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Open House

How to Bounce Back After Getting the Pink Slip; Foreclosures Hit Another Record High; Boosting Your Credit Score; Ways to Save, From Your Mortgage to Your Coffee; Upgrading Your Home the Right Way

Aired March 08, 2008 - 09:30   ET

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

GERRI WILLIS, CNN HOST: Hello, I'm Gerri Willis and this is OPEN HOUSE, the show that saves you money.
Coming up, whether we are in a recession or just heading into one, job loss is a real concern. We'll show you how to bounce back after getting the pink slip.

Then, ways to save from your mortgage to your morning coffee.

But first, foreclosures hit another record high in the fourth quarter, that's according to the Mortgage Bankers Association, and some cities across the country have been hit particularly hard. Cleveland is one of those cities, ranking sixth in the nation for foreclosure filings. Folks there with worried that their community may be permanently damaged.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Marie Kittredge's middle class community in Cleveland has been decimated by the foreclosure crisis.

MARIE KITTREDGE, EXEC. DIR. SLAVIC VILLAGE DVMT: Really, we have been robbed because we had these -- these houses were all occupied five years ago. They were cheap affordable housing.

WILLIS: About 1,000 homes in her Slavic Village neighborhood are empty, made loose by looters ripping apart their interiors stealing valuable metal pipes and wires.

Cleveland was already suffering economically, community leaders blame the housing crisis on Wall Street and mortgage fraudsters.

TONY BRANCATELLI, CLEVELAND CITY COUNCILMAN: We weren't the victim of a natural disaster, we're a victim of a man-made disaster.

WILLIS: Now local leaders want to turn disaster into opportunity, demolishing homes that are too far gone and rehabbing the ones that can be saved. The money is coming out of an already overburdened city budget.

MAYOR FRANK JACKSON, CLEVELAND: Last year we had $6 million and we tore down close to 1,000 structures as a result of that.

But Cleveland is losing valuable tax dollars because of lower home values and vacant properties and is looking to the federal government for help.

BRANCATELLI: We need the same kind of disaster relief that other cities have had to come in and help clear out the abandoned property and to help come reinvest and help save our neighborhoods.

WILLIS: The federal government has promised 130 million for counseling those facing foreclosure, part of which will go to Cleveland. The Bush administration and six major lenders have also agreed to give homeowners facing foreclosure an extra 30 days to try and rework their mortgage.

Marie Kittredge hopes for more government help, but knows the real work will come at the community level.

KITTREDGE: I'm kind of over the anger and the grief and we are completely about figuring out a way to solve the problem. This is home to me, I wouldn't trade it for anything.

(END VIDEOTAPE)

WILLIS: As the housing market struggles, home prices are following and well, that means opportunity for some people. But lending standards have tightened and it's more important than ever to have good credit. So, how do you make yours financially attractive to lenders?

Well, here with answers, John Ulzheimer from credit.com, and he is the author of "You're Nothing but a Number." I love that title, it's great. So tell me, though, this is a big question, I think what is the magic number these days, what is the number that lenders are looking for in credit scores?

JOHN ULZHEIMER, CREDIT.COM: If you can't boast credit scores of 720 to 750 across the board, you're still going to get the best deals that lenders have to offer. The credit crunch is -- you're essentially immune from the credit crunch at that point.

WILLIS: What else are the lenders looking for?

ULZHEIMER: Well, they're looking for more documentation of income. They're looking for proof of employment. The days of the no doc loans are gone.

WILLIS: No ninja loans, that's done, right?

ULZHEIMER: That's right, they are long since gone. So you better be able to prove things such as your income and you're employment.

WILLIS: Let's talk about getting the finances in order to buy. What do you do, what do you get together?

ULZHEIMER: I'm thinking three to six months in advance you start attacking the credit card debt as much as possible. Draw a line in the sand and say absolutely no more until I close on any mortgage loan. That will help your credit score and it'll also help your debt to income ratios which lenders are also looking for much better percentages.

