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Open House

Subprime Freeze: Does it Work and is it the Right Thing to Do?; Senator Dodd Introduces His Own Subprime Bill; How to Protect Your Money; Protect Your House from House Guests; How to Spot the Real from the Fake

Aired December 15, 2007 - 09:30   ET

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

JOSH LEVS, CNN CORRESPONDENT: You know, the bottom just falling out of your 401K, but it's hard to feel bad when you're hearing it from Malia. It's at Minornewstoday.com and actually you guys are going to have a chance to talk with her today.
BETTY NGUYEN, CNN ANCHOR: Yeah, we're going to have her, I think her mom is going to be here with us, as well and we're going to find out where this all started. And the funny thing is, she doesn't even want to be a TV anchor. We'll tell you what she wants to be, that's coming up.

LEVS: It'll get to her. That's her plug, it'll get in there.

NGUYEN: Thank you, Josh.

LEVS: You got it.

T.J. HOLMES, CNN ANCHOR: Well, we're of course, tracking severe storm systems hitting the Midwest, all of you in the Northeast, as well you need to get ready, we'll bring the latest coming up at the top of the hour.

NGUYEN: But first, OPEN HOUSE with Gerri Willis starts right now.

GERRI WILLIS, HOST: Hello, I'm Gerri Willis and this is OPEN HOUSE, the show that saves you money.

One week after the Bush administration announced a subprime freeze folks across the country are still asking questions on how the deal works and some are undecided about whether it was the right thing to do.

According to a CNN Opinion Research Poll, 51 percent of you believe there should be special treatment for folks who can't pay for their mortgages and who may lose their homes. Only 26 percent polled believe mortgage lenders should receive relief for losing money on loans. But here's a really interesting one, asked about their opinion of people who can't pay their mortgages, 51 percent believe that these folks only have themselves to blame.

And more news out of D.C., Senator Chris Dodd of Connecticut, who's running for president, introduced his own subprime bill. Let's break down the latest rate cut by the Federal Reserve and other headlines of the week. Greg McBride is a senior analyst with Bankrate.com.

Greg, great to see you, as always.

GREG MCBRIDE, BANKRATE.COM: Thank you, Gerri.

WILLIS: Let's start with the rate cut, because those were the big headlines this week. Who are the winners and who are the losers? Let's start with the winners.

MCBRIDE: The biggest beneficiaries are going to be the many homeowners that have an adjustable rate mortgage due to reset in 2008 and beyond. And in particular, the prime borrowers, people with good credit that were not covered by the treasury foreclosure relief plan, with the fact that treasury yields have dropped so sharply in the past few months on the back of these fed rate cuts, those payment increases are going to be much more manageable.

WILLIS: How much money, though? How much money will it mean?

MCBRIDE: For somebody with a $200,000 loan balance that's resetting from a start rate of 4.5 percent, say, the payment increases about $140 a month instead of what would have been $370 a month just a few months ago.

WILLIS: That's a very big deal.

MCBRIDE: That's a gap that many households can close. You cut back on discretionary expenses, maybe pick up some overtime, but $370 is way too much.

WILLIS: OK. Well, let's talk a little bit about the president's plan to help folks out in the subprime mess. He wants to freeze rates on some subprime mortgage loans, he's going to fast track some folks into new loans. You're not a fan of this plan, why?

MCBRIDE: Well, I just don't think it's a cure-all. It is not going to make the foreclosure and delinquency problem go away overnight. It will help some people, it will also help cushion the blow, I think, in terms of the broader economy, perhaps eliminating the collateral damage, keeping us out of recession, but it's not going make this subprime problem go away. At this point, it's like bailing water out of a boat with a Dixie cup.

WILLIS: OK, it's no silver bullet, just to add on to the descriptions. Let's talk a little bit about the people we know who will not be helped by this. You mentioned people before, prime rate people. There are also people whose rates have reset already. Those folks aren't going to get help. Hey, if you've already lost your home to foreclosure, you're out of luck. There are lots of folks who don't fit into this bucket, right?

MCBRIDE: That's exactly right. And what the term that Henry Paulson, the treasury secretary, used was avoiding "preventable foreclosures." And the way they're defining preventable foreclosures are people that are current at the low teaser rate, but wouldn't be once the reset takes place. Those are the rates that they're looking to freeze, give those people some time so that their income can catch up.

