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Open House

Fed Interest Rate Cut; Cowboy Mortgage Manager; Car Repair Scams; De-Coding Real Estate Ads

Aired September 22, 2007 - 09:30   ET

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

GERRI WILLIS, CNN ANCHOR: Hello. I'm Gerri Willis and this is OPEN HOUSE, the show that saves you money.
It's been a big week when it comes to you, your finances and your home. The Federal Reserve cut a key interest rate half a percentage point. The stock market reacted positively, but some are saying it's too late to save the housing market others are saying it might have actually made the problem worse by encouraging reckless lending. Foreclosures up big-time, 36 percent from last month and more than 100 percent from last year, that according to Reality Track.

The forecast is for more than two million, that's right, two million homes to go into foreclosure this year alone. And even if you aren't facing foreclosure, the future value of your home took a hit. Moodyseconoy.com reporting nearly three-quarters of housing markets in the U.S. will face declines in value over the next few years. That's New York, Los Angeles, Philadelphia, Phoenix, San Diego, Detroit all on the list.

OK, it's a lot of information to digest and it probably has you asking the one single question that everybody wants the answer to: What does it mean to me? Here to help, Bob Moulton is with Americana Mortgage Group and Peter Schiff is the author or "Crash Proof."

Thanks for joining me, guys, appreciate it. Let's start with that fed rate cut. You know, big surprise for so many folks out there. I know nobody -- few he people, let me put it that way, were expecting 50 basis points. Peter, tell me, what does it mean for the economy?

PETER SCHIFF, AUTHOR, "CRASH PROOF": The economy is in trouble, but the rate cuts aren't going to do anything about that. Real estate prices are still going to fall, they're going to fall sharply. Credit is still going to contract. It's going to be more expensive to get a mortgage, not less expensive.

You know, in order to borrow money, you need to find a willing learned. And for years, we've been bowering from abroad, but we've stuck (INAUDIBLE) with tremendous losses. You can look at those lines in North Iraq and the U.K. and dollar, since the fed cut rates as falling through the floor. And there's no way people in Europe or Asia are going to want to lend Americans money to buy overpriced houses at six or seven percent with the dollar collapsing.

WILLIS: All right, well let's get back to the domestic situation for just a second. Bob, the economy, clearly in trouble, here. Let's talk about the impact on the housing market of the fed cut.

BOB MOULTON, AMERICANA MORTGAGE GROUP: Well, the fed cut is one component to help the housing market. You had builders slash prices this week, you have banks helping homeowners to try to salvage the mortgage that they have and you also have FHA reform. So, this is one effort among many that's trying to help homeowners in the country right now.

The drop in the 50 basis points by the fed will help anyone that has a home equity line of credit. It's going to help someone who has credit cards or possibly an auto loan. Were it's also going to hurt someone is someone who's looking to save money and they're going to get a lower yield on their money market account.

WILLIS: There's a lot of...

SCHIFF: But also, you know, the inflation that the fed is creating to try to socialize these real estate losses is causing other prices to rise. People are going to have much more expensive fuel bills next year. Wait until people see how much it costs when they go to the supermarket. The fed is creating a lot of inflation. And you know, long-term interest rates are actually rising now. So, in a few months, I think you're going see interest rates a lot higher than they are today and that's going to be more expensive for people trying to refinance.

WILLIS: That's not good news.

SCHIFF: No.

WILLIS: I want to ask you too, Peter, about the Democrats in the House this week passed a bill that would give the FHA even more reach. The FHA could insure loans up to over $700,000. Is that a good idea?

SCHIFF: No. It's just taking overpriced homes and trying to put the American taxpayer or holders of U.S. dollars on the hook. Real estate prices are too high. They were bid up to bubble levels by these lax lending standards. They have to come down. Unfortunately a lot of people are going to be disappointed to find out that there's no Santa Claus, that they've lost their home equity. But efforts to artificially levitate home prices are doomed to end in disaster.

WILLIS: So you are anti the bail-out. Bob, what's your view?

