Return to Transcripts main page

Open House

Mortgage Meltdown; Lower Your Taxes; Going Green in Your Home

Aired March 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. This is OPEN HOUSE, the show that saves you money.
Coming up, why going green at home can cut your budget big-time.

And visit a boot camp in North Carolina where lawyers are training to fight the mortgage industry for the little guy.

We begin with a hearing on Capitol Hill this week focusing on a topic that is likely frustrating to so many of you out there -- I know it is to me -- rising credit card fees and abusive practices.

Three of the nation's largest credit card companies appeared in front of the Senate Permanent Subcommittee on Investigations. Leading the charge against these fees, Committee chairman Senator Carl Levin.

(BEGIN VIDEO CLIP)

SEN. CARL LEVIN (D-MI), CHAIRMAN, SENATE PERMANENT SUBCOMITTEE ON INVESTIGATIONS: After an investigation that required digging into the details of complex billing records, unfair, little known, and hidden industry practices emerged which squeezed not only the consumers struggling to repay debt, but also hit those with accounts in good standing.

(END VIDEO CLIP)

WILLIS: Now, Levin says new laws may be needed to curb these practices and protect you, the consumer.

There is a way you can take action right now to protect yourself. We'll have those tips a little later in the program.

But first, mortgage meltdown in subprime loans, it's a story we've been following extensively. The warning signs have been there for some time now, and with several major mortgage companies admitting problems with their subprime lending portfolios, it could change the rules of the game for buying a home.

(BEGIN VIDEOTAPE)

WILLIS: The subprime home mortgage market continues to be a source of weakness.

(voice over): You've heard the news, you've seen the headlines. But how did this happen and what does it mean? A 30-year fixed-rate mortgage used to be the staple for buying a home. But in recent years, with interest rates low and the housing market booming, lenders have lowered their lending standards, creating a wave of new products for eager homebuyers.

Adjustable rate mortgages have become commonplace in the industry and are used most extensively for subprime loans. Adjustable rate mortgages, or ARMs, enabled subprime borrowers, those with tarnished credit records or fixed income, to get into the market because of lower short-term rates, usually one, five or seven years that reset some time in the future.

And that future has arrived. Many homeowners are now overwhelmed with up to 50 percent higher monthly payments due to a rise in interest rates.

For homeowners, foreclosures are up. For lenders, profits are down. And for the market, investors are worried subprime lending woes could spill over to the rest of the lending industry.

Here are the numbers.

Since 1998, more than six million Americans have taken out subprime loans. Last year, 13.5 percent of new mortgages were subprime, up from 2.5 percent in 2000. And by one system, one out of five, or 20 percent, of all subprime loans issued in the last two years will fail.

(END VIDEOTAPE)

WILLIS: Now you know the problems with subprime lending, but you also know to know what to do if you're considering one, or worst, if you're stuck in one.

Josh Nassar is from the Center for Responsible Lending in Washington.

Josh, good to see you.

JOSH NASSAR, CENTER FOR RESPONSIBLE LENDING: Thanks for having me today. Good to be here.

WILLIS: Let's start with the basics, though, on subprime. You know, we've been throwing this word around, this phrase, "subprime mortgages," like everybody knows what it is. Clearly, we just heard they're adjustable rate mortgages, typically, but what other elements do they have that so people out there know if -- maybe they don't know if they have a subprime loan.

NASSAR: Well, subprime loans are loans that are supposed to be for people with impaired or blemished credit histories, though that's not always the case. And it's generally over the prime rate, which you hear advertised all the time, the general treasury rate. So...

WILLIS: So subprime, they're not getting the best rate of interest is what you're saying?

NASSAR: Right. Right. But it's important to point out that at least 20 percent of the people in the subprime market could qualify for a prime loan.

WILLIS: Right. I think that's one of the dirty little secrets that we've seen in this market, right, is that people are being -- are getting subprime mortgages when they really qualify for something better?

Let's talk a little bit about what you can do now. I think there's a lot of frustration out there. Lenders are tightening their standards for lending so it's more difficult to get into loans.

