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Open House

How Some Senators are Trying to Deal with the Present Subprime Crisis; Slump in the Housing Market; Plans to Pay off Student Loans; Spring Cleaning and Home Renovations; Marriage and Money

Aired May 05, 2007 - 09:30   ET

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

WILHELM: ... reporting live from Greensburg.
Now, if you are just joining us and wondering what all the commotion is about, here is the situation, the very latest.

There was a mile-wide - at least mile-wide - wedge tornado that struck the town of Greensburg last night at 9:45, Greensburg suffering a direct hit, Greensburg in Kiowa County.

As you take a look there, the tornado hit Kiowa County, it hit Greensburg. Also moved on up - it hit outside the town of Macksville, then slid up and hit outside, southeast of the town of Ellinwood, before hitting the edge of Claflin.

You can kind of see where it moved there in direction and in comparison to Wichita.

The hardest-hit town, though, by far is Greensburg, which suffered a direct hit. There are blocks and blocks of devastation there.

In fact, it is so bad, they are in a search and rescue mode right now. And the city administrator and authorities have now declared a state of emergency, and that they are evacuating the town - a mandatory evacuation for the town of about 1,500.

Many people - and in fact, what you're seeing here is a shot of that wedge tornado, right as it hit the town of Greensburg. And there was no sun last night. You're seeing lightning that was lit up behind it.

It made it very difficult to try to track and keep an eye on where it was headed, because of the fact that it was nighttime, and the only time that you could see the tornado was when it was lit up behind.

Now, the people in Greensburg said they did have warning. There was about 20 minutes' worth of sirens going off, where they knew they needed to take shelter and they knew the tornado was headed their direction.

We talked with Eye Witness News ...

LAPIN: So, we saw the pictures from nighttime right there, from our affiliate, KWCH. But now that it's daytime, obviously, a lot more damage.

We keep our eyes on these live-streaming pictures from our affiliate, because they really have comprehensive coverage for us, KWCH. And that's where the pictures are coming from. And Betty, we're going to keep monitoring the Web for you all throughout the day.

NGUYEN: All right. We'll be checking in. Thank you.

And our coverage of the Kansas tornado does continue at the top of the hour.

HOLMES: But first, OPEN HOUSE with Gerri Willis. We're going to join that in progress right now.

GERRI WILLIS, HOST, "OPEN HOUSE": ... regulation. Lay out the details for us.

SEN. CHARLES SCHUMER, D-NEW YORK: Yes. What we're trying to do is both deal with the present subprime crisis and prevent the next one from happening.

To deal with the present crisis, we propose that the federal government allocate $300 million to non-profit institutions to help citizens refinance their mortgages when they fall into delinquency and might be foreclosed upon.

These people don't really have much wherewithal in the financial markets. And yet, the non-profit groups can come in and help them refinance.

And there's plenty of money for refinancing, because the lenders themselves realize that it's a lot cheaper to refinance than to foreclose. Often the difference in price is $3,000 or $4,000, versus $60,000.

WILLIS: Senator, let's talk a little bit about those regulations you want to change, too.

Who are you targeting?

SCHUMER: Well, there, we're targeting these rapacious people, who are mortgage brokers - generally not from banks - who come in and just rip people off. They take advantage of poorer, less knowledgeable homeowners, potential homeowners, have them sign mortgages that they can't afford.

They put the money down. They take their big fee. They're off into the sunset, and the poor homeowner has his home or her home foreclosed on them, within several months almost.

These people should have a responsibility. And our legislation basically imposes regulation on them, just as there now is regulation on banks that do lending.

When the TILA law, the Truth In Lending Act was passed, it was only banks who did the lending. But now most subprime mortgages are done by mortgage brokers. Some of them are honorable. Many of them are not.

Our legislation would prevent those who are not from taking advantage of people in the future.

WILLIS: You're not the only one with proposals out right now. Senator Chris Dodd, obviously, coming out, trying to get some consensus in the industry about what to do.

SCHUMER: I think what Senator Dodd is doing is right. But the large institutions, who will have agreement, are generally responsible.

The real bottom-crawlers in this are the mortgage brokers, the mortgage companies that wouldn't even be invited to a meeting like Senator Dodd correctly had.