MOULTON: I think it's going to help. I think that the market will self correct itself. Volatility in real estate prices is not necessarily a bad thing. Places that have gone up very quickly will come down. Places such as Florida, maybe Las Vegas, Nevada where there is overbuilding, there was cheap money. We had a one percent fed funds rate, we had a four percent prime in the beginning of this millennium, we had new products that came out, we had people going from the dotcoms into real estate. You saw the dotcom came down, now you're going to see real estate come down. That's gong to open up doors for first-time home buyers.

WILLIS: Yeah, it's like a NASDAQ all over again, isn't it? SCHIFF: But remember, those homebuyers are going to need 20 percent down payments and they're going to need to -- you know, with our savings rates so low it's going to be very difficult for people to come up with the down payments. I think more people are going to end up renting houses that Europeans and Asians and Canadians pick up at fire sale prices with the falling dollar and then rent them back to poor Americans.

WILLIS: That's depressing. That means, you know, less wealth for Americans.

SCHIFF: Well, we did it to ourselves.

WILLIS: But Bob, let me get you to some real advice, here. For people out in the markets right now, is now a good time to borrow or are the mortgage markets still so seized up that they really don't want to lend money?

MOULTON: Well, what's happening right now is, as you know, lenders look at four different categories, they look at income, they look at assets, they look at credit scores and they look at property values. You're going to have a much better credit score today than you did six months ago. You're going to have to come up with a traditional down payment of 20 percent, which maybe you didn't have to six months ago where you could get 100 percent financing.

Those people with the down payment, maybe they can get a gift from family, because there's a lot of wealth in the generation before us. They can help the people looking into buy a home. So, we have to get back to basics, right now.

WILLIS: Well, get back to basics, but what if you're one of those people who's stuck in one of those adjustable rate mortgages, one of those toxin loans where you know, the terms were really onerous. Are you going to be able to get that new loan -- Bob.

MOULTON: Well, here's where the FHA's going to kick in. And if those people cannot go back to the lender and get a work-out program with their existing lender, they might be eligible for an FHA reform loan. So, it is available to them, they're going to have to take a look, consult with their attorney, consult with the lender. But there are possibilities to bail these people out that did get involved in terms of a toxic mortgage.

SCHIFF: You know, most of these people aren't stuck. You know? A lot of them have no equity in their homes anyway, as far as down payments, or if they have put in a down payment they've long since borrowed it out. All they got to do is mail the keys into the bank. There's plenty of houses on the market to rent. No one's going to be homeless, nobody is stuck. It's the lenders that are stuck.

WILLIS: People might be homeless. I think we're starting to hear reports already of people...

(CROSSTALK)

MOULTON: You have foreclosures up 115 percent from prior year. They're up 36 percent from the month before.

SCHIFF: But, when they foreclose, they're not out on the streets. We have a record number of unoccupied homes. People have plenty of places...

WILLIS: They can't afford it.

Schiff: No, the rents are cheap. I'm renting myself. I know.

WILLIS: I'm glowing to have to let you go, there. Thanks for helping me out.

MOULTON: Thanks for having me.

WILLIS: A cowboy in the mortgage industry. And chances are you've heard his voice on the radio. See how one man is making friends with some and enemies with another.

Then cozy, unique, charming, well, it all sounds nice, but not when it comes to your new home. We'll decode all those new real estate ads for you.

And don't get ripped off at the shop. Common car repair scams, coming up.

But first, your tip of the day.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): The season for falling leaves is upon us. Rather than bag them and trash them, why not try composting? You can compost everything from leaves to pine needles to kitchen waste. Begin your compost pile in a sunny spot with three or four inches of straw or twigs. Add alternating layers of high carbon materials like leaves and plant debris and high nitrogen materials like grass clippings and kitchen waste.

Mix your pile well every two weeks with a pitchfork or shovel and be sure not to let it dry out. By next year, you should have a rich dark hummus that can be used as fertilizer. That's your tip of the day.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: Getting a mortgage these days can feel like a long trip to the wild, Wild West. You don't know who to trust and you never know what to expect at each turn. But, while this isn't the old Wild West, we found one mortgage broker who, like him or not, is blazing his own trail in the business.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Chances are you've heard his ads. JON SHIBLEY, LENOX FINANCIAL: When your mortgage payment goes up 400 bucks a month, you can dislocate your jaw and swallow it like a snake eating an egg. Or spend another seven grand and some predator redo your mortgage. Unacceptable. I'm Jon Shibley, president of Lenox Financial.

