Return to Transcripts main page

Open House

Mortgage Meltdown; Credit Crunch; Your Career

Aired March 15, 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 NEWS ANCHOR: Hello, I'm Gerri Willis; this is OPEN HOUSE, the show that saves you money. On tap today, issue No. 1, Americans were asked what issue was most important to them and the overwhelming response was the economy. Here at CNN, we're listening to you and we want to give you information on what's most important to you, your house, your job, your savings, your debt.
(BEGIN VIDEOTAPE)

(voice over): The mortgage meltdown, the credit crunch, up and down investments, uncertainty in the job market. Today issue No. 1 is the economy. The nation's housing crisis has one in 10 homeowners under water. That's 8.8 million families owing more than their home is worth, according toing Moodyseconomy.com.

And many of those could lose their homes; 900,000 houses currently in foreclosure, according to the Mortgage Bankers Association, an industry trade group. American debt doesn't help the problem. The average American household with a credit card owed nearly $10,000 in 2007, according to Cardweb.com, which serves the credit card industry.

Adam Levin of consumer information website Credit.com.

ADAM LEVIN, CO-FOUNDER, CREDIT.COM: It's a disastrous threat and it's a threat based on the fact that the more debt you get yourself involved in the less income you're going to have available to pay for other things.

WILLIS: If all that debt isn't enough to pinch your pocketbook, the loss of value in your investments certainly could. The stock market continues its wild ride, tanking one day, soaring the next. Despite some positive signs this week, the market is still down dramatically for the year and it's hard to save money when you're spending more for everything you buy, gas prices, for one, are at record highs. All this leads to fears of recession and with recession comes the possibility of job losses.

JACK OTTER, BEST LIFE MAGAZINE: Job loss is about as serious a threat to your financial security as there is. It's not terrible right now. The problem is the train is going in the wrong direction, jobless claims are creeping higher.

WILLIS: The Bureau of Labor Statistics says 63,000 people lost their jobs in February and economists say that number will likely rise. Mix all of these factors together, it signals a threat to your bottom line, your issue No. 1. (END VIDEOTAPE)

WILLIS: The mortgage meltdown does not seem to be improving year to year. Foreclosure filings in February up 60 percent versus February of 2007. But the government is now taking new steps to curb the foreclosure problem and the overall credit crunch. Brian Montgomery is assistant housing secretary with the U.S. Department of Housing and Urban Development in Washington.

Great to see you, Commissioner.

BRIAN MONTGOMERY, U.S. DEPT HOUSING & URBAN DEV: Thank you very much for having me.

WILLIS: All right, let's talk about these new rules. How do these help consumers, will they reduce costs for mortgages?

MONTGOMERY: Yes it will. And what we're referring to is a term called the Real Estate Settlement Procedures Act, or as it's known in the industry as RESPA. It essentially governs what happens when consumer goes to the closing table and also what happens when they first contact a lender or broker and ask them about perhaps getting a loan.

WILLIS: All right, one of the big things I hear that's in this rule change is something called the "good will estimate." That's your lender's estimate of what they're going to charge you for the loan, the fees and interest rate. That's really going to be become binding on the lender, they're going to have to come through, make good on those promises. Now, what kind of teeth are behind these? How are you going to force these lenders to keep their promises?

MONTGOMERY: Well, it's also known as the "good faith estimate," as well, or the GFE, for short. And what you have right now is there is not a standardized GFE form, which you get from Chase Bank or Wells Fargo, probably varies from bank to bank.

So, for the first time, we are proposing a government provided document called the Good Faith Estimate, that will spell out in very clear terms that a borrower can understand, what's the interest rate, what's the principal, can their loan rise, if so, how much? So, it's an excellent disclosure document that consumers, by the way, can also now use too shop, so they don't just go one broker, one lender, they can go down the street and say, look, here's what I got from this person, can you perhaps beat that deal?

WILLIS: OK, that's all great news disclosure and I love being able to price comparison shop. But, so if someone changes the terms, when I get to the closing table, is that lender in trouble? Can you assess fees? Can you throw somebody in jail?

MONTGOMERY: Well, there are some fees going forward that we're going to put into several categories. But, the key thing is we want to identify for the first time, by the way, because we want to avoid the sticker shock. You hear a lot of consumer who is get to the closing table and say: where do these fees come from? That's what we want to avoid. But by the same token, we don't want to hamstring lenders so much because we recognize that there are some fees that can change. But we want to identify those to the consumer, look, these fees can change, these fees may change and, by the way, for the first time, put a tolerance on those fees, again, to avoid that sticker shock. And what's going to be in the new proposal is the tolerance of 10 percent on those fees that can change.