They would rather be people who just call up on the phone, say, "Hey, I'll get you a good mortgage, and it'll only cost you $1,400 a month."

It does - for three months. Then it goes up to $3,800, and the person loses their home.

WILLIS: You know, you describe the subprime mortgage industry as the "Wild West." You say it's time to get a new sheriff in town.

SCHUMER: Right.

WILLIS: And obviously, you're putting most of the blame on mortgage brokers.

I know there are people out there who say that consumers have a responsibility, as well. So do lenders.

SCHUMER: Well, you could do that caveat emptor, but a lot of these people - I mean, I've met people, and they're just sold a bill of goods and they sign.

Are we going to say, tough luck?

Yes, we used to say that in the 1920s. But America's gone much higher and better than that.

We do put responsibility on the initial lender. The person who gives the mortgage broker the initial money for this loan would be responsible, as well, and could be sued, if the mortgage broker takes advantage of the person.

We do not put responsibility - or do not have laws regulating those way high up, you know, the ones who package the mortgages and put them there, because there the markets are self-correcting. A lot of them have taken a shellacking already.

WILLIS: Right. It's a complicated industry.

Thank you for being with us today. We appreciate your time. SCHUMER: It's nice to talk to you. Thanks.

WILLIS: From the mortgage meltdown to the overall state of the housing market, a recent slump is putting a strain on many pocketbooks around the country, particularly on those who are looking to sell their homes.

Chris Lawrence reports.

(BEGIN VIDEO)

CHRIS LAWRENCE, CNN CORRESPONDENT, NORTHFIELD, MICHIGAN: There's nothing with your eyes. Everything about this home is upside-down.

The family is listing it $50,000 under what they paid. And that doesn't count the money spent for landscaping.

In fact, if you take what they paid for the house and all the money they sunk into it, they're now $87,000 in the hole, with the potential to be even deeper.

SUSAN ADKINS, TRYING TO SELL HOME: You lose your investment in the house. But now we're going to lose significant equity, too.

LAWRENCE: Susan Adkins' husband lost his job in Michigan. He found a new one - in Denver.

Now he lives in a tiny apartment 1,200 miles away.

UNIDENTIFIED FEMALE: Hi, daddy.

LAWRENCE: Susan and the kids are still in suburban Detroit, trying to sell their home. Six months on the market and no realistic offer.

ADKINS: I didn't think it would be quite this hard. I'm actually just on the edge of starting to panic.

LAWRENCE: In March, sales of existing homes had their steepest decline since 1989. Would-be buyers with weak credit are having a hard time getting loans.

And the Detroit metro area leads the nation in foreclosures. Sellers like Susan have dropped their asking price four times.

DAWN MUELLER, REALTOR: Susan falls into the category of most people ...

LAWRENCE: Realtor Dawn Mueller says prices have plummeted. Whether you're selling a house for 100 grand or a million.

MUELLER: If they were 300 two years ago, they're probably on the market now for around 260.

LAWRENCE: Susan's not sure they can even afford a home in Denver now. And they're not a young couple just starting out. ADKINS: You know, this is our third home. We're really in the middle of life. And so, when you're taking that giant a step backwards, that's a very difficult place to be. It is. It can be depressing.

LAWRENCE: They don't want to stay, but can't afford to move. And new competitors keep springing up just a few doors down.

Chris Lawrence, CNN, Northfield, Michigan.

(END VIDEO)

WILLIS: Up next, paying off those student loans? We have the plan for you.

Then, getting hitched could cause you a financial glitch. We'll show you how to survive it all.

And time for spring cleaning - how to find space you never knew you had.

But first, your tip of the day.

(BEGIN VIDEO)

WILLIS (voice-over): Thinking about tying the knot this summer and changing your name? First, you'll have to take care of some loose ends.

All jokes aside, start with a new Social Security card at SocialSecurity.gov. It's free.

If a company tries to sell you one, don't buy it. And you should alert the SSA.

Stop by the DMV to update your driver's license. And while you're there, change the title on your car.

Take some time to sit down and thoroughly go over important paperwork, like mortgages, leases, wills and insurance policies.

And going somewhere? Don't forget to update your passport, or you won't be going anywhere any time soon.

That's your tip of the day.

(END VIDEO)

(COMMERCIAL BREAK)

WILLIS: It's college graduation time, and many post-grads and millions of recent grads are figuring out how they're going to pay all those student loans.