WILLIS: His ads are hard to ignore and so is he. Jon Shibley, isn't exactly your average mortgage broker. He got into the business in Atlanta in 1994 looking to capitalize on the Olympics coming to town. He doesn't even call himself a mortgage broker. He calls himself a mortgage manager. His message and how he delivers it does get your attention.

SHIBLEY: You got kids in college, you need to do an interest only -- no problem, no closing costs. Kids are out of college, you want to rebuild the equity, go to a 15-year -- no problem, no closing cost. Hey, you just lost your job, you have to do an ARM -- no problem, no closing cost. You got another job, let's jump back to a fixed -- no problem, no closing cost.

It's the biggest no-brainer in the history of earth.

WILLIS: No closing costs loans have been around for years, but in most cases the costs are there. They're just hidden to the consumer who usually gets charged a higher rate of interest or the costs get rolled into the loan. Not so at Lenox Financial, according the Shibley, though profit is definitely a motive.

SHIBLEY: You're going to make money, we're going to make money, it's good for everybody.

WILLIS (on camera): But is it? Well, Jon, isn't this exactly how people have gotten into a ton of trouble and are losing their homes right now, because they tried to leverage their home to the hilt and use that money, tap their home like a piggy bank? Isn't that how we got here in the middle of this mortgage mess?

SHIBLEY: Foreclosures weren't the highest in history when I was giving that advice, interest rates were the lowest. So, there's a huge difference there.

WILLIS (voice-over): Fast-talking salesman or revolutionary in the industry? Shibley claims the latter.

SHIBLEY: I hope they ban the closing costs, the bad industry, because there is no obligation to do a good job for you.

We will not do a mortgage for someone who doesn't need it.

WILLIS: So, how does he make his money?

SHIBLEY: I realize that there is a way to actually do these mortgages with no closing costs. OK? By selling them to the secondary marketplace.

WILLIS: Actually, there are closing costs, but Shibley says his company picks up the tab and still makes a profit because big name banks like Chase and Bank of America, among others, pay him a commission for selling the loans to them. So, is Shibley on to something?

DAVID REED, AUTHOR, "MORTGAGE CONFIDENTIAL": It's not unique. It's been around for a long time. And, you know, one person doesn't have a corner on the mortgage market that somebody else doesn't. We've all basically, as mortgage lenders, have the same, old stuff.

WILLIS: Though industry insiders are skeptical, to Shibley, it doesn't matter what anyone thinks.

SHIBLEY: I never worked for a mortgage company. I don't believe to the Mortgage Brokers Association, the Mortgage Bankers Associations, the Realtor Association, or the Builder's Association or something else. They don't even know what my model is.

WILLIS (on camera): Do you care what people are saying?

SHIBLEY: It'll never bother me what people think. What will bother mei is if I do something based on what they think and then and it goes wrong, then the bear might come out of the cage.

(END VIDEOTAPE)

WILLS: What a character. Looking for a loan can be a scary process, especially right now. Here's what you need to know about mortgage brokers or mortgage managers, as Jon Shibley likes to refer to himself. First off, hey, you may not need one. Brokers are most helpful to folks in special situations. If you're self employed or get most of your income through bonuses or conditions, it can be tougher to prove your income, in that case a broker can help contact lenders. A broker also smooth your path if you have a poor credit history.

But, if you don't have any of these issues, you can probably start shopping around on your own for the best loans. If you do decide to use a mortgage broker, be sure to get referrals from friends and family and shop around. Ask candidates for licenses and professional association memberships. Also ask how long her company has been in business and how much experience they have. You might also want to contact the Better Business Bureau to see if they have any outstanding complaints.

Don't get tricked by clever real estate ads. We'll show you how to uncover the truth. And no more getting ripped off at the car repair shop. Learn how not to get scammed when we come right back.