WILLIS: All right, quickly, we don't have much time: Why did it take so long to change these rules? Could this have prevented the mortgage meltdown?

MONTGOMERY: Well, who knows? But let me just say, we tried this about four years ago, there was significant opposition to it. I would say back then the timing didn't favor the government doing this. I would say the timing is perfect now.

WILLIS: OK.

MONTGOMERY: And between the consumer testing and other things we have done, this is a great rule, we look forward to the public comment on it.

WILLIS: All right, well we appreciate your time today, Commissioner, thank you.

MONTGOMERY: Thank you, Gerri.

WILLIS: Still ahead CNN is money and we're taking on the biggest threats to your financial security, your job, your investments your credit and your debt, plus advice on how to safeguard your job in this volatile economy and your questions from your top notch panel. Stick around.

(BEGIN VIDEOTAPE)

(voice over): Your credit score is your financial DNA, the better shape it's in, the better loan terms you will get, whether it's a mortgage car loan or a credit card. And with lending standards tightening, improving your credit score is more important than ever. The best way to give your score a boost is to pay off high credit card balances. It can raise your FICO score 60 to 70 points just overnight. And hang on to older cards, the longer you've managed credit, the better your score will be.

On the other hand opening new lines of credit, whether it's a retail or credit card will lower your score by a few points. But your score won't be affected if you request your own credit record or if you go for credit counseling.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: According to you, issue No. 1 is the economy. Joining us now to break it down, some of the best money minds around: Mark Zandi, chief economist at Moodyseconomy.com, Shawn Tully, editor at large of "Fortune" magazine, and Michelle Jones, V.P. of counseling at the Consumer Credit Counseling Service.

Welcome to all of you.

MICHELL JONES, CONSUMER CREDIT COUNSELING SERVICE: Good morning, thank you.

WILLIS: All right, Mark, let's start with one of the very big issues for folks out there, that's debt, as you know, we have a negative savings rate in this country, people just don't save, and they have got a ton of debt. What are you finding consumers are doing right now, are they building up more debt, paying it down?

MARK ZANDI, MOODYSECONOMY.COM: Well, they're building up more debt, particularly in distressed areas of the country. If they are loosing a job or overtime house, they are turning to their cards, and if they have a home equity line they're drawing that down. So, unfortunately, at the moment, people are pulling down more debt to try to tide themselves over in this difficult period.

WILLIS: And that just creates more problems. Michelle, let's turn to you for a second. When do you know that you have an unsustainable amount of debt? When do you know that you have too much?

JONES: Well, that's a great question. There are a couple of easy ways that you can tell. One is obviously if you're having trouble keeping up with your minimum monthly payments, that's a sure indicator that you're in over your head. Another is if you're using one credit card to pay off another, it's a common strategy people use when they're getting toward the edge of a financial issue. And then finally if you can't cover your basic monthly living expenses without relying on credit, then you know that you're in trouble and you need to take a look at your spending plan and what some other ways that that you can deal with expenses.

WILLIS: Good idea. You know, I like to say, if you can eat it, drink it or wear it, don't put it on your credit card.

JONES: That is great advice.

WILLIS: Sean, let's turn to you for just second. I know, people are looking for options out there, what about borrowers, what should they be thinking about right now? Are rates good? Are there opportunities out there for folks who want to borrow?

SHAWN TULLY, FORTUNE MAGAZINE: Cd rates are good, for example. They are at the 3.5 percent range. Treasury rates are not that great, because you're tied in on the 10 year treasury for a long time, so if you have an inflationary spike, you could lose a lot. So, CD's in the six-month to one-year range are a great place to be.

WILLIS: OK, but if I'm trying to borrow money out there.

TULLY: Oh, I'm sorry.

WILLIS: I know lenders have been so tight fisted. What do you do? How do you get that money? Is now a good time if you have a pristine credit rating to actually try to get some dough?

TULLY: Well, I think it is, especially in the conforming mortgage market. We're seeing rates below six percent. Remember, mortgage rates typically are in the eights over...

WILLIS: I talk to somebody the other day who's paid 24 percent for mortgage rate. Can you image that? Crazy. Years ago, decades ago, but it happens.

TULLY: Yes, that happened in the '70s. In fact, I lived through it. So, yes, I think it is a good time to borrow. Obviously the banks are much more stringent about loan to value ratios and documenting income, but that's just going back to normal. The rates are still very low and we're going to see the limits on conforming loans rising as part of this stimulus package which...

WILLIS: Translation, if you have a jumbo loan out there, you're going to get a better deal, you'll probably get a lower rate of interest. That's very good news.

