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Open House

What 2009 Could Bring to Your Home's Value; The Value of a Good Education: What the Best Colleges Are; How to Fix Your Bottom Line: How to Get Rid of Your Debt

Aired January 10, 2009 - 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.
Has the value of your house hit bottom? We'll take a look at what 2009 could bring. And the value of a good education, we'll tell you the best ones out there.

But first, it's 2009, resolution time, and that mean time to fix up your bottom line. All this month we're looking at financial resolutions to make this your best year ever. This week we're talking debt. Joining me are two of my favorites, Lynnette Khalfani-Cox in Tampa. She's the author of "Zero Debt." And Jack Otter, deputy editor of "Best Life." Welcome do you both.

You know, both of you, and Lynnette, I want to start with you, here. Both of you are saying that now is a critical time, probably the best time to get rid of your debt. Why do you say that?

LYNNETTE KHALFANI-COX, PERSONAL FINANCE EXPERT: Well, I think, Gerri, frankly that after the year we've just had, the rough year, people swamped by mortgage debt, credit card debt, student loan debt that people are finally saying I've got to get serious, I've got to stop living paycheck to paycheck, I really want to get together a plan and get some help to knock out the debt once and for all.

WILLIS: Yeah, I know people out there are really feeling it. And of course, if you've got credit card debt piling up right now, it couldn't be a worse time. Jack, I want to turn to you. You say the old ways of paying debt, well, they're just not going to work.

JACK OTTER, DEPUTY EDITOR, BEST LIFE: Well I think any way you can pay debt is a good way. And I will throw one little wrench into our thesis, here. You know, Lynnette and I come on with you and we always say, get rid of credit card debt, don't pay debt, it's horrible stuff.

There are a few people who might be in a situation where they think their job is in danger, where they're having trouble in this economy. And the one thing, the best possible thing can you have right now is cash. So, if you have cash, normally I would say, just pay off your credit card debt immediately. Now I'm saying, maybe you want it hold on to that cash and just pay down your debt a little more slowly.

WILLIS: Certainly, if you have your back up against a wall here and you're worried your source of income may dry up tomorrow, you want to take extreme measures here, but for the rest of us, of course, we're trying to figure out ways to get rid of that debt.

Lynnette, to you, I know you have tips you want to talk about on getting rid of that debt, and let's take a look at that list, right now. You know, it includes getting some help, facing reality, doubling your credit card payments. I really want to zoom in on this, ask for help tip, because as we all know, there are folks out there, well you know, guess what, they're bad guys and they're trying to take your money rather than help you get rid of your debt. How do you make sure you're finding somebody out there who's really going to help you?

KHALFANI-COX: Well, this is a really key point for consumers, to make sure that you go a trusted, representable resource. I've checked out a lot of these companies, as a matter of fact, and you might recall Congress was investigating, a few years ago, many debt management and credit counseling agencies. Some of the keys: make sure they've got a positive rating with the Better Business Bureau; make sure that they're HUD certified, that they're federally certified credit counter counselors. You want to make sure that they have low to free cost services that they offer.

The National Foundation for Debt Management is one that I recommend highly. Nfdm.org is their Web site, they fit the bill. And you know, there's places for people to get help. The idea is that, let's get rid of the shame and the guilt fact are and the feeling that I messed up so much...

WILLIS: I love that idea.

KHALFANI-COX: So, do make it a year to get help.

WILLIS: One thing I want to add in here, that you definitely want to make sure that you don't go to some of these debt settlement folks out there, because that can indeed be dangerous. Jack, over to you, now. You've got your own tips for getting rid of debt and mostly it's about knowing what you owe. How can you not know what you owe?

OTTER: Well, I think people not only do you not know what you owe, but a lot of people just don't know how much they spend each month and this is everybody. I mean, I went through this drill a few years ago when I wrote down everything I spent for a month and there were some surprises in there when I saw how it all added up.

So, my very first tip, and nobody likes to do it, but what better time than the New Year, literally, write down every single penny you spend for 30 days -- every cup of coffee, every time you fill up in the gas station. Then you want to break that list's up and this is crucial, I think this where people stumble is you want to knock that list into two separate tallies. One is the things you absolutely need -- milk for the baby, rent. And the other one is the things you kind of want that you pay -- ring tones, the extra channels on your cable bill, all that sort of thing.

And you need to be really tough. If you have a nice, late model car, that's not a need, that's a want. Maybe you prioritize, if you know it's worth it to me, but don't absolutely need that, you could get by on an old beater.

WILLIS: You know, Lynnette, to you, you're good at these questions and this is a tough one, one of your tips, double payments on your credit card. How do you do that when maybe somebody in your family's lost a job or you're worried about income string? Where do you find the money to pay down this debt?

KHALFANI-COX: Well, you know, I faced this myself when I was $100,000 in debt back in 2001. Jack's absolutely right, that first of all, you've got to look at your needs versus your wants. There's certainly places where we can all cut back. But, even beyond the sort of cutting back, because I don't believe in just pure deprivation. Think about things like windfalls.