(COMMERCIAL BREAK)

WILLIS: Whether it's five, 15, or 20,000 miles, we all get those notices that it's time to have our car serviced. But sometimes you really need the repairs, and sometimes you don't. We spoke with Mike Allen, senor editor of "Popular Mechanics" to get to the bottom of it all.

(BEGIN VIDEOTAPE)

WILLIS: You've got some great information, here. OK. I need to ask you about the engine flush. Now, apparently this is a big thing that people recommend. Is it necessary?

MIKE ALLEN, "POPULAR MECHANICS": Sometimes. There are engines that do develop a lot of sludge. If you've got a problem with a bad thermostat or the fuel injection is wrong, yes, your engine can fill up with sludge. And there are big, expensive devices that will charge you a hundred or a couple hundred dollars to flush all this sludge out your about engine. If your engine is running properly and you've been changing your oil on schedule, you almost certainly don't need this and it's not in the category of what you would call normal maintenance.

WILLIS: So, it's all about changing your oil. Save that $100 to $200. Fuel injection cleaning, is that something I need?

ALLEN: Maybe. There are some vehicles that are prone to dirty fuel injectors. If you're using substandard gasoline, you could have a problem with that. But, if your car is running normally, the check engine light isn't lit up, your fuel economy hasn't suddenly dropped from 22 miles-per-gallon down to 16. But they want to charge you $160 to $200 to hook up this expensive machine and run this fuel injection cleaner through it for an hour. You probably don't need it.

WILLIS: All right. OK, that's good to know. Oil additives: Good? Bad? Ugly? They're not expense.

ALLEN: They're not expensive, but they're ugly. There are no car manufacture that recommend any oil additives need to be added to your car on a regular basis.

OK, so that's a uh-uh. All right, we're saving a lot of money here so far. But I really want you to talk about these gas savers and you have a couple examples here. One is a really smelly pill and the other is -- I don't know what this is, but you say the advertising is you hook it up to your car somehow.

ALLEN: And somehow by some heretofore undiscovered principle of atomic physics your fuel economy will improve 25 percent. I have tested dozen of these devices over the years. I have not tested this actual one because I'm not even going to bother to.

WILLIS: Well, you told me that this little silver box is probably empty.

ALLEN: Probably.

WILLIS: OK. That's a total scam. And the additives, you said, could actually hurt your car rather than help it, right?

ALLEN: Yeah. Magic beans make your car get 20 percent fuel economy and last forever. This particular product is now off the market. The Texas attorney general busted this big pyramid marketing scheme. What's in there is, and you can tell by the smell in the studio, it's moth balls.

WILLIS: It's moth balls. Great. That's what I want to put in my engine. OK, long-life antifreeze: Good? Bad?

ALLEN: There used to be one kind of antifreeze made by two different manufacturers and everybody used it and you flushed it out every two years. Then about 10 years ago the car manufacturers, in an attempt to reduce the amount of maintenance that your car needs, started to develop long-life antifreeze. If your vehicle was engineered to use a particular kind of antifreeze, then by all means you should use it and follow the manufacturer's recommendations.

WILLIS: All right, it's $4 to $8 per quart.

ALLEN: Not a lot of money.

WILLIS: OK. Mika Allen, thank you so much for joining us today.

(END VIDEOTAPE)

As always, if you have an idea how to save money, send us an e- mail to OPEN HOUSE at cnn.com. And if you want to check out this project savings again, check out our Web site at cnn.com slash OPEN HOUSE. don't get duped by fancy real estate ads. How to separate fact from fiction, next.

But first, your "Local Lowdown."

(BEGIN VIDEOTAPE)

WILLIS: (voice-over): Live large, think big. That's what the locals say in Dallas. But, live large in the big "D" without spending big bucks. Spend the day at the Dallas horticultural center where you can explore over seven acres of landscaped property and a botanical garden for absolutely no cost.

Take a ride at the M-line. This free trolley service operates 365 days a year. It will take you from shopping to the West Village to the Dallas Museum of Art. And be sure to stop by the Dallas Farmers Market. It's open-air market full of local farmers, is a perfect place for an afternoon stroll.

That's your "Local Lowdown."