WILLIS: Let's talk about solutions for people out there who are not part of this plan, essentially. OK, if you can't pay your loan, you're desperate to get out of it, one thing you can do is a short sale. How easy is that? How do you do it?

MCBRIDE: Well, lenders and loan servicers are empowered to wheel and deal right now. So, by all means, pick up the phone. Part of the problem is that half the people in distress never contact their lenders or respond to the lender's efforts to reach out. So, contact your lender. A short sale is in the lender's interest, as well. Because everybody loses their shirt with a foreclosure and a short sale is just sort of meeting halfway.

WILLIS: You're going to have to find your own buyer here, though, if you do a short sale, because that's what it means. You go out, you find your own buyer, you bring them to the bank and maybe, maybe, maybe, you won't have to pay off all of that mortgage.

Let's talk about in the event of default. Let's say the worst happens here. You lose your home, ultimately. How do you rebuild that credit rating?

MCBRIDE: That is not an overnight solution. It's going to take time. The two biggest components of your credit score are paying your bills on time and paying down your debt, keeping that debt under control. So, I think those are really the two calling cards. As you go forward, reestablishing your credit. Make sure you're making all of your payments on time and don't feel that you have to incur debt just to rehabilitate that credit score, take it slowly.

WILLIS: This is something that you're really going to have to work with and be conscious of and make a plan for if you're in this situation, right, because it's going to be years and years and years on your credit?

MCBRIDE: Exactly, and some of these people may never buy homes again, but they still need to be thinking about their credit because they may want to buy a car, they may need credit cards, they don't want to paying those 25, 30 percent interest rates well into the future.

WILLIS: All right, Greg McBride, thanks so much for that.

Help from Capitol Hill may have to wait until 2008, but the president's plan is already in place. When he announced that plan he told homeowners worried about foreclosure to call a hotline -- 888- 995-HOPE. After his announcement we heard the hotline was overwhelmed, so we headed down to a call center to check it out.

(BEGIN VIDEOTAPE)

MICHELLE DIMAURO, HOUSING COUNSELOR, NOVADEBT: Thank you for calling 995-HOPE, my name is Michelle, how can I help you?

WILLIS (voice-over): Michelle Dimauro's phone has been ringing constantly. She's a housing counselor with Novadebt, one of six nonprofit agencies that handles calls to a national foreclosure hotline -- 888-995-HOPE.

The hotline has been flood would calls since President Bush mentioned it Thursday as part of a larger plan to help borrowers facing foreclosure.

DARLA KEEGAN, HOUSING SUPERVISOR, NOVADEBT: It has been overwhelming, but we're doing it one day at a time. Our counselors have been fantastic, they are working overtime.

WILLIS: The Homeownership Preservation Foundation, which runs the hotline says it received 15,000 calls Thursday, 10 times its usual number.

DIMAURO: Are you current on the mortgage, right now?

WILLIS: Many callers have already missed mortgage payments, making them ineligible for President Bush's plan, others are worried that they won't be able to make the payments when their loan interest rate resets in the next few months.

The foundation offers advice and helps homeowners work with their lenders to keep their homes. Darla Keegan, a supervisor at Novadebt, says the Bush plan won't necessarily be the new solution callers are looking for.

DEMARO: I don't know if the Bush plan is actually opening up anything new. This is something that we've just been doing for many years now.

WILLIS: While the government tries to work out a big fix for the problem, counselors like Demaro keep working the phones trying it help mortgage holders deal with the situation they're in right now.

DIMAURO: Even if it's saving one person's home, it means the world to them, it definitely makes a difference.

And see how we can assist you.

(END VIDEOTAPE)

WILLIS: All right, the Homeownership Preservation Foundation plans to have 250 counselors manning the phones by the end of the year. It says some callers have been waiting on hold longer than usual, but they urge folks who gave up before, you should try again when the lines are not so busy.

Up next on OPEN HOUSE, money, money, money. Time is running out in 2007 and there are some very important things to do to protect your money and don't get scammed. How to make sure everything from your smoke detector to your brake pads are real, and to keep your house hassle free this holiday season, but, first, your "Tip of the Day."