WILLIS: OK, so if I'm worried, three to six months ahead of time, before I even start applying the credit, I need to be managing the credit score?

ULZHEIMER: Absolutely.

WILLIS: Now, here's a big question, though a lot of people are asking me, they're saying, you know, hey, the value of our house is now less than what I owe. I want to walk away. That makes no sense for your credit score, right?

ULZHEIMER: It makes absolutely no sense. It may be a quasi-good decision from a financial perspective. From a credit perspective walking away from your home, even a deed in lieu of foreclosure, which is essentially you giving the keys back to the lender, is just as bad for your credit score as a true foreclosure.

WILLIS: Really? It doesn't matter?

ULZHEIMER: It doesn't matter. And a short sale is just as bad, as well, which is not good news considering how popular the short sale is today.

WILLIS: I just think breaking -- you know, saying that you're not going to pay that loan after you have signed and promised to do it is just bad news. OK, let's talk about the best way to boost your credit score. There's a lot of debate on this. Tell me two things to do right now to boost my credit score.

ULZHEIMER: Two things to do to boost your credit score, right now, pay down your credit card balances as much as possible, contact your credit issuers and see if they'll give you a credit line increase.

WILLIS: Why?

ULZHEIMER: It has the same effect as paying down your balances. You're utilization, or the differences between your balances and your limits has increased even though you haven't paid down anything more. Now, that's not a license to shop, though.

WILLIS: Wait, you sound like some people I know. OK, but don't go shopping. All right, what's the best way to maintain that score once you do get it in a good position?

ULZHEIMER: That's a good question. The strategy to improve and the strategy to maintain, totally different. What you want to do once you have a good score is you want to find out what exactly did I do to get there. And most of the time it's making sure payments are made on time, keeping the credit card debt to about 10 percent of the credit limit and not using your credit report as a 10 percent off coupon at the mall in exchange for opening a new account just to save some money on your purchases.

WILLIS: The credit card and the way you use it is so important to your score, it's so much more important than so many other things. Let's talk about Web sites that people can go to. Let's send people to places on the Web where they can get help.

ULZHEIMER: Sure. There's a few places. Annualcreditreport.com is where you can get your federally mandated free credit reports, credit.com, you can get your free credit report card. Certainly any of the credit reporting agencies Web sites, you can go there and get your individual credit reports, as well.

WILLIS: OK, great information there. You know, we always talk about how many of these credit reports have errors. How many of these have errors do you believe?

ULZHEIMER: Well, the number is going to differ depending on where your information is coming from. I have been in this business since 1991 and what I have seen is that the majority of credit reports have some sort of error on them and some of those errors are egregious enough to where the lender would make a different decision than if the information was actually correct.

WILLIS: That's terrible.

ULZHEIMER: That's why you need three to six months in advance so you have time to correct the errors.

WILLIS: That's just crazy. Well, John, great information, great advice as always, we really appreciate your being here.

ULZHEIMER: Thank you.

WILLIS: Coming up on OPEN HOUSE, how to get back on your feet after loosing a job.

Then, upgrading your home, how to do it yourself the right way and save a ton of money. And ways to save from your mortgage to your groceries, we'll show you how.

(COMMERCIAL BREAK)

WILLIS: Losing your job can be traumatic, but there are some critical things you can do to bounce back faster. Nancy Collamer is a career consultant and author of the "Layoff Survival Guide" and she's joining us from Stanford, Connecticut.

Nancy, great to see you. You've got a ton of great info, let's just dig in here. You say when you're laid off, there are things you can negotiate for, in terms of the severance package, what are they?

NANCY COLLAMER, LAYOFFSURVIVALGUIDE.COM: Well, in terms of negotiating for the severance package, the first thing is, you really need to take a look at your situation. If you are being laid off from a large company and it involves a mass layoff, the company will have already prearranged a severance package for you so there's not going to be much room for negotiation.

