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Open House

Mortgage lender meltdown, it's ripple effects on the economy and what to expect if your lender goes bust. Breaking News: Update from Mine CEO on efforts to find the six lost Utah miners.

Aired August 11, 2007 - 09:30   ET

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

(NEWSBREAK)
GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: Hello. I'm Gerri Willis, and this is OPEN HOUSE, the show that saves you money.

Coming up, America's mortgage meltdown continues, forcing major lenders to call it quits. I'll tell you what that means to you, and your home.

And financial aid schemes: What you need to know to protect yourself and your family from becoming victims.

Then how you behave at work can have a very big impact on your paycheck.

But back to our big story, more major mortgage lenders are in trouble this week. One big lender, American Home Mortgage, filed for bankruptcy, and at least two other large lenders have stopped taking loan applications. These problems are creeping into the broader economy.

The stock market plunged on credit concerns. It reminds us of another time housing problems made for a shaky economy.

(BEGIN VIDEOTAPE)

WILLIS (voice over): In the late '80s and early '90s, major lenders shut their doors as the savings & loan scandal rocked the industry. More than 1,000 savings and loans failed. The failures resulted in part from corporate greed and loose government regulations. But the ups and downs of the housing industry and interest rates also played a role. Tax incentives made real estate a great buy in the '50s and '60s. By the 1970s, investors had taken out a lot of fixed-rate mortgages from the savings & loans.

Those loans were funded by individual savings deposits. When interest rates rose in the late '70s and '80s, the banks had to pay out higher interest rates on savings accounts, but were locked into low rates paid by mortgage holders. That put their balance sheet out of whack and made the banks vulnerable to collapse. So are the lending problems today going to cause the same financial upheaval we saw after the S&L crises?

There are a few similarities. In both situations, a hot housing market got banks in trouble. Plus after the S&L scandal, the government bailed out the industry. The crisis cost U.S. taxpayers $124 billion. Today some lawmakers say homeowners should be bailed out; Presidential candidate Hillary Clinton, among others, is asking for funds to help homeowners who can't pay their mortgages.

But on the bright side, the broader economy is stronger than it was during the S&L crises. Then, unemployment and interest rates were both over 10 percent. Today they're dramatically lower. This time around, the Federal Reserve predicts smoother sailing for the economy as jobs and paychecks grow.

(END VIDEOTAPE)

WILLIS: So what do these worries for the banking industry mean for your mortgage loan? Mike Larson joins us from West Palm Beach, Florida, to answer that question. He is an analyst with Money&Markets.com.

Good to see you again, Mike.

MIKE LARSON, ANALYST, MONEY&MARKETS.COM: Glad to be here, Gerri.

WILLIS: Let's start out with all these lenders in trouble. What is the outlook for this industry? People out there are worried that their lender is going to go out of business.

LARSON: Well, it's a real mess out there. Let's be clear. We haven't seen anything like this in a number of years, where you have big lenders like that American Home Mortgage, you mentioned. A year ago they made almost $60 billion in loans, and today they're broke. You also have more than 100 smaller guys that are getting into big trouble.

WILLIS: Are more going to go out of business? Are we going to see consolidation?

LARSON: We're definitely going to see consolidation, and we're definitely going to see more casualties. What's going on is these lenders often don't have a lot of capitalization, a lot of money on hand. They rely on the Wall Street market to fund them. As you can see from what's going on in stocks, Wall Street's in a real tizzy right now.

WILLIS: Oh, yeah.

LARSON: Which is causing these lenders to get into trouble.

WILLIS: This is like, you know, high fallutin' finance out there. What does this mean for people who want a mortgage loan? Or maybe they want a new one? Are the terms going to change? Is it going to be tougher to play the game?

LARSON: I don't know if you saw the guy from New York scrambling for the Barry Bonds home run ball, but that's a little bit like what you have to do if you're a mortgage shopper right now. If you don't have great credit. If you're looking to finance 100 percent of your house, if you want to state your income, it's a lot harder to get a mortgage these days than it was six or 12 months ago.

WILLIS: We keep hearing you're going to have to put more money down. You're going to have to have a higher credit score. It's going to be tougher all the way around. Do you think that people are just, some of them not going to be able to borrow at all?

LARSON: I think so. I think we had very easy lending standards during the housing boom. We had a lot of people take out mortgages, very high debt to income ratios, and not putting any money down. And a lot of that's going away or it's getting harder to find.

WILLIS: OK, Mike, you had said this is not as bad as the S&L crises. The parallels are not there. Do you still have that point of view?