For example, you might get an income tax refund check this year. The IRS says the typical check refund check tops $2,500. Maybe with President-elect Barack Obama coming in office, there's be another stimulus check coming to Americans. Use some of that to go ahead and knock out some of the debt. You night get a bonus on the job, gift money from family members for a birthday, using those things.

WILLIS: Great idea. Using that money wisely and making sure that you put all your dough in the right pots couldn't be a better idea, there. And I just want to thank both of my guests, here, Lynnette Khalfani-Cox and Jack Otter. Thank you so much for helping us out today. Great information. Terrific ideas.

Well, we've got you thinking about shoring up your finances in the new year, part of that includes the value of your house. Could 2009 be the year housing turns around?

(COMMERCIAL BREAK)

WILLIS: Well, it's what so many folks are waiting for, the time the housing will have a big turnaround, but is this the year it could happen? Greg McBride is a senior financial analyst for Bankrate.com and Dani Babb is the author of "Accidental Landlord."

Welcome to you both. And I'm going to have both of you answer the very, very tough question of, housing recovery, does it actually happen this year? Let's start with you, Greg.

GREG MCBRIDE, BANKRATE.COM: Well, I think that depends on what you're measuring, is it home sales, is it home construction or is it home prices? In terms of home sale, I think even in a lousy economy we could see an uptick in home sales this year because of two reasons -- low mortgage rates, record low mortgage rates and the fact that home prices have fallen so far, there's a lot of affordability out there now that wasn't there even six or 12 months ago.

WILLIS: All right, but prices is a big question. Dani, to you, I mean, is there any chance we could see prices recover?

DANI BABB, AUTHOR: I don't think we're going to see prices recover in 2009. I think we're going to begin to see some stabilization, which could lead to recovery later on, but I think in the FHA markets, which would require a conventionally financed home, something in the median price for that area...

WILLIS: So, we're not talking the most expectative houses out there.

BABB: Right, not the most expensive, somewhere between $200,000 and $700,000, depending on the area, those particular homes, I think, you could see some increase in sales this coming year because of historically low rates.

WILLIS: Sales or sales prices?

BABB: Actual sales.

WILLIS: OK, so, we're looking for some recovery in volume, possibly, but not in the things so many homeowners are worried about, which is prices.

Now, I want to talk about foreclosures, Dani, I'll start with you. Foreclosures expected to be three million this year and could be almost as high next year. How do you weigh in on that? Will we see as many foreclosures incomes year? What's your crystal ball telling you?

BABB: I do think we will see as many. I think it's going to shift, though. What we've been seeing is the subprime foreclosure market really high. I think in the next year, we're going to start to see the jumbo prime market really high. The reason being...

WILLIS: And let's tell people what that means, because, subprime loans were those loans to people who do not have good credit, they tend to be less expensive houses and now the houses you're talking about could be more expensive houses in better neighborhoods.

BABB: And people with A-rated credit, people with a 740 FICO who got into a loan, that was (INAUDIBLE), in other words, the principle got added to every month, every month we added to our principle balance and now this coming year I think that those loan are the ones that we're going to see hit some trouble.

WILLIS: All right and let me take you, Greg, to mortgage rates for just a second, because let me tell you, mortgage rates right now are luscious, five percent and under. It doesn't get any better than this. Where are those rates going for 30-year fixed loans? Could they go even lower?

MCBRIDE: It's possible, but I think the best news of all here, Gerri, is that unlike what we've seen in the past when mortgage rates dropped to really low levels, it's a flash in the pan and that they quickly move higher and that's not going to be the case this time around. I think we're going to see these low mortgage rates persist at least through the first half of the year, if not much of 2009.

WILLIS: Wow, that is big news. Now, do you think it stabilizes somewhere well under five or do we go above five percent?

MCBRIDE: Well, I mean, I think five is sort of the -- five to 5.5 is probably the range that we're going to be in for much of 2009. You know, 4.5 percent is that magic number everybody's throwing out there, but I think that's just a tall task to see mortgage rates fall to that level and stay there any appreciable length of time. I think five percent to 5.5 is realistic range, at least for the first half of 2009.

WILLIS: Dani, what does that mean for the housing market, with mortgage rates at that level?

BABB: Well, it means that hopefully we'll have some people who have taken money out of other markets and put it into housing. Right now basically if you buy a $200,000 home at five percent interest, and we're looking at $1,000 a month, that's cheaper than a lot of areas, that's going to bring in a lot of additional buyers. The one caveat -- I do agree that it's going to be -- maintained about 5.25 percent all year -- the caveat is in the jumbo market where it's been about 2 percent higher than the non-jumbo loans for quite some time.

WILLIS: And those are always higher.

BABB: Those are.

WILLIS: OK, where's the opportunity? Who really does well in this market? First to you, Greg, quickly.

MCBRIDE: First, I think if you look at refinancing your mortgage. I mean if you can cut a $300,000 loan from six percent to five percent, it frees up about $200 a month and who couldn't use that dough at a time like this?

WILLIS: You're absolutely right. Dani, who do you see benefiting?