WILLIS: But Nancy, what if it's a small company? COLLAMER: If it's a small company, particularly if there's only one or two people involved with the layoff, your employer is going to be feeling somewhat guilty and not very comfortable about things so you will be able to negotiate for additional severance pay, you might be able to negotiate your last day of week be several weeks later. You might be able to also negotiate for things like a buyout of your company car. So, don't think that there won't be room for negotiation if you're in a small company situation.

WILLIS: Will I get unused vacation? Will I get paid for that?

COLLAMER: Yes, you will.

WILLIS: Is that by law they have to do that?

COLLAMER: They do have to pay you for accrued vacation, absolutely. So, one of the things that I advise in the "Layoff Survival Guide" is if you think a layoff might be coming, use up personal days in lieu of using vacation days because you won't get paid for personal days, but you will get paid for accrued vacation days.

WILLIS: That is a great idea. OK, you have a list of things to do in the 72 hours after the layoff. What are they? Tick them off, one two three, because people at that point are just nervous and worried and they don't even know where to start.

COLLAMER: Yeah, they don't know where to start. So, let me go through that list for you. The firs thing is you will be given a packet of information on the day that you are let go. Take that packet, read it through, become familiar with the information that's in there.

It's going to have information about things like Cobra, placement, et cetera. Second thing is tell your spouse. I know that might sound a little ridiculous to bring that up, and yet there are definitely people who are so uncomfortable when they get laid off that they think the situation is going to go away and they wait to discuss it with their spouse. Not a smart move.

WILLIS: Let's talk about talking to kids. Because I think it's particularly difficult to talk to children about this. It can make them uneasy. How do you do that?

COLLAMER: Well, you know, children have a sixth sense and they know when something is going wrong in the house. So, sit your children down, let them know what's happened, but don't be overly pessimistic or dramatic about it. Let them know that you're all going to be in this together, you're going to work together as a family to get through this and that you will get through this and that good things might come out of it.

WILLIS: OK, let's talk a little bit about when you go on that job search, you get into the market once again, how do you explain the layoff to potential employers? COLLAMER: You know, a lot of people worry about that and what I say to my clients is, don't spend a whole lot of time worrying about it. Layoffs have become very common place these days and so it no longer has the stigma that it once had attached to being laid off. Instead focus your discussion on what you can bring to the company and the value you can add.

WILLIS: Nancy, great advice, love your information. A lot of things that people don't want to think about, but you really put it in perspective.

Still ahead on OPEN HOUSE, home renovations, do it yourself or hire a professional? We'll tell you what you need to know before breaking ground. Then, saving your money: from your mortgage to your morning coffee, when we come right back.

But first, attention homeowners, struggling with a high cost loan, mortgage rates dropped back below six percent. Check it out, here's this week's mortgage snapshot.

(COMMERCIAL BREAK)

WILLIS: All right, you know home renovations can be costly, but if done right they can also add value to your home. There are projects you can do yourself and, well, some you should leave to the professionals. Eric Stromer is host of HGTV's "Over your Head" -- I've done that before -- and author of the book "Do it Yourself Family."

Eric, welcome, good to see you.

ERIC STROMER, HOST, HGTV'S OVER YOUR HEAD: Thank you so much. Great to see you.

WILLIS: Now, you start with some bad news, you have to spend 30 percent more than you think for your reno if you're doing it yourself? I don't want to hear that?

STROMER: Well, I know you don't want to hear it, but you know, the fact of the matter is is that we sometimes get into a situation where we haven't done your research, we haven't done your homework. And if you've done that, mind you, you're probably going to be right on target. Most people just jump in and they start from scratch and they don't really know what's going on, so that's my...

WILLIS: Nobody wants to reads the rules book, that's for darn sure.

STROMER: Absolutely, that's right, so they skip over the directions and they get themselves over their head and boom, you're done, and then you're 30 percent under.

WILLIS: Well OK, when do I actually hire a pro? I mean, legally is there at point at which it's best to do somebody who always does this come in? STROMER: You know, you hire a pro when you're going to add square footage of it there's safety concerns or things that could, you know, effectively burn your house down, such as wiring and plumbing. Flooding and fire is bad. All things of a decorative nature are good.