LARSON: Well, back in the S&L days, banks were in a lot of trouble. They had already been weakened by interest rate stuff that was going on. So when commercial and residential real estate turned down, it was the nail in the coffin, frankly. These days banks are in better shape, so you're going to see lenders go out of business. But I don't think the Citibanks, or the Banks of Americas of the world are going to have a lot of problems.

WILLIS: Well, interesting.

Well, you know, we've been watching this very closely. I think the big worry here is that there could be ripple effects that hit the economy. It's not just individuals who can't borrow. It's also corporations at this point, who are having a tough time borrowing. That could ultimately affect how many people get employed, how much they get paid. Do you think that we could go into recession?

LARSON: Well, I think -- we haven't just had a lot of risky mortgage lending, a lot of risky commercial lending, a lot of risky lending to finance these corporate takeovers. And lenders are stepping back and thinking twice about making these kinds of loans. If that continues, then definitely it's going to have an economic impact and slow things down. I don't know if we'll get into full blown recession, but it will definitely slow the economy.

WILLIS: Well, Mike, thanks for shedding some light on that. We appreciate your time.

LARSON: Glad to be here.

WILLIS: Of course, I want to address your concerns about the housing market. Here's an e-mail from Joni in Ohio.

It reads, "Given the latest set of events with the mortgage meltdown, I want to know what, if anything, I should do about my primary home loan with American Home Mortgage? Should I hold on and just wait it out with them, or should I jump ship and seek out a new lender?"

Great question. This is what you need to do if your mortgage lender goes bankrupt. First off, keep making those monthly payments. If your lender declares bankruptcy, its assets will just be sold to another lender. Don't you worry, there will be somebody out there who wants to get your monthly check.

The terms of your loan, like the interest rate and the type of loan you have, must remain the same, no matter who holds your loan. But here's what may change. The address you send your monthly checks to and your payment deadline date. You should get a letter within two weeks that outlines these changes. You should also be given a toll- free telephone number to call in case you have any questions.

There is some flexibility. You have two months to get your check to the right place on time. Now, if you've paid off your loan in full already, you can still get what they call mortgage satisfaction documents from the company, even if it is out of business. Go to your state attorney general's office to find out who can help you.

Coming up on OPEN HOUSE, more and more students fall prey to financial aid schemes. What you need to know to protect your family and your wallet.

Then choosing the right contractor can save you big bucks. We'll show you how.

And you don't want to miss this one: The new rules of work etiquette. You'll be surprised how things have changed in the office.

First, your "Tip of the Day": With lightening season upon us, avoid shocks to your wallet by protecting your home now. Many homes are already equipped with lightening rods on their roofs, but these won't protect your TV or stereo if lightening strikes the ground or a power line near your house.

The power surge generated can destroy electronics within seconds. So be prepared. Plug all home electronics into surge protectors and unplug high-end equipment like computers and stereo systems. And if you live in an area with frequent strikes, experts suggest whole home surge arrestors. These can cost upwards of $200 and need to be installed by a professional, but it could save you big bucks if your home is struck by lightening. That's your "Tip of the Day."

(COMMERCIAL BREAK)

WILLIS: Let's face it. A college education costs an arm and a leg these days. Without financial aid, most of us wouldn't be able to go to school. But you should know there is a new breed of predator ready to take your hard earned money through financial aid schemes. How to protect yourself and your family? Alison Preszler of the Better Business Bureau is here with answers.

Alison, welcome.

ALISON PRESZLER, BETTER BUSINES BUREAU: Thank you for having me.

WILLIS: You say these schemes are rising fast, there are just a ton of them. Let's talk about them individually. Tell me about these seminar scams. PRESZLER: Sure, absolutely. We've been hearing from parents from New York to California about a company called College Money Matters. They said their college-bound student received an e-mail saying they've been accepted to attend a free seminar on how to get financial aid. So the parents go to the seminar, and it turns out to be more of a sales pitch, where, for a fee, College Money Matters will help you find financial aid and also fill out your applications for federal financial aid.

WILLIS: But that's not really what happens, right?

PRESZLER: What happens is these parents paid between $700 and $1,000, and college money matters took their money and ran.

WILLIS: Holy cow!

PRESZLER: Yes, these parents did not get help with scholarships, and a lot of them are finding out their student's financial aid forms weren't even filed.

WILLIS: Well, you can do so much of that on your own for no cost at all. Let's talk about college grant scams. What are those?