In fact, Josh, just this week I heard that a major mortgage lender is saying that your credit score has to be 660, rather than 600, to get into one of these loans. So tougher to do.

If you're trying to refinance, where do you go? Who can help you?

NASSAR: Well, I think there's a few things to point out. First of all, is that when you're in -- people in the subprime market, the dominant subprime loan is a 228 and 327, which, as you described, means it's an ARM loan that's fixed for the first two or three years, and then the person faces a payment increase or a payment shock of well over 30 percent.

So, a person could do a few things.

First of all, you know, look over your loan documents, shop around. If you're having problems, contact your lender or servicer before things -- before it gets too late. But it's probably a good idea to -- you know, to think through about your ability to afford a loan a few years down the road and...

WILLIS: Right.

NASSAR: Yes.

WILLIS: And I think that's the conversation that they're having in Washington right now, whose responsibility is it to figure out which -- what the best loan is. It's called suitability, obviously.

Josh, we'll be covering this and watching it closely. And I'm sure we'll have you back to talk about it. Definitely, it is a topic that bears watching.

Thank you so much.

NASSAR: You're very welcome. Thanks for having me.

WILLIS: Fighting back. We'll show you the strong-arm tactics attorneys are using to expose what they say are mortgage lender misdeeds. We take you inside a bankruptcy boot camp.

Also ahead on OPEN HOUSE, learn how to lower your taxes and save yourself some cold hard cash this year.

And learn how to go green at home with folks from "This Old House" when we come right back. But first, your "Tip of the Day."

(BEGIN VIDEOTAPE)

WILLIS (voice over): Starting this year, Daylight Saving Time begins three weeks earlier and lasts one week longer. The Energy Policy Act of 2005 is an attempt to conserve energy. If it stays light later, consumers expend less energy to heat their homes. But the benefits of this initiative have been partially offset by IT costs incurred to fix the technological problems.

(on camera): So any computer or operating system programmed before 2005 will not automatically make the change. However, Microsoft, Apple, Blackberry, and Palm have all issued patches to make the fix.

(voice over): Visit their Web sites to download. And don't forget about the less sophisticated electronics around your house, those without an operating system, like your microwave, thermostat, coffee maker, DVD player, and clocks.

Finally, the decision to extend Daylight Saving Time only affects the U.S. So, if you're used to calling internationally, just keep in mind that someone overseas may not have any idea about the time change.

That's your "Tip of the Day."

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: OK. If there's one gripe absolutely everybody has, it's doing our taxes. From 1040s, to Schedule As, to new deductions, adjustments, every year it's a new adventure, and this week the IRS reported more than 10 million people who filed early this year have already missed out on one major refund.

To make sure you get your dollar's worth this year, Donna LeValley is joining us. She's a contributing editor at JK Lasser.

OK. Let's talk about the phone rebate.

DONNA LEVALLEY, CONTRIBUTING EDITOR, JK LASSER: Everybody's eligible, and there are no income limitations, so make sure you check off that box. It's at the end of your 1040, or any form that you file, so it doesn't need -- you don't need a particular form. And it's worth $30 at least, and up to $60.

WILLIS: So you can use your regular form. You don't even have to go out and get a special form. It's right there.

LEVALLEY: Exactly. And if you don't have to file, they made a form for you, the 1040-EZT to claim the rebate for the $30. And if you have your old phone bills, you can actually file for the actual amount.

WILLIS: If you want to do that. But that's just a hassle, I think. Anyway, let's move onto the energy savings tax credit. This is going to go away. You have to take advantage of it now, right?

LEVALLEY: Yes, and that's a terrific thing. When you fill out your tax form and see how much you claimed, how much do you have left? And use that for 2007.

Credit reduces your tax dollar for dollar, which is terrific, and you can make those home improvements. Anybody who's had a winter storm or maybe a rainstorm knows where the wind is coming in, where the leaks are. So, you know, it's time to fix it...

WILLIS: You bet.

LEVALLEY: ... and take the credit.