(BEGIN VIDEOTAPE) WILLIS (voice-over): The time is now to take advantage of a tax credit for home energy efficiency. The Energy Policy Act of 2005 offers a tax credit of up to 10 percent on the cost of energy efficient building materials. But this part of the act will not extend past January 1, so cash in while you can. Upgrade to energy efficient doors and windows. All Energy Star windows qualify for the credit. Replace that old furnace with a new greener version and if you're willing to take the plunge, install a solar energy system including solar panels and a solar water heater.

For more information check out the U.S. Department of Energy Web site. That's your "Tip of the Day."

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: 2008 is just around the corner and who doesn't want extra cash in their wallets for the New Year. So, we're going to tell you what to do with your stocks, your 401K and health insurance, right now. Brett Graff is the finance expert for the TheNest.com in Miami.

Welcome, Brett, good to see you.

BRETT GRAFF, FINANCE EXPERT, THENEXT.COM: Hi, you too.

WILLIS: Let's talk about stocks, do you hold them, do you fold them? We have seen incredible volatility in the stock markets. I know a lot of people are worried. What should they be doing?

GRAFF: Well, a lot of the top financial advisers are telling their heavy hitter clients to get rid of any stocks or mutual funds that are underperforming. And that's particularly true with mutual funds right now because a lot of them, they can pay distributions all year long, but a lot pay distributions towards the end of the year.

And what happens when these mutual funds distribute their own capital gains is that the fund automatically goes down by the amount of the distribution and also the shareholders who receive the distributions pay taxes on the distributions.

So, if you, if you bought a mutual fund for a price higher than what it's trading now and it distributes capital gains, it's going -- the fund is going to go lower by that amount and also you're going to have to pay taxes.

WILLIS: Well Brett, and clearly too, we want to encourage people to take the long view on their investments and not to sell willy- nilly. I think your view is, hey if your investment is a real stinkeroo, it may be time to unload it and take the tax benefit.

Let's talk about the 401K. There are things you can do before the end of the year that make a lot of sense, as well. What do you advise?

GRAFF: Well, now is a great time of year, if you haven't maxed out your 401K, that's to say if you haven't put the maximum amount of $15,500 into the account, you want to stop by your employer's benefits office and see if you can make a one-time contribution. And, also, while you're in there, before you get out your check book, see if you can trade in any unused vacation time for its cash value and contribute that.

WILLIS: All right. You know, that's not the only benefit you got from your employer. You've also got health insurance and you're a big fan of those flexible spending accounts, but they have to be managed. What should you think about right now?

GRAFF: Well, when it comes to your flexible spending account, you have to look and see how much, if you have any money left. And if you do, those accounts are use it or lose it. So, you want to go out and, obviously, use it, get an eye exam. You can also use that money for over-the-counter drugs, pain killers and cold medicines, so now's a good time to stock up on those if you have money left.

WILLIS: You know, this really bears repeating because so many people forget about that. These FSAs, it's use it or lose it. That money is gone, baby. And you've been saving it all year long. If you have money in that account, you've got to get rid of it. And of course, a lot of places like eye glass doctors, they get jammed this time of year as folks, you know, they're going as fast as they can to spend this money, right?

GRAFF: Yeah, that's absolutely true.

WILLIS: All right, well let's talk about charitable giving, because that's another thing that's on people's lists this year. And It think it's and important thing to think about, but you have to do it intelligently. What do you think?

GRAFF: Well, first of all, if you've putting off any charitable contributions, stop, make them now, because they also help your tax return. And, also, another way to make your charitable giving even greater is to donate appreciated stock. You can call the charity of your choice, most of them have relationships with brokerages and it's very easy to give stock that's appreciated and everybody benefits because your cash outlay is the price you paid for the stock. The charity gets the current market value. The charity is non-profit, so it doesn't have to pay taxes and you can deduct the current market value.

WILLIS: So, you know, that's great advice, Brett. You know, you also want to make sure that at least 75 percent of the charity's budget is going towards the right mission. You've got to do some due diligence on these guys because some of these charities, they don't really spend their money wisely. Some great Web sites here, CharityNavigator.com, Better Business Bureau, do you think it's a good idea to really hold their feet to the fire?