The College Board says the average undergrad has more than $19,000 in aid debt. Yikes! Kal Chany is the author of "Paying for College Without Going Broke." And Lynette Khalfani is the author of "Zero Debt for College Grads."

They're both here to help. Just want to show you quickly their books.

You know, let's start with some numbers here, because the amount of total debt out there is astonishing - some $134.8 billion in total aid in a single year. It's astonishing, really.

Kal, let's start with you. When do those kids start getting those bills? I mean, do you have to worry that the next day after college graduation you're going to have to be stroking a check?

KAL CHANY, AUTHOR, "PAYING FOR COLLEGE WITHOUT GOING BROKE": No. Right after you won't, but they give you some grace periods. On the Stafford Loan, six months after you leave school you go into repayment. On the Perkins Loan - that's another federal loan program - nine months.

If you have private loans outstanding, those will go into repayment, depending on the lender. If you have parent loans outstanding, those may have been in repayment already while the student's in school.

WILLIS: So, basically you have wiggle room, if you're a graduate.

This is such a bugaboo for kids just getting out of school. They may or may not have a job. They're probably not making a lot of money, and this is tough.

LYNETTE KHALFANI, AUTHOR, "ZERO DEBT FOR COLLEGE GRADS": It really is. When you think about it, that $20,000, nearly, in student loan debt is in addition to all the other bills that they have to pay for.

They have to get a new apartment, right. They might have a new wardrobe to buy for the job, utility bills, food - all the costs, the startup costs, associated with being on your own.

So, the student loan debt crisis - and it really is a crisis in this country - does merit a lot of attention.

WILLIS: You know, I've read that kids are putting off marriage, having kids, buying the house, because they have so much debt.

Now, Kal, you say there's lots of different ways to pay, and let's work through each of those.

CHANY: OK. There are different repayment options. There's the fixed repayment option. That's basically a 10-year repayment on the loan with a fixed rate every month that you have to pay for 120 months. There's also the extended repayment, where you can extend out the payment up to 30 years, depending upon the amount of loan volume that you have.

Certainly, if you have other higher-interest debt, it may be worthwhile to spread out the lower-interest debt to facilitate paying off higher-interest credit cards.

There are also the graduated repayments, where you may pay interest only for a couple of years.

WILLIS: What do you think of that? I mean, interest only sounds a little dangerous to me.

CHANY: That can be dangerous. But again, it depends on what interest rate you have on the loan. If you have other debt that's at a much higher interest rate, you'd be better off paying off that higher-interest debt.

If you have private education loans where there's no cap on the interest, and that rate is very high, you would be better off paying those off, and a smaller amount on the interest-only loans.

And then there are the income-contingent and the income-sensitive repayment, whereby your loan payment is based in part on what you make.

WILLIS: All right. There's also long-term loans that go out 30 years.

Coming up, what you need to know about your partner's finances before you tie the knot.

And how to save space during your spring cleaning when we come right back.

But first your mortgage numbers.

(COMMERCIAL BREAK)

WILLIS: It's springtime. And for many homeowners that means one thing - well, two things. Spring cleaning and renovations.

Homeowners spent nearly $170 billion last year on home remodeling. It's big money.

Home improvement guru, Pat Simpson, has a few do-it-yourself remodeling tricks that can take the strain off your back and your wallet.

(BEGIN VIDEO)

WILLIS: Pat, good to see you.

PAT SIMPSON, HOME IMPROVEMENT GURU: Good to see you, too, Gerri. Let's jump into it. What do you want to first? WILLIS: Absolutely. Let's start with the bathroom now.

SIMPSON: OK.

WILLIS: Average remodel of a bathroom - $10,000 - a lot of money. People don't have that right now.

SIMPSON: Yes.

WILLIS: So, what's the one thing I could do to make the bathroom look really different?

SIMPSON: Well, let's talk specifically about a smaller bathroom, like a powder room that your guests may use, and they see that when they come into your living area, generally.

The floor - the tile on the floor is probably the easiest thing to do.

This is the concrete or the cement backer board, OK?

WILLIS: This is the backer board down here.

SIMPSON: This has to go down right over that vinyl. You want to be sure your substrate is fine. And that's very common that it is.

