 60 in very cold weather.

WILLIS: How long does it take your pipes to freeze if you are in a situation where you don't have heat?

DEL GRANDE: Well, it can happen anywhere from 20 to 30 minutes, depending how cold it is outside. And if you do find yourself with a frozen pipe and it does break, you have to shut off the water. So make sure everyone in your house knows where the emergency water shutoff valve is.

Now, the old style has the handle we're all familiar, lefty-loosy, righty tighty. But the new ones, a lot of people don't realize it's a handle. And see how it says "on" and "off"? You just push it to the off position, and that will shut down your water until you can get help or fix the leak yourself.

WILLIS: All right. Just to review, lefty-loosy, righty-tighty, right? Am I getting that correct?

DEL GRANDE: Righty-tighty, with a round bell (ph).

WILLIS: OK.

DEL GRANDE: That's perfect. You could be a plumber's assistant.

WILLIS: But, you know, so you can turn this water off yourself is the main point, and then you prevent yourself from having burst pipes... DEL GRANDE: Absolutely.

WILLIS: ... which is the big horror-fest out there.

OK. If you're really thinking ahead, though, and the weather is really cold and you're trying to save energy, you can put in a programmable thermostat, right?

DEL GRANDE: Yes. And we talked about the programmable thermostats a little bit already, but let me review that they do work automatically. So that helps a lot, too.

While you're sleeping, it could lower the temperature a little bit while you're bundled up in bed, and that will save some energy. But the big key with the cold, don't let the automatic setting go too low, because in the middle of the night, if you go below 60, you do leave yourself open for a freeze-up.

WILLIS: Ed, I appreciate your help today. Thank you so much. And boy, I hope you have -- continue to have good weather out there. It looks awesome.

DEL GRANDE: Well, same to you. Stay warm up there. I'll be back home in a few days. So I'll be bundling up myself.

Thank you, Gerri.

WILLIS: As always, if you have an idea for a "Weekend Project," send us an e-mail to openhouse@cnn.com. And you can watch past weekend projects on our Web site, cnn.com/openhouse.

Still ahead, wait until you meet one woman we found where age is no limit to what you can accomplish. You have to see this story when we come right back.

But first, your "Local Lowdown."

(BEGIN VIDEOTAPE)

WILLIS (voice over): Feeling a bit chilly this weekend? Warm up in Honolulu.

The capital city of the most romantic state in the country, Hawaii. The average winter high is a more than comfortable 80 degrees.

Three hundred and seventy thousand people live in Honolulu or "sheltered bay" in Hawaiian, where the median home sales price is $620,000.

Hawaii is the only state whose land mass continues to expand into extrusive lava flows, mostly from Kilauea.

1.3 million people inhabit Hawaii's 18 islands. Hawaiians born in the year 2000 can expect to live 79.8 years. Longer than residents of any other state. But keep them coming. Tourism accounts for about a quarter of gross state products. And the hit TV show "Lost" films on the island of Oahu.

UNIDENTIFIED MALE, "LOST": Jump!

UNIDENTIFIED FEMALE, "LOST": I can't!

WILLIS: Mahalo.

And that's your "Local Lowdown."

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: When you think of an 85-year-old woman, you don't necessarily think of somebody wearing a tool belt and swinging a hammer. Well, then you haven't met Rosa Graham.

(BEGIN VIDEOTAPE)

ROSA GRAHAM, 85-YEAR-OLD HANDYWOMAN: I'm going to build myself a garage.

I just go ahead and get it done, and I love it.

Sometimes when I go up, got so high, carrying a piece of plywood, I put it across in the front of me and push it up the ladder.

Well, I've been building for nearly practically all my life. But a garage, I think I started building it seven years ago.

WILLIS (voice over): This might be Rosa's most ambitious project, but she's been building things all her life.

GRAHAM: My mother went up the front steps one day, and the step broke with her. The piece on the side broke off, and she fell. And I couldn't have that. So I said, "Well, I'm going to fix these steps."

WILLIS: Those steps were the first step toward a lifelong passion.

GRAHAM: I built this deck, built all of this. Built all of that up there.

WILLIS: Up here started down there.

GRAHAM: I just felt like I wanted a garage due to the weather and everything in the winter, and I knew I wasn't getting no younger.

WILLIS: Rosa started this project when she was 73, but that didn't slow her down.

GRAHAM: It was fantastic. It was like a learning, something I had never done before. And it just -- I was just thrilled. Everything I did, I was just thrilled at. And I'd get back, and I'd look at it, and that encouraged me to do more and more.

WILLIS: A two-car garage became a two-story building with a two- bedroom apartment.

GRAHAM: I cut this sheetrock on the back, cut it on the back, and broke it back. If I can do it, somebody else can do the same thing. But you have to concentrate. You have to take a little bit at a time and work it.

WILLIS: While Rosa down plays her skills, others have taken notice. She's something of an inspiration locally.

GRAHAM: Graham always liked a hammer, a saw, and a nail. Yes, I love it.

WILLIS: She loves it so much she is back on the job.

GRAHAM: I had to have me a little tool shed. This goes in the top of that door there.

If I put it together, you're going to have a time getting it loose. Yes, indeed. I just -- I love to put the nails in there.

WILLIS: So where does she get her inspiration? From the master carpenter himself.

GRAHAM: The Lord is really good. He just reveals things to me, and it just comes to me. And if I couldn't fix it like I wanted to fix it, then I would wait. I'd wait a while. But when it comes to me, honey, I'm gone.

Get in there. Just put it in here.

(END VIDEOTAPE)

WILLIS: She is amazing.

As always, we thank you for spending part of your Saturday with us.

OPEN HOUSE will be back next week right here on CNN. And you can also catch us on "HEADLINE NEWS" every Saturday and Sunday at 5:30 p.m. Eastern Time.

Don't go anywhere. Your top stories are next in the CNN NEWSROOM.

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.voxant.com