WILLIS: You're going to let me paint and hand up wallpaper and then you're done.

STROMER: Or reface some cabinetry and save some money. You know, you don't have to go out and spend 30 grand on cabinets. You can actually reface your existing cabinets. There's so many different things you can do to kind of enhance you're home and not spend a tremendous amount of money.

WILLIS: Well, let's go with that, you have noticed there's a recession on or coming. So what are the types of improvements I can make that are not going to cost a lot, but will really change the feel of the house and make it look better?

STROMER: Right. Well, in terms of resale, obviously, curb appeal is a huge thing. And you don't have to do sod, you can do seed. You can wait a couple of weeks and have grass grow.

WILLIS: Sod is expensive.

STROMER: It really is, absolutely. Sprinkling systems are not difficult to put in on your own. You can just rent a rototiller and a trencher and you're done.

Also, on the interior, paint applications, tile is something you can do yourself, and there's a Web site that is really exciting that I'm dealing with now called reinventyourself.com and this is something that Sears and I have teamed up with and there are answers on that Web site that will immediately give you some answers that you're looking for.

WILLIS: Now, I'm thinking that a source of cheap labor is your children, maybe?

STROMER: Yes, you can pimp your children out like Tom Sawyer. Get the fence painted.

WILLIS: That's not what I said. But, it's a good way to get some work done.

STROMER: It really is. I have three kids under nine and I sort of beta tested them, and you know, kids.

WILLIS: You beta tested them.

STROMER: Yeah, I had a lab coat and a clipboard, followed them around.

WILLIS: They did OK?

STROMER: They did. They did great, and what I want to do is have them get off the media a little bit, get off the Game Boys and kind of get back into luddite technology of actually hammering with a hammer and using power tools. And if kids, they can honor their own room by reinventing it and by making it and inventing it themselves and that's what I really...

WILLIS: That's a good line.

STROMER: Isn't that good? You like it?

WILLIS: I like that.

STROMER: OK, good.

WILLIS: OK, other Web sites besides the Sears Web sites. What else do you have for people who are looking for help out there and they want to go on the Web?

STROMER: You can go to hgtv.com, plenty of answers there, also ericstromer.com, you can see me and I've got a ton of stuff for to take a look at...

WILLIS: All right, OK Eric, it's all about you. Thank you for coming in today, we really appreciate it.

STROMER: Yes absolutely, thank you for having me.

WILLIS: If you have an idea on how to save money, send us an e- mail to openhouse@cnn.com. And if you'd like to watch "Project Savings" again, check out our Web site, cnn.com/openhouse.

Now, if you do decide to hire a contractor for your renovation, bottom line you have more power today than you did at the height of the housing boom. That's because fewer of us are renovating and spending big dollars for it. That's the good news.

But here's what you really want to watch out for: be sure to pay your renovation bill in stages, plan on putting down 10 percent. In fact, many states set limits on how much you can be asked to put down. The reason? Some scam artists pose as legitimate contractors and they run off with your money.

After you pay your deposit, cling (ph) the remaining payments to completion of major projects. Let's say you're doing a kitchen, put 25 percent down once the electrical and plumbing is done, another 20 percent after cabinets and windows are finished, 25 percent when the flooring and the painting are done. Hang on to that final 15 percent until you have had a chance to test everything and make sure it works, that's about 30 days.

For more ideas on how to manage your home as an investment, check out my new book, "Home Rich," just log on to cnn.com/openhouse for more.

Still ahead, it's all about saving you money from your mortgage to your everyday household bills. But first, this week's "Local Lowdown." (BEGIN VIDEOTAPE)

WILLIS (voice-over): Austin, the capital of Texas and live music, according to those in the know. And this weekend kicks South by Southwest, one of the country's largest music festivals. Originating as the Battle of the Bands, today South by Southwest draws more than 125,000 people from around the globe to over 50 venues in downtown Austin.