PRESZLER: College grant scams are another form of counterfeit check scams. What happens is you receive, yet again, an unsolicited letter or e-mail saying that you equal for 10s of $1,000s worth of scholarship money. All you have to do is say how much you want.

WILLIS: That sounds like a good deal.

PRESZLER: Oh, absolutely. It's just there for the taking. So these people e-mail the company back or write them back and say, yes, I would like, say, $25,000 worth of money to pay for college.

WILLIS: And what happens then?

PRESZLER: Well, then, a check comes in the mail, and it looks legitimate. It will have a watermark. It will even be in color and look very real. With the check will be instructions to go ahead and deposit the money, but then they're going to need you to send back, say, a couple thousand dollars to cover commissions and fees and taxes.

WILLIS: Let me guess. There's no real grant, and they take your dough, right?

PRESZLER: There's no real grant. They take your dough. And in about two weeks, your bank will kill you. They'll say, that check was counterfeit. And not only are you out the money you sent to the scammers, but you might owe the bank for any money you spent based on that scam.

WILLIS: Alison, I've got to get you on these red flags because I think they're just awesome. OK, let me tell you -- I'll read what the scam artist would tell you, and you tell me what's wrong with that phrase. The scholarship is guaranteed.

PRESZLER: Unless the scammer is actually going to open up his wallet and hand you a check for $2,000, there's no guarantee you're going to get a scholarship. It's just not going to happen. You can't guarantee that kind of money.

WILLIS: All right. You can't get this info anywhere else.

PRESZLER: That's just not true. There's a lot of places you can go to for advice. The Internet is full of information. Your high school's guidance counselor can help. And then also, if your kid already has his school picked out, the financial aid office can help you out as well.

WILLIS: Here's my favorite. Hey, we'll do all the work.

PRESZLER: It makes it sound so easy. All the work is done for you. It's just not true. To fill out your financial aid forms, you have to supply your tax information, your income. You have to actually do some work. There's no way they're going to do everything for you.

WILLIS: Here's another one. You have been selected by a national foundation to receive a scholarship. That sounds pretty legit to me.

PRESZLER: It makes you feel very special, but if it's unsolicited, it's not very likely.

WILLIS: All right. Well, Alison, awesome information. I appreciate your help today.

PRESZLER: My pleasure. Thanks for having me.

WILLIS: Still ahead on OPEN HOUSE, finding a contractor that fits your needs and your budget in a few easy steps. And how to behave in the office; it can have a big effect on your paycheck. We're talking about the new rules of work etiquette when we come right back.

But first, the mortgage numbers.

ANNOUNCER: This is CNN BREAKING NEWS.

J.T. HOLMES, CNN ANCHOR: Good morning, everybody. I'm T.J. Holmes.

We are following that breaking news out of Utah, where six coal miners remain trapped. Overnight, though, there was a major development, a second larger drill broke through vertically into the cavity where the men are believed to be trapped. We're now waiting for crews to possibly lower a camera into that and see what that camera can see, and possibly give us real answers to the fate of these six men.

Joining me now is the mine president and CEO, a face we've seen a lot throughout this rescue effort. Bob Murray, sir, good morning to you. I know it's been a tough morning. You have been at it from day one. We thank you for your time and the update. Can you tell us, update us on how it's going with pulling out that drill bit. and then getting the camera down into that hole?

BOB MURRAY, PRES., CEO, MURRAY ENERGY: The 8 5/8-inch hole intersected the coal seam between 2:00 and 3:00 this morning. The hole was precisely where we thought it should be, within a fraction of an inch. It was drilled off of the side of a very steep mountain, 1,886 feet deep.

We are now in the process of withdrawing the drill steel and inserting a casing so that we can then insert the camera into the mine. That will require another two and a half hours.

With regard to the rest of the rescue, I just came out of the mine. I've been in there all night. I took the son of one of the trapped miners, who is a miner, and the brother of another, who is also a miner; and went in and inspected the underground activity. It is going too slow. It is going according to plan, the entire rescue.

The drilling, the underground rescue is going according to plan, but it's very slow work underground because we cannot endanger the lives of the rescuers as we drive through the rubble. We've driven 650 --

HOLMES: I was going to ask you. Do you have the men? Do you have the equipment? Do you have everything you need there? And it's just -- no matter what you have, it's only so fast you can go in that shaft?