GRAFF: I think it's a good idea to look into any charity that you give money to and to see where the money is going and to make sure that you are comfortable with how much they spend on administration and how much they actually or how much money they actually use to promote their cause.

WILLIS: Great ideas. Great tips today, Brett. Thanks for your help today, we appreciate it.

GRAFF: Thank you.

WILLIS: Still ahead on OPEN HOUSE, make sure that Gucci bag you buy is real. An inside guide to in avoiding fake goods.

And protect your house from house guests. Ed Del Grande will be here when we come right back.

(COMMERCIAL BREAK)

WILLIS: OK, 'tis the season for holiday parties and holiday guests. Our friend Ed Del Grande from HDTVpro.com stopped by to show us how to prep your home for the holidays and all the problems that arise. Take a listen.

(BEGIN VIDEOTAPE)

WILLIS: Problem No. 1, OK. You know how it gets really stuffy if you have a lot of people in the house. What can I do to make the ventilation better?

ED DEL GRANDE, HDTVPRO.COM: Well, that's what happens in the winter all the windows and doors are closed and you want a lot of fresh air in there so people aren't falling asleep. If you can hand me that switch over there on the tape. Every bathroom should have a setup like this, Gerri. And you can see there's a light switch which is usually on the bottom and then on the top is your fan switch, you use that bathroom fan to work for your party.

If you turn it on and then get some painter's tape -- so that won't stick, it's got to be painter's tape -- just tape that switch down so nobody can turn it back off and you cannot believe how much air this will move in the course of a night and deep your house fresh.

WILLIS: That's a great idea, OK, one of the things I worry about, because we have guests in the house during the holiday season, some of them are just little tykes, I'm worried about the fireplace. I love to have fires, but you know, you set up the fire and pretty soon other people are throwing logs on. You don't know what's going to happen. What is your advice?

DEL GRANDE: Well, in my opinion, fires at a party are very dangerous, unless you have somebody standing by constantly to moderate. Now, see that candle right there. That's looks like a candle -- open in, it's OK, it comes right out of the holder, but you can see it goes on and off, this is an LED candle.

WILLIS: That's if you have the kids.

DEL GRANDE: That's if you have the kids and then you can have that atmosphere of a candle, but nobody can get hurt, especially the children. WILLIS: But these are beautiful inside the fireplace.

DEL GRANDE: Yeah, that's what I like to do. If you go to a regular fireplace, remove the logs for the night and put in these candle logs, again, gives you the atmosphere and you even have live flickering flames, but it's a lot safer than having a big, roaring fire with a lot of people.

WILLIS: OK, and you know, a roaring fire is hot, too. OK, you have a toilet right here. Why?

DEL GRANDE: Oh, yes I do. Well, you know, be festive, people neglect their toilet during the holidays, so let's do something. Let's dress...

WILLIS: I like to neglect it as much as possible, Ed.

DEL GRANDE: Well, look at this. Gives like a log cabin feel, a nice winter wooden toilet seat. It's about decorating and safety, again, because, look, this is an anti-slam seat so kids won't break the toilet or stick their fingers in there and get hurt. And this makes your toilet safer and a lot prettier.

WILLIS: All right, OK, now, here's the part I've been very excited about. OK, we're going to spill some wine because that's what's happening during the holidays, you're drinking the red wine with the turkey. You spill it, uh-oh. Shoot.

DEL GRANDE: Well, just work some of that in. You know, first of all if you have a good carpet like this that won't absorb wine, but the only other reason I wanted to get something that showed how it puddles up is because you can get salt and just throw it right on and see what happens? The salt will absorb a wine stain. And Gerri, you don't want to wiping up a carpet during a party, so you just put it on...

WILLIS: That just embarrasses the guest.

DEL GRANDE: Right. Work it in there and then you get your vacuum, suck it really quick. And this does work, I used it at my own house because I have spilled a wine from time to time.

WILLIS: Ed, I bet you have. And next time you do it, you should do it at my house. Thank you for helping us out today, we really appreciate it.

DEL GRANDE: You're welcome.