WILLIS: But you put that right on. You don't have to take out the vinyl.

SIMPSON: This goes right - exactly. Put this right on top of the vinyl, fasten it with the cement backer board screws, every six inches on square. OK? You want to be sure that's down.

WILLIS: All right.

SIMPSON: Then it's up to you which tile you want to put on there. These are just typical 12-inch tiles you can buy at any home improvement store.

These are about $1.50 to $6 each. So, it depends on what you want to do.

WILLIS: So, here we're spending about $300 for a small bathroom to get this floor down - much better than spending $10,000.

SIMPSON: Yes.

WILLIS: But do you have a couple of other ideas, too? Because you can change some of the hardware, too.

SIMPSON: The mirror that's in the bathroom is typically the old square mirror, no frame, with the plastic clips on there.

WILLIS: Yes. Ugly, ugly.

SIMPSON: In fact, right over here beside you - buy just a nice framed mirror. Take the old mirror down that has the plastic clips. Patch the wall if you need to, and put a nice framed mirror on there.

You could change ...

WILLIS: That's an easy solution.

SIMPSON: Change the shower curtain. You can make your powder room or your bathroom, if you have a shower, or a tub-shower combo in there, for under $700 at the most. You really can.

WILLIS: That's awesome.

SIMPSON: Yes.

WILLIS: All right.

The next thing to talk about, the kitchen.

SIMPSON: The most often remodeled room in the house.

WILLIS: And I'm telling you, people spend a lot of dough to remodel their kitchen.

SIMPSON: A hundred thousand dollars is not unheard of.

WILLIS: Oh, not at all. In the Northeast, that's par for the course.

SIMPSON: Yes.

WILLIS: But I think the average nationally is $44,000.

SIMPSON: OK.

WILLIS: But you've got a cheap fix here.

SIMPSON: Well, you know, you don't have to go out and get all the commercial appliances and change everything.

Something simple that you can do, Gerri, is just change the hardware on your cabinet doors and drawers. For example, this is more of a contemporary look with the nickel look on here.

WILLIS: That's pretty.

SIMPSON: Take the old black ones off, or whatever that they put on there in the '60s, and come on with some new - you do the handles, the knobs, the hinges - everything. And that's one of the first things that catches your eye when you walk into a kitchen.

WILLIS: I can do that. That's not hard.

SIMPSON: Lighting is huge. Put some pendant lights, like we have hanging over here. These are typically seen over an island or over counter space.

Get rid of the fluorescent lighting that's in the house, and put some nice drop-down, pendant lights in there like that.

WILLIS: It makes the feel of the place completely different. It feels like a room ...

SIMPSON: It does.

WILLIS: ... rather than just, you know, a harsh environment. Right?

SIMPSON: When you have guests over, where do they end up? In the kitchen.

WILLIS: The kitchen.

SIMPSON: They always end up in the kitchen.

WILLIS: It's always the kitchen.

SIMPSON: So, go with the kitchen first, if you can.

WILLIS: I love that.

OK. And now you also brought us a big closet. Thank you so much, Pat. I really appreciate that.

SIMPSON: Yes. You bet. Yes, I just whipped this up in 30 minutes or less, right?

No, this is a prop, obviously. But what we're depicting is, whether it's a walk-in closet, a guest bedroom closet - and this particular one, of course, is a cedar closet - storage space is huge these days, not only the storage space, but protecting your clothes.

So, cedar closets have really become popular, because it keeps the bugs, the roaches, everything out, plus it gives a nice, fresh smell of cedar in your clothing, as well.

WILLIS: You know, I think a lot of people out there, they're renting space outside their homes to store stuff.

SIMPSON: They are.

WILLIS: It's probably better in the long term to actually do something in your own home.

SIMPSON: Yes.

WILLIS: So you make that investment once, you're done.

SIMPSON: Yes. And if you have attic space or basement cellar space, you don't have to use the planks like we see here. You can use the panels, which are behind you over here.

These come in four-by-eight sheets. That's more utilitarian, if you will. You can line drawers with that.

It's a very simple, do-it-yourself project. Hammer and nails, that's all you need.

WILLIS: Pat, so good to have you here. Thanks so much.

SIMPSON: Good to be here, Gerri. Thank you.