WILLIS: Let's go over some the things you actually spend the money on -- windows.

LEVALLEY: Windows, insulation, doors, some types of heating fans, air-conditioners. Go to energystar.gov, and that will tell you which types of insulation, all those things qualify for the credit, because they have to improve the energy efficiency of your home.

WILLIS: But lots of people are doing this. So there's a good chance that you may have spent some money last year that will qualify. It's a good thing.

LEVALLEY: Absolutely.

WILLIS: All right. Let's talk about tuition.

You know, parents out there spend a ton of dough on their college-aged kids. And you can really get some money back here. I mean, this is an important thing. Lots of money at stake here.

LEVALLEY: It's a big deduction. It's $4,000. And once again, it's more generous than the tax credit. So if you've earned more or disqualified for the education credits, you can take this deduction.

Unfortunately, the problem is Congress renewed it too late for the IRS to put it on the tax form. So if you're going to claim it, you have to use the 1040, no other form, and you're to claim in on line 35.

WILLIS: I'm glad to hear that Uncle Sam is playing at the top of his game, because I know I get in trouble if I don't pay my taxes...

LEVALLEY: Yes.

WILLIS: ... but he messes up the tax forms, it doesn't matter.

LEVALLEY: Yes.

WILLIS: OK. Let's talk about sales taxes, because there's some interesting things going on there. LEVALLEY: Absolutely. Another reduction that was renewed too late. So where you would normally report state and local income taxes, you report your reduction for state and local sales taxes. And if you didn't save all your receipts, you can go to the chart and you'll figure out your amount.

WILLIS: OK. So the devil's in the details here. It's not really important for absolutely everybody, right?

LEVALLEY: No, absolutely not. Most people don't take that type of deduction, but you can get an amount that the IRS won't question from one of their -- their charts.

WILLIS: Donna, tell me, the one deduction that people miss most often, what is it?

LEVALLEY: Actually, it's not a deduction. It's the filing status. They don't claim either head of household or widower if they've lost a spouse, and there's a much more generous than the single -- the single rates.

So, in terms of actually missing out on money, that affects their standard deduction and their tax bracket. So be careful. Find out if you have a dependent, maybe it's a parent, a child living at home. But that's one of the biggest mistakes that people make that costs them a lot of money.

WILLIS: Very good idea.

And of course this year we get a bonus, right? Normally, Tax Day is April 15th, but this year we get a two-day bonus because the 15th is on a Sunday, Monday is a Washington holiday.

LEVALLEY: Right.

WILLIS: You've got to turn your taxes in on Tuesday.

Thank you, Donna.

OPEN HOUSE is your place for tax tips that will save you money. Donna LeValley will be back in the coming weeks to talk audit red flags, why you should be worried about the alternative minimum tax, and what the presidential tax cuts mean to you.

Still ahead, go green in your home. It's easier and cheaper than you might think.

Then, it's on to a boot camp designed to protect you and your home when OPEN HOUSE comes right back.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

WILLIS: Going green. Whether it's in your car or your home, it's something that not only saves our planet, it saves our wallets as well.

"This Old House" host Kevin O'Connor and heating and plumbing expert Richard Trethewey are going to show us how we can save our environment one home project at a time.

Welcome. Good to see you guys.

RICHARD TRETHEWEY, "THIS OLD HOUSE": Thank you. Nice to be here.

KEVIN O'CONNOR, "THIS OLD HOUSE": Thank you. Great to be here.

WILLIS: Now, this is what I'm used to talking about right here, because this is an easy way to save a little dough. It's a compact fluorescent bulb. It saves you some money, right?

TRETHEWEY: Absolutely, 30 percent. And then when these first came on the market, people didn't like them because they just didn't give the right light.

WILLIS: Right.

TRETHEWEY: And nowadays you get decent light and you can save energy.

WILLIS: Now, you brought some big stuff, too, you want to talk about.

TRETHEWEY: We did. We did.

On our Austin "This Old House" project we're in the middle of right now, we did solar photovoltaic. This is energy from the sun, and we make electricity.