(END VIDEOTAPE)

WILLIS: Holiday decorating can be fun, but it's also dangerous. If you're shopping for a live tree, make sure it's fresh. Look for dark green needles and a sticky trunk. Now, once you get it home, keep your tree watered so it doesn't dry out. If you op for the artificial tree, look for one with a fire-resistant label. Check the cords on all your electrical decorations, look for cracked sockets, bare wires, loose connections, throw out any decorations that have been damaged. And make sure not to overload your extension cords.

As for outdoor decorating, check to make sure the lights are certified for outdoor use. After all, you want to keep everything around you safe this holiday season.

All right, check out this stuff. iPods, expensive bags, sneakers, are they real? Are they fake? We'll tell you how to tell the difference, next.

(COMMERCIAL BREAK)

WILLIS: Hey, you probably heard about fake purses and fake jewelry, but what about fake brake pads? It's a scary thought, but counterfeit items are everywhere. Here to help us spot the real from the fake and do keep you and your family safe is Todd Marks, he is senior editor with "Consumer Reports."

Todd, great to see you again.

TODD MARKS, CONSUMER REPORTS: Good it see you, too.

WILLIS: You just finished an investigation in to this area, lots and lots of products that aren't real. What kind of categories are we talking about?

MARKS: Well, if they make it, they fake it and that's the sad reality. The fact of the matter is that virtually any product out there from prescription medicines to auto parts to power strip surge protectors, holiday lights you buy, besides the designer goods are being counterfeited. It's a sad truth.

WILLIS: Wow, that is scary. I mean, stuff that you rely on, to keep you safe, could be fake. Now, let's talk a little bit about how the Internet might make this all possible.

MARKS: Well, you know, the Internet revolutionizes everything we have today and it has done this with fakes, as well. It's made it easier, one, to bring the manufacturers and the people who sell this stuff together, besides letting you, the consumer, try to buy these goods. If you want to buy golf clubs you can go get replica Callaway golf clubs, and can buy prescription medications from Web sites that purport to be in Canada, but are actually based in Asia and you don't know what they're selling.

WILLIS: All right, let's show the folks some of the product we're talking about, because these are things that you're going to be buying this holiday season. Let's talk about this power strip right here. Now, this is a real one, correct?

MARKS: That's true.

WILLIS: And you know, because why?

MARKS: Well, the key thing with any inexpensive electronic device is to look for the Underwriters Laboratory seal, but not just the seal, these inexpensive products, like smoke alarms, power strip surge protectors, extension cords, have a silver hologram on them. And that's very important while there have been instances of those being counterfeit, as well, it's tougher to fake these holographic seals.

WILLIS: Well, definitely look for that. And if you're buying one of these fire alarms, boy you'd better look for this seal, because this is something that's going to keep your family safe, you want to make sure you're doing the right thing. Now, one of the interesting things that you talk about, stay away from the dollar store, you say.

MARKS: Yeah, unfortunately, in many instances there have been a lot of evidence that dollar stores often sell products...

WILLIS: Of all sorts, that's a branded name for ones...

(CROSSTALK)

MARKS: Right. No, we're talking about the deep discount stores that sell goods at very low prices. Because the source of these things are very questionable. There have been toothpaste that contained a component that's in your anti-freeze. There have been exploding cell phone batteries.

WILLIS: Scary stuff.

MARKS: There have been, again, holiday lights. There's a lot of products that make their way, migrate to the dollar stores from sources that we can't vouch for and, unfortunately, it does happen.

Not everything, of course. But things you need to be worried about for your health and safety.

WILLIS: All right, let's show, some people do a good job and some people do a bad job. You say there's a whole business, for example, in perfumes, right? Fake ones, real ones. What's real and what's fake, here?

MARKS: Well, it's interesting because knockoffs and smell-a- likes in the perfume area are one of the areas where it's grey whether they're legal or not legal. But in some instances, they're rip-offs of the name of the product. We spent $5 for the fake, the Essay Miami (PH), which is a rip-off of Issey Miyake who's a famous Japanese designer. This costs a heck of a lot more and it may smell alike, but it may not.

WILLIS: Todd, great advice, great information. We appreciate your time.

MARKS: My pleasure.

Willis: Thank you.

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 Saturdays at 1:00 p.m. Eastern and Sunday at 3:00, right here on CNN. As always, we thank you for spending part of your Saturday with us. OPEN HOUSE will be back here 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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