But, this nine-day festival isn't just about the bands. South by Southwest is also a film and interactive festival. And this year the festival has pledged to go green. With the help of Ecology Action in Boston, the Austin Parks Department and Green Mountain Energy Company, South by Southwest is taking steps toward becoming carbon neutral.

And that's your "Local Lowdown."

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: Many of us are feeling squeezed from the credit crunch and in times of economic trouble, it's essential to put money aside. Just changing your spending habits slightly can have a big impact on your bottom line. Here to tell us all about that is Suzan Colon, she's a senior editor with "O," the Oprah magazine.

Welcome, it's great to see you.

SUZAN COLON, SR. EDITOR "O" THE OPRAH MAGAZINE: Thank you so much, thanks for having me.

WILLIS: All right, so why did I not know that Starbucks will give you free refills. This is a new thing?

COLON: Well, I know, it's a closely guarded secret, isn't it, because some Starbucks actually don't even know it. The thing is it's not on specialty drinks. It's only on brewed coffee or tea or iced coffee or tea and then if you're in the Starbucks for about two hours, they will give you a refill for 55 or 65 cents. But some outlets don't even know that.

WILLIS: So, it's not free.

COLON: It's not free.

WILLIS: Is there a guy with a stopwatch there making sure you're there for two hours?

COLON: You've been here for two and a half hours missy, you can't have that refill.

WILLIS: I love that, though, because you never think about that?

COLON: I know, you never do. But if you're lingering there, it's a way to get a less expensive coffee. WILLIS: I love that. All right, biweekly mortgage payments. Get rid of the mortgage debt earlier, you will pay less in interest. Absolutely true.

COLON: Incredible. And all you have to do is make half of your monthly mortgage payment every two weeks and that equals one extra payment a year. And if you have a $300,000, 30 year mortgage, this will save you, guess how much in interest?

WILLIS: Tell me.

COLON: $77,000.

WILLIS: That's a lot of money.

COLON: Yeah. That's considerable.

WILLIS: OK, let's talk about bill cramming. I'm not sure what this means. It sounds scary.

COLON: It is scary. It's very scary. This is all about reading your bills and having somebody translate the charges you don't understand, because the practice of cramming is something where all of a sudden you have insurance that you never asked for. You have coverage that you don't need.

WILLIS: They're charging you for goods you're not getting and charging it on your credit card?

COLON: Exactly. They're putting -- phone companies can do it, your service providers can do it. They will not tell you, you have to look at your bill and if you see something suspicious, call the provider and ask them, what does this mean? And they'll tell you.

WILLIS: OK, that's a great idea. All right, so you need to contest those charges where you're not getting something.

COLON: You really do.

WILLIS: You know, people buy, you know, we've got examples here -- people buy supersized versions of products. You know, and you think you're saving money automatically. Not necessarily true, you say?

COLON: Not necessarily true. What we found out is that you think you're getting twice as much, but you're actually being charged per unit.

WILLIS: What does that mean?

COLON: Well, the amount in here is per unit, so what we found was that this large-sized tide was actually $3.71 a court whereas the small size was $3.52 a quarter.

WILLIS: Holy cow. OK, so you really got to do the math on those things. COLON: You have to look at the unit price and you know what, take out your calculator in the supermarket aisle and just say, what am I actually paying for here, would it be better for me to get two of these rather than one of these, rather than one of these. Same thing with the juice.

WILLIS: All right, I want to talk about calling internationally. If you're not from this country and you live here, you can spend so much money just checking in with mom. How do you cut your prices?

COLON: You can really go into debt, but there is a Web site called talkster.com. Now, what this is a voice over Internet protocol. So, you register your number and your friend's number, your relatives number in -- they're servicing 26 countries, right now. And what they is they send you a local number that you call and your friend calls and all of a sudden it's cheap.

WILLIS: Great idea. Great ideas today. We appreciate it. You can hear much more about this week's news on your money on YOUR MONEY with Christine Romans and Ali Velshi, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN.

As always we thank you for spending part of your Saturday with us, don't go anywhere, your top stories are next in the CNN NEWSROOM. Have a great weekend.

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