Let's turn to Mark Zandi for just a second, now. And Mark, you know, a lot of people out there, they look at their 401K every single day, and let me tell you, if you do that, it's an ugly picture. What do you recommend?

ZANDI: Don't look. This is a savings for the long run, it's for your requirement, that's many years down the road, decades for some of us, so, you know, it's not worth it. You don't want to see all that red and panic, you want to take it one day at a time and do what you always do and sock that money away because eventually this market will be back and you'll be just fine. So, don't look and don't panic.

WILLIS: Don't panic. OK. Michelle, you have some ideas for folks who are in over their head in terms of debt. Maybe they can't even think about the 401K. You say there are hardship programs out there, tell us about that.

JONES: There are. If you ever are having difficulty keeping up with your monthly payments, you definitely want to be in touch with whoever is holding your loan. So contact your lender, whether it be your credit card company, the person holding the note on your car, or your mortgage company, and they will all have plans available that may be able to help you get through your crisis, at least temporarily. If the hardship plan doesn't work for you, that's when you need to reach out and start looking for some other resources such as talking to a nonprofit credit counseling agency.

WILLIS: Like your own organization?

JONES: That's right.

WILLIS: Hey Shawn, let's talk about investing, people out there, they're completely freaked out about stocks, but it's when stocks are going down, and panic is at its height, that's the time to invest, right? TULLY: Absolutely. Just look at some of these dividend yields on the financial stocks, look at the prices of the home builders, look at what's happening even with the utility stocks that are paying four or five percent in a lot of cases. There's a chance to get some really good deals. And we haven't seen good deals, Gerri, for many years in the markets. So, this crash in prices is generating especially dividend yields that are that are very, very attractive, in the pharmaceutical industry, in the utilities, in tobacco and in financial services. Of course, the banks look scary, now. You look at Wachovia, look at Bank of America, we're talking about dividend yields approaching 10 percent, anywhere between eight and 10 percent.

WILLIS: There's a lot of risk there, though.

TULLY: Yes, there is a lot of risk. You do not want to do this if you're highly risk averse.

WILLIS: OK, well, we'll be talking about this more.

Still ahead on OPEN HOUSE, finding the right job. Grab that pen and paper, important information you can use, next. We're also answering your e-mails. Our e-mail inbox is full and we have solutions coming right up.

(COMMERCIAL BREAK)

WILLIS: Job losses are an indication of recession. And as we have talked about, last month's report showed more than 60,000 people lost their jobs. Here to offer some advice on how to hold on to yours or get a great new one is Penelope Trunk, she's the author of "Brazen Careerist."

Great to see you again, Penelope.

PENELOPE TRUNK, BRAZEN CAREERS:

WILLIS: So, let's talk about doing the right thing to keep the job you have. You say you have to be on the right project. Tell me what you mean.

TRUNK: Well, it's important when you're worried about getting laid off or downsized, if you get on a good project and do something really good, then you've got something great on your resume when you're going out. If you're always worried about your job, then your resume is going to look kind of mediocre and that's going to be the hardest way to get a job.

WILLIS: And, of course, being on the right project means you'll get attention in-house, too, and that's a great thing, as well?

TRUNK: Right, and when you're picking the project, look for something that's measurable. So, a lot of times, there are projects that nobody wants because they look kind of bad or boring, but you can figure out how to say that you increased sales x-percent, or decreased time to do something x-percent and that looks really good on your resume. So, that's the kind think that can put you in line to get a job no matter where you are in the economy.

WILLIS: To quantify your results is always a good idea. Let's talk about mentorings, because I think a lot of young people just getting into the business of any sort really, don't really realize how important it is to have a good mentor. Tell us how that works, how you find a good one, and then how you relate to them over time?

TRUNK: Well, a lot of times people misjudge what's important about a job and sometimes you can get paid a lot, but if you're not getting good mentoring, you're probably not learning much in the job. So, the most important thing when you get a job is to look around and see who can help you and start asking them really good questions. And the better questions you ask them, the more interested they'll be in helping you. And a lot of times you can take a job that doesn't look that interesting, but comes with a good mentor and that mentor can really make that job great.

WILLIS: And the mentor can really explain to you how the business works and how to get ahead in that environment. They will lay out the ground rules for you in a way that if you don't have one, you just miss all that information.

Let's talk a little about...

TRUNK: Right, and they also guide you. I think a lot of times people think they can do their career all by themselves, but nobody can do that.

WILLIS: That's great advice. Let's talk about jobs, locally. I mean the big problem that we hear in our e-mail all the time is that I would love to move for a new job, but I can't sell my house. What do you do, Penelope?