(END VIDEOTAPE)

WILLIS: It's all about the Web, I guess. Real estate ads, they read something like this: Cozy, charming, luxury home, conveniently located in a desirable neighborhood. Just available, and a unique find. OK, the description, it sounds great, but what you read may not be what you get.

Pam Liebman is the CEO of the Corcoran Group, right here in New York City.

Good to see you, Pam. PAM LIEBMAN, CEO, CORCORAN GROUP: Thank you.

WILLIS: All right. You shouldn't have to have a dictionary to de-code these real estate ads. Let me give you some of these words that could be a little bit misleading. You tell me what they really mean in real estate-speak. OK? Luxury.

LIEBMAN: Should mean you're going to live in the lap of luxury and never have to do a thing. Might mean, there's a doorman. You're going to live in the lap of luxury. Might mean there's a doorman.

WILLIS: OK. Oh, charming.

LIEBMAN: Oh, could be very small.

WILLIS: Cozy.

LIEBMAN: Even smaller.

WILLIS: Uh-oh. Needs TLC.

LIEBMAN: It's a dump.

WILLIS: It's a dump. OK. Conveniently located. That sounds good.

LIEBMAN: It could be good. It could also mean you live near the freeway. Noisy.

WILLIS: Unique.

LIEBMAN: Hard to sell.

WILLIS: Desirable neighborhood. Come on, desirable neighborhood. That's got to be great.

LIEBMAN: Neighborhood is great, I don't know about the house.

WILLIS: Oh, OK. Just available.

LIEBMAN: Just available can mean that they really need to sell quickly, it just came on the market, it got foreclosed on, someone died. It doesn't mean anything.

WILLIS: OK. Must see inside. That sounds -- I can tell you were that's going.

LIEBMAN: I think we've got some bad landscaping and maybe not such an attractive outside of the house. No curb appeal.

WILLIS: Great curb appeal.

LIEBMAN: Looks good from the outside. Let's see what's inside.

WILLIS: Well, see the devil's in the details, here. OK, so if I'm running a classified ad, what tips would you give me. LIEBMAN: I would say get your message out quickly and say what's important about the house. And don't make somebody think about de- coding what's in the ad. Make it sound great and do it in a short way.

WILLIS: Well, you know, people are always abbreviating to save space. Are there abbreviations I shouldn't use?

LIEBMAN: Well, I sometimes look at ads and I don't even know what they mean and I've done it for 20 years. The other day I was looking at an ad and it said, "FCB." I couldn't figure out for the life of me. Do you know what "FCB" is?

WILLIS: Friendly -- I have no idea.

LIEBMAN: Fully carpeted basement.

WILLIS: That's something you really buy a house on the basis of, right?

LIEBMAN: Not necessary.

WILLIS: All right, what about online ads. Because I know a lot of people, as we were just talking about, are advertising online rather than in print. Is there a difference in how you talk to consumers?

LIEBMAN: Absolutely. It's all about the pictures. It almost doesn't matter what you say online. You better have the greatest pictures. I hate going online and seeing a picture of a great summerhouse in the Hamptons and they show you a winter picture with the pool covered over and the landscaping is bare. So, make the pictures enticing and exciting and make them want to pick up the phone and call you.

WILLIS: And it should be 360. Right? I mean, we're talking like really fabulous pictures because that's really the way people are buying real estate these days.

LIEBMAN: On the Corcoran.com Web site we don't allow brokers to put their listing up unless they have a minimum of four pictures because we want you to be happy with what you're seeing. Three- hundred and sixty degrees, if you're going to do it right, if you're going to do it professionally with these virtual tours, you might want to give it a shot. But don't make me get dizzy when I'm looking at your tour.

WILLIS: OK Pam, great advice of thanks for your information.

LIEBMAN: You're welcome.

WILLIS: You can hear much more about the impact of this week's news on your money, on YOUR MONEY with Christine Romans and Ali Velshi coming up in a few hours at 1:00 p.m., right here on CNN.

As always, we thank you for spending part of your Saturday with us. OPEN HOUSE will be next week right, here on CNN. And you can catch us on HEADLINE NEWS every Saturday and Sunday at 3:30 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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