WILLIS: OK. But here's my question about this -- this stuff is expensive, right?

TRETHEWEY: It's expensive, but it's not expensive. You get what you pay for, and you get a rebate from -- in this case, Austin Energy gave us up to $13,000 to help reduce the amount of electrical energy they had to produce.

WILLIS: Not just -- not just local utilities.

TRETHEWEY: That's right.

WILLIS: But also the federal government.

TRETHEWEY: That's right.

WILLIS: Because now you're getting tax credits for saving money on energy.

TRETHEWEY: That's right.

WILLIS: That's awesome.

TRETHEWEY: That's not bad.

WILLIS: That's really awesome.

What is this big thing behind me?

TRETHEWEY: This is an instantaneous hot water heater. This thing doesn't use any energy at all, except when you open up the faucet. Then and only then do you then consume gas.

WILLIS: And so it's instantaneous, saves a ton of money.

TRETHEWEY: That's right.

O'CONNOR: And a tax savings of up to $300 on it.

WILLIS: OK. That's great.

We've got some more interesting stuff here, too. And I know you want to talk about the materials you used in this Austin house.

O'CONNOR: Well, you know, green is about not just energy efficiency, but it's also about materials that are sustainable, recyclable and healthy for you. And people used to think you had to pay a big premium to get that.

Well, it's mainstream now, and you don't have to pay much or any premium at all for it. And there's a couple great examples right here.

Outdoor decking on a porch, on a deck...

WILLIS: Is this composite?

O'CONNOR: This is composite, right? We're very familiar with it.

But here's the great story. Where does it come from? Those old shopping bags you have no idea what to do with them?

WILLIS: That's cool.

O'CONNOR: They grind them up, they take old wood shavings from furniture, post-industrial, post-consumer. They mix these two, you end up with something like this, cost comparative to everything else out there. It's going to last a real long time, 100 percent recycled.

WILLIS: OK. Maintenance?

O'CONNOR: None, really.

TRETHEWEY: Yes.

WILLIS: You know, we forgot the window.

O'CONNOR: We did forget the window.

WILLIS: Let's talk about the -- it was behind me, that's why I forgot it. O'CONNOR: It is behind you. It's a -- you know, the funny thing about the window is that you will get an efficient window if you have insulating glass, two panes with an inner gas in the middle. You certainly want that. And then a low coating on the outside and the inside.

That's sort of news that we've all heard before. You're going to get a lot more insulating properties out of the window.

The funny thing, though -- or I should say the interesting thing -- is that you can get a window that is ENERGY STAR rated. Most times, you think ENERGY STAR for your light bulbs, for your toilets, for your appliances.

WILLIS: Sure.

O'CONNOR: Well, those have ENERGY STAR ratings as well, so the consumer can now go down the shelves, they can look at the windows, and they can say, yes, that window works for me.

WILLIS: How much, though?

O'CONNOR: You know, it's actually very common. You can get a unit just like that probably about $300.

TRETHEWEY: Green is not this extraordinary premium that it once was. It's becoming much more mainstream.

WILLIS: Well, I think that's what's interesting here, and the real takeaway is that everybody expects to spend so much dough for green, and you don't have to do that anymore.

O'CONNOR: I think we proved it -- I think we proved it on the Austin project.

(CROSSTALK)

WILLIS: Awesome.

O'CONNOR: Tune in.

WILLIS: Great to have you guys here. You've got to come back.

TRETHEWEY: All right. We will.

WILLIS: Thanks a bunch.

TRETHEWEY: Thank you.

O'CONNOR: Thank you.

(END VIDEOTAPE)

WILLIS: Coming up next, we're heading to camp, boot camp, that is, for attorneys. Why it could be important to you and your home, next.

But first, a city ahead of the game in eco-innovation in this week's "Local Lowdown."

(BEGIN VIDEOTAPE)

WILLIS (voice over): Santa Fe, New Mexico, one city that leads the way in green innovation. It was the first city to sign on to the 2030 challenge, which aims to cut fossil fuel dependency through greener and cleaner building designs.