(END VIDEO)

WILLIS: As always, if you have an idea for a weekend project, send us an e-mail to OpenHouse@cnn.com. And if you want to check out this weekend project again, check out our Web site, cnn.com/openhouse.

Up next, marriage and money - what you need to know before you walk down the aisle.

But first, your local lowdown.

(BEGIN VIDEO)

WILLIS (voice-over): New Orleans - enjoying the final days of Jazz Fest 2007. Performing this weekend, John Mayer, John Legend, Steely Dan and Joss Stone, among others.

The shindig cultural feast incorporates musicians, cooks and artisans from around the globe, bringing their very best to the table.

An estimated 400,000 people descend on NOLA every year for the event. But that pales in comparison to the million who show up for Mardi Gras.

That's the Big Easy, and this week's local lowdown.

(END VIDEO)

(COMMERCIAL BREAK)

WILLIS: For richer, for poorer, in sickness and in health, till death do you part?

Maybe not. Maybe it's till checkbook do you part.

Before you walk down the aisle, if you are walking down the aisle this spring, there are ways you and your future spouse can get on the same page about money before you ruin your credit and your marriage.

John Ulzheimer is with Credit.com, and he's joining us from Atlanta.

Welcome, John.

JOHN ULZHEIMER, PRESIDENT, CREDIT.COM EDUCATIONAL SERVICES: Hi, Gerri. How are you?

WILLIS: I've got to tell you, this is such a great topic.

I don't know anybody who doesn't argue about money with their spouse or their significant other. ULZHEIMER: Sure.

WILLIS: In fact, I read that seven out of 10 couples argue about money the most.

What is the deal? Why do men and women see money so differently?

ULZHEIMER: Well, especially with the marriage season just around the corner, something that happens - it's not great - is that when two people get married, they change how they manage and use money significantly.

WILLIS: What do you mean?

ULZHEIMER: Well, when two people get married, it's very common that one of the spouses - and in most cases, it's the woman - changes how she uses and manages credit.

In some cases, they will depend on the credit of the other spouse. And that may seem like a very noble and machismo type of thing to do.

But the problem is, is that if you do that and let your credit reports and your credit accounts become stagnant, as soon as six months, your credit reports will not be scorable any longer by credit scoring models. And this ...

WILLIS: Well, I found this point very interesting, John, and I'd never heard it before.

You're saying that, if you don't do anything - I assume you're not saying if you don't take a credit card out every two months - but if you don't borrow money, you don't spend money in your own name in six months, the credit report - you have no credit report, essentially. Is that right?

ULZHEIMER: Well, you still have a credit report, but the accounts that are on the credit report have become stagnant, meaning that, if you close accounts and depend on the credit of a spouse, or if you choose to not apply jointly for a car loan or a home loan with your new spouse, then, in as little as six months, your credit report - your accounts could be stagnant, and therefore, the credit score models will no longer score it.

WILLIS: All right. So, money is a factor in 80 percent of divorces.

But before you get married, how do you bring up the subject of money?

I mean, you know, when I was dating, I had no idea if the guys I was dating had great credit scores or poor credit scores.

ULZHEIMER: Oh, sure. I mean, the credit report and credit score discussion is not something that you generally have when you're courting, or when you're engaged. You have discussions about other things.

But, gosh, it's just such an embarrassing topic to discuss. I mean, who wants to talk about their incredible amount of debt? And who wants to talk about, my credit reports are terrible?

WILLIS: Right.

ULZHEIMER: You're trying to impress your future spouse, not give them horror stories and nightmares of what they're going to be marrying into.

WILLIS: Well, so, how do lenders look at this? If you're applying for a loan with your intended, you have very different credit scores, do they average them? How do they account for it?

ULZHEIMER: Well, what they do is, when you apply jointly with your spouse - which is very, very common, because in many states it's very expensive to buy a home, it's very expensive to buy a car. And you made need two incomes, a dual income, to be able to qualify for the loan.

And when you do that, when both of you sign on the dotted line, the lender is going to pull both credit reports and look at both scores.

And lenders are conservative. They're going to take probably the lower of the two scores into account when they're setting your interest rates.

And in some cases, the blending of those two score isn't necessarily the best for the applicants.

WILLIS: Wow, John. Great insight. Thanks so much for your help today. We appreciate it.

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 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.

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