MURRAY: That's correct, T.J. I have 134 men on site, have had all week. I've had 10s of 1,000s of tons of machinery moved in. We've given them everything we can. The problem is, sir, from the disturbance from the quake, and the seismic activity and then the activity that has been ongoing, it's been very slow progress because we have to shore up the mine entries, so that the rescue workers are well protected. And that is a very slow effort.

It's going according to plan. There's been no mistakes in the rescue at all. But it's just too slow to suit me. One other thing that I might tell you, the 2 1/2-inch hole that we drilled down a couple of days ago, we're pumping oxygen down that hole.

HOLMES: And, sir, let's stick with the shaft area where you say it's going real slow. If we get the camera down in that 8 5/8-inch hole and we aren't able to see and aren't able to get real answers, if you have to go with the option of just waiting until you dig through, and get to the area where you believe the men are, from that shaft that's going so slow. How many days are we talking about now before you are able to dig through there?

MURRAY: It varies. I had predicted that it could be up to a week, two days ago, from that time. Yesterday progress went well. Last night it has not gone well. So I still believe that it will be somewhere perhaps four or five days, but it's very hard to predict, T.J., because there could be open cavities in there where we won't have so much rubble.

I can tell you this. We encountered a mining machine tonight. I was there, a cable sled. That's a type of machine -- of a sled to store cable, that the men use in their mining. And it's usually very close to where they are. And we encountered that in our excavation last night. We're getting closer, but I would say we're still 1,200 to 1,300 feet away from them.

HOLMES: Sir, let's get back to the camera, I want to be clear on the camera that's going to go down, that vertical hole that was drilled. Has the camera gone in yet? Again, I wanted to make sure we were clear on exactly where that process was of pulling out the drill bit, and doing what need to be done. Has the camera gone in and started its journey yet?

MURRAY: No, as I said earlier, it will be 2 1/2 hours before we can have the camera in operation. We must pull the drill steel, insert casing, and then insert the camera. From what we found, from where the bit went down, we may not be able to see a lot with that camera. There is additional information I could give you, but I've had a policy of sharing it with the families first. And that is where I'm on the way to now to give them an update. And after that, we'll be back to give you further information.

HOLMES: Yes, sir. And tell me, before you do take off -- we certainly want you to get to them, but have you seen any other signs? You said you did find some equipment, so that gives you a reason to believe the miners might have been close to that area, or you're on the right track. Have you seen any other signs of the miners at all?

MURRAY: No, I have not seen any signs of the miners' activity. We had reported two days ago that the oxygen level was 20%, which was to sustain life, but we now think that that air sample may have come out of the bore hole itself. Because we took another sample that only showed 9 percent, which would not sustain life.

Last night, however, at the rescue area, we have 69,000 cubic feet of air blowing a minute on the rescue workers so that there's plenty of ventilation. It's very hard to say, sir, where the miners are, exactly what the atmosphere will be, and whether it will sustain life or not.

HOLMES: And, sir, last couple of things here. Of course, you're aware of the reports out there, including one from a member, a family member of one of the miners that's trapped, saying that there were concerns the miners themselves were concerned about working in this area. You told one of our reporters that that had never been brought to you or your management.

Well, in the past day or so, has anything else come to light that lets you know that, yes, in fact, there were some concerns from these miners about the area, this section where they were working? They were concerned about some heaving and some buckling up about the intense pressure, and some of them had concerns about that. MURRAY: You can stop right there.

HOLMES: Yes, sir?

MURRAY: You can stop right there, T.J. That is all absolutely not true.

HOLMES: Not true.

MURRAY: I don't know where the rumor came from. It is not true. I respect my miners. I am no more important than they are. I don't mind a pound of coal anymore. I'm an old man. I depend on them. I take their safety to bed with me every night. The day I think I'm more important than they are is the day I retire.

And my miners can talk to anyone. It's a free America. And say what they want to about our effort. We are in compliance with the law; one of the safest companies in America. And we have nothing to hide from anyone. So I would like to see that rumor go away, but I'm not going to worry about it right now. My job is to administer the needs of those families and get these miners out.

HOLMES: Yes, sir. And speaking of those families, you're about to have them out, I believe about to go speak to them. Have they been out to the site at all? Understand they are coming out. Do we have that right? They are coming out to the site?

MURRAY: Three days ago I started the policy of taking the son of one of the trapped miners, and the son of another, to come in the mine with me, experienced miners, and have them give the reports to the families. They have done a far better job, T.J., than I could ever do, and that has helped tremendously.

HOLMES: All right, sir. And, again, I want to be clear. Are the other families -- I know they're getting the updates, like you said, from the guys you're taking down, but are the families coming to the site today?