TRUNK: Deal with it. It's true, you can't sell your house. The worst part of this recession is that the housing market is tanking. But, you can get a job where you are, no matter where you live there's a job that's right to your personality. So, instead of being married to the exact sector you're in or married to the idea of going to the perfect company, think about what companies in your area can play to your strengths. What you really need in a good job is a job that's going to play to your strengths and ensure that you're learning. You don't have to have the perfect job and instead of whing that you can't sell your house, just stop trying. You don't need to have a good career.

WILLIS: All right. Let's talk about, you know, you say you need a job with good mentoring and good opportunities, you also need good money and that's at a premium. That's tough to get right now. Bosses don't want to give big raises. What else can you ask for?

TRUNK: You can ask for the things that don't show up on the profit and loss statement. For example, they've got a training budget, they're going to have to spend it anyway. Ask them to spend some of that money on you. Or you've got vacation days, you can ask for more, that's free to them, they don't have to put that anywhere on their financial statement. And you can also ask for a formal mentoring program. A lot of companies have it, but they only have it for their top performers. So, you can angle your way in there by jockeying for that instead of money.

WILLIS: OK, Penelope, we're going to be doing lots of jockeying. Thanks for your help, great information.

Still ahead, answers to your e-mails. Even if you haven't written us, you'll want to stick around. A wide range of problems met with top notch answers from our panel. We'll be right back.

(COMMERCIAL BREAK)

WILLIS: OK, it's time now to turn the show over to you. In this time of uncertainty, we have been bombarded with e-mails from viewers seeking advice, reassurance, hey even a little empathy. And for that, we turn once again, to our panel, Mark Zandi, Shawn Tully and Michelle Jones.

OK, guys. We've got some e-mails here, we're going to rock and roll right through them. The first one is from Kennedy in Sacramento. Kennedy writes, "I have about seven credit cards and I'm paying them off. Is it a good idea to cancel some of them? How will it affect my credit?"

Michelle, let's start with you.

JONES: Sure. And my answer would be absolutely not. You don't want to close those open credit cards because the amount of time that you have that line open is actually going to help your credit score over the long run. So, I would advice you to keep those cards open, however do pay them down, because even more important than the length of the time that you've had the card open is the amount of debt as compared to available credit.

WILLIS: OK, keep them open but don't use them. Now, Gina from South Carolina, "Where is a good place to put a chunk of savings to grow in this economy recovers, since savings and CD rates are barely two percent these days" -- Shawn.

TULLY: Well, go on Bankrate.com and look some competing CD rates. Because, I was on today and some of the smaller banks are offering in the mid threes on six to 12 month CDs.

WILLIS: That sounds so paltry.

TULLY: But, that's -- you want to be parking a lot of cash on the side. You're not going to get great returns, let's face it. Especially with inflation growing the way it is. But, at least you can park the cash, get some kind of a return and then have that cash ready to get into some of these stocks as they're beaten down even more.

WILLIS: Mark, do you want to weigh in on this quickly? Because, I think this is a big question for a lot of folks out there.

ZANDI: Well, it really depends on your horizon. I mean, if you have a long-term horizon, there's no reason not to put it in stocks. I mean, in the long run, stocks do very well, they'll give you the best return, particularly in the higher inflation environment. So, if you're looking, say, five, 10 years, you do need to think about stocks. But most importantly of all, is diversity. You want to be sure that your investments are diversified and that you've got something in everything just in case something does go wrong somewhere.

WILLIS: Great advice. OK, let's read L.B.;s e-mail. L.B. writes, "I co-signed on a car for a friend a few years ago. I found out this friend was no longer making the payments as intended, so the car ended up being repossessed. Now, whenever I apply for anything, this repo shows up on my credit report. Do you have suggestions?" Yes, L.B., I have suggestions, don't co-sign. You know, even if it's a family member, it really puts you at risk and there's lots of other ways you can help folks rather than just co-signing a loan.

All right, I want to thank my panelist today. Thanks so much for your help, we really appreciate it. For more ideas on how to manage your home as an investment, check out my book "Home Rich." Just log on to cnn.com/openhouse for more.

Issue No. 1 is not just a one-time thing, here, at CNN. All next week we'll be covering everything having to do with the economy: your debt, your house, your savings, and job. We'll be live at 12:00 p.m Eastern Time with important information on your house, your debt, your job, your investments and so much more. That's 12:00 p.m Eastern every day next week.

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 Sundays 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 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, you top stories are next in the in CNN NEWSROOM. Have a great weekend.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.voxantshop.com