MAYOR DAVID COSS, SANTA FE, NEW MEXICO: We look at issues of global warming. We also look at pocketbook issues, like how much natural gas costs us every winter. And it just seemed like a very natural idea for Santa Fe.

WILLIS: The idea originated with local architect Ed Mazria, but he says achieving that goal requires the help of government.

EDWARD MAZRIA, FOUNDER, "2030 CHALLENGE" : There are all these working models out there from the '70s and '80s, and then the price of oil went back down to $10 a barrel and people forgot about it. You know, and just the programs evaporated. The government shut them down and then we went back to business as usual.

WILLIS: It's the challenge of changing that business-as-usual attitude around the country. But in Santa Fe, global climate change is already a priority.

That's your "Local Lowdown."

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: Struggling with mortgage debt, more people are filing bankruptcy. Now some attorneys are pointing fingers at the mortgage industry. At a boot camp in North Carolina, some lawyers are learning how to take the industry to task in bankruptcy court.

(BEGIN VIDEOTAPE)

O. MAX GARDNER III, BANKRUPTCY ATTORNEY: This is just a case of pure corporate greed.

This is not easy. We're starting at 8:00 and we're finishing up maybe about 7:30 or 8:00, even later. So -- and it's very difficult work.

These hybrid mortgage loans, these adjustable rate mortgage loans, the loans that have that teaser rate, they call it, for two years, a very low interest rate, and then after two years it resets into a rate that's three times that high, and your mortgage payment is double.

UNIDENTIFIED MALE: I had a client whose mortgage payment went from $1,000 a month to $3,000 a month, and I said, "I can't afford to pay that mortgage, never mind you."

GARDNER: For years, mortgage issues have been addressed in kind of a passive way in bankruptcy. UNIDENTIFIED MALE: You ready to go?

UNIDENTIFIED MALE: Yes, sir.

UNIDENTIFIED MALE: Up and at 'em.

GARDNER: The purpose of the boot camp is to show these attorneys, you know, how they can attack those lines.

Some areas of the country are -- the foreclosure numbers are up 80, 90, 100 percent more than the year before. So it's a pretty, pretty serious problem. Four or five years ago, they could...

ERIK CLARK, BANKRUPTCY ATTORNEY: The problems that we're talking about we have seen for years in our practice. Clients coming in with unexplained problems with their mortgage, people in Chapter 13 having problems when they get out of Chapter 13 with mortgage amounts still due. We're talking about the charging of fees without any real due process.

GARDNER: I think the biggest problem in consumer bankruptcy right now in Chapter 13, where people are trying to repay their debts, are these secret fees that mortgage services are charging. Now, none of these fees are brought to the attention of the bankruptcy court. None of these fees are notice to the debtor or the debtor's attorney.

CLARK: So what's happening now is a client emerges from a Chapter 13 bankruptcy with the idea that they're completely current on their mortgage and they're ready to move on with their lives, and what they're given shortly thereafter is a bill for several thousands of dollars a piece that accumulated during their bankruptcy case.

GARDNER: It's just a fundamental foundation of due process, which bankruptcy is all about.

CLARK: And the graduates of this boot camp are now starting to bring this issue to light in courtrooms all over America, and judges are starting to have to address this.

(END VIDEOTAPE)

WILLIS: We talked earlier about the need for reform in the credit card industry. One practice that should be tossed out, universal default. That's when a credit card operator penalizes you by raising your interest rate if you make late payments on any other bills.

Now, to find out if your rates could be jacked higher by universal default, scan your card holder agreement for a section that mentions default pricing. Now, if it indicates that default pricing is based on any information in your credit report, then you are at risk.

The good news is some credit card operators are already making changes. Citigroup, for example, has said it will stop universal default on its cards. Now, that's a move in everybody's interests.

We'll be watching to see if other credit card operators follow suit and keep you updated.

If you have any questions, please send us an e-mail to openhouse@cnn.com.

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