MURRAY: No, they're not.

HOLMES: They're not. OK.

MURRAY: No, they're not. We keep them in a good place for their privacy.

HOLMES: OK. And finally here for you, sir, when was the last time you slept?

MURRAY: I've had -- oh, I don't know. I got confused a little bit ago as to what day it was, and I have no idea how much I slept. Very little. I thought it was Friday, and somebody told me, no, it's Saturday. Don't worry about that. I'm going to be on this mountain until these people are out of that mine, and my health, or my amount of rest is not important, sir. I'll be here until they come out.

HOLMES: Bob Murray. Sir, we know it's tough work you all have going there, and you all have been at it around the clock. We thank you for your time. I know you need to head off and update the families.

Sir, thank you so much for your time. And really, best of luck to you and your efforts to get to these men and find out what has happened to them, so you can get that word to families. Mr. Murray, best of luck to you in your efforts.

MURRAY: Thank you, T.J. and thanks to all Americans for their concern about our employees.

HOLMES: Thank you, sir.

To recap for our viewers here, many of our viewers this morning, maybe just getting up and joining us. Others have been with us and wanting the update. There we go. We just got it directly from Bob Murray, the owner of that mine, where these six men are still trapped. Still waiting on word of what has happened to them.

Right now the update, we're hearing from Bob Murray, is that, in fact, they have broken through to the cavity where they believe that the men are trapped. They are now having to pull out a drill bit. A drill bit that's about 9 inches, created a hole that's about 9 inches wide, wide enough that they will then be able to drop a camera down into that cavity and take a look around.

However, not great confidence that that camera will be able to give the definitive word on what has happened to these men. Not sure if they will be able to see much with that camera, not 100 percent sure if they are in the exact area. They believe they are in the right area. And hopefully this camera will give some answers.

Bob Murray, there telling us that, in fact, the drill bit still might take another couple of hours to pull out before they can actually start sending that camera on its journey down to that cavity and take a look around.

Again, still no definitive word on exactly how long that will take and still no word on exactly what has happened to these miners. We're about a week into this effort now. If the camera does not bear fruit, if you will, then there's another effort going on inside the mine shaft, where men, according to Bob Murray, he had 42 workers in there earlier, and they are digging and digging as fast as they can. But as fast as they can, is still slow.

They are digging through the shaft, digging through that cavity, and it might take another four, five days, up to a week even, to dig through enough of that shaft and get to where they believe the men are.

He also told us that from they are digging in that shaft, they do have a few openings where they are pumping in oxygen to that area. So possibly, if the miners are in there, they might have an oxygen supply that is going into those men.

Again, six members, six men, six miners still trapped and awaiting word. Today could be a day that we get more answers.

Our John Zarrella has been on this story for us. He's joining us again live there near the mine. Tell us again -- or just tell us about the activity going on there and what's been happening this morning.

JOHN ZARELLA, CNN CORRESPONDENT: Well, T.J. I thought what was interesting to me, in the interview you just completed there with the owner of the mine, Mr. Murray, that he still said that today that progress in that main shaft was going slowly, after the progress yesterday went very rapidly.

So it's difficult to predict how much longer it's going to be before the rescue teams can break through the rubble, through all that debris, and actually physically get the rescue workers into that main area where they believe the trapped miners are. So the estimate now still four to five days, which is what we were told yesterday. So obviously, very little progress is being made.

And he has said it's slow going. It's very difficult. He'd like it to move a lot faster, but it's going as quickly as it can. And at the same time, you know, the big news today that they did break through with that 8 5/8-inch drill into that area where they believe the miners are. And now the process is beginning to remove the drill bit and to put down in there the camera. And he did say it would probably be another two or three hours before they can get the camera down inside there to take a look around.

Again, we understand the parameters of the camera are limited, about 100-foot range, although it can see in all directions, but it's not clear how big this opening is down there. Some estimates are that it may be up to 1,000 feet long and 80 feet wide. And if the miners are in another location they may not even be seen by this camera. So we still may not know anything. Even after they get the camera down in there.

I thought it was also interesting and I'd like to get to some clarification from him when we can, as to why they're pumping air down into that other two-inch hole that they drilled into yesterday. Because they had originally said that -- and they'd been saying in the overnight hours, that it was in the -- you know it had gone into a wrong area. So, that's kind of unclear why they're pumping that oxygen down there, T.J.

HOLMES: All right, John Zarrella for us on the scene. John, thank you so much.

And you are watching CNN --

END

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