BABB: First-time home buyers, they can get it on a FHA mortgage with three percent down, decent FICO scores and outstanding prices.

WILLIS: Love that. That's great information. And appreciate both of my guests, today. Danny, Greg, thanks for joining us. Great stuff.

Now, this show is all about your bottom line. So, when it comes to your child's education, we'll show you which colleges give you the most bang for your buck.

(COMMERCIAL BREAK)

WILLIS: Well, if you're a high school senior, you may just be finishing up your college application this month. Just in time, the "Princeton Review" and "USA Today," they put out list of the 100 colleges that give you the best value. Rob Franek is here from the "Princeton Review."

What a fantastic list. I love this idea. You know, colleges is so expensive and people are trying to find a way to save money. It's so frustrating. You know, you have a great list, let's start with your best value public colleges.

ROBERT FRANEK, PRINCETON REVIEW: Sure, sure...

(CROSSTALK)

WILLIS: Tell me what those are.

FRANEK: Actually, No. 1 on that list is University of Virginia, so...

WILLIS: Great school.

FRANEK: Lots of usual suspects. I mean, it's an amazing school.

WILLIS: Thomas Jefferson designed the campus.

FRANEK: That's right and wrote the honor code for the campus. Second oldest university in the country behind Harvard. So, an exceptional value in the classroom as well as a great financial aid value.

WILLIS: I see New College of Florida, which I had never heard of.

FRANEK: Actually it is the flagship honors college for the Florida State system. So, it's an exceptional school. It's less than 1,000 students and it's run very traditionally like a private college. You have mentors, there's only pass and fail grades, so excellent stuff and a great experience, $1,600 out of pocket cost for a Florida student. So, an amazing value.

WILLIS: Holy cow. So, if you can get in it's a great deal.

FRANEK: If can you get in. It's super competitive.

WILLIS: And the College of William and Mary also in Virginia.

FRANEK: Yeah. In Virginia and, again, amazingly competitive when you start to think about students coming in from high school, many of them graduating the top 10, 25 percent of their class, amazing SAT and ACT scores. However, it is a great valuable both for in-state students as well as out of state students.

WILLIS: Now, how do you figure out which of these colleges get on the list?

FRANEK: Well, we try to look at a couple of different things. What I didn't want to look at was just low sticker prices. Because we said value meant a compelling experience for the student in the classroom. So, we asked college students at college classrooms seats at William and Mary what their experiences were in the classroom, were their professors good teachers, where they accessible outside the classroom, were they...

WILLIS: You're really doing a lot of research?

FRANEK: Absolutely. Absolutely. So, it's both the qualitative and quantitative. So, we tried to look at financial aid facts as well as student opinions in the classroom space.

WILLIS: So, if I'm a student out there and I'm trying to figure the same things on my own, what things should I be looking at?

FRANEK: Yeah, it's good question and I think that one that lots college students and their families are likely asking. If you can equip yourself with just these couple of questions: what's the average indebtedness from a student graduating from one of these four year colleges?

Now, the schools our list of 100 with "USA Today" do an amazing job with this stuff. But, even if you didn't make this list, going in well prepared when you go to your first college fair or go to your first college visit, ask about that indebtedness question, also ask the percentage that are receiving aid and then the most crucial one, the percentage of students receiving full aid. And this is outside of loans. So, it's grant money, free money that you don't have to pay pack.

WILLIS: Oh, OK, well that's critical, because your next list, which is, you know, private colleges that are values. I have to tell you, I looked at this list and I said, no way. Harvard? I think of Harvard, and Princeton, too, being incredibly expensive schools that are really, you know, they're not even just hard to get into academically, but what they charge is so tough for folks to pay. How did they make this list?

FRANEK: It's and excellent question and again one that I think lots of families are dealing with now. The truth is, that the worst mistake any college-bound kid and their family could make is cross a school off their list because of a high sticker price. We could take Harvard, for example, you know, they're nearly $47,000 for sticker price. So, it's crazy, however, their average aid package for a first year student, and this is grant aid, is $35,000.

So, you can completely stymie yourself if you cross it off the list early where, if you could get in, as you say, because it's extremely competitive, if you can get in, they're going to make sure that they remove finance as part of the equation, so, it's a lower the stress value.

WILLIS: OK, alright, this is just great stuff. And I really appreciate your help today, Rob, and I want to send our viewers to Princetonreview.com to get more of this information. If you're looking for a school, if you're worried how much you're going to pay, you're looking for a value today, it's a great place to go. Thank you so much.

FRANEK: Oh, pleasure to be here, Gerri. Thank you.

WILLIS: Even with all the financial aid colleges' offer, higher education may seem out of reach for some people. But the state of Oklahoma has a plan, one that could bring a college degree a little for everyone.

(BEGIN VIDEOTAPE) WILLIS (voice-over): Kirsten (ph) Porchia is just learning to run around, she's barely spoken her first word, same goes for Kale (ph) Webber, but these tots are a little more advanced than other kids their age for one big reason. They each have more than $1,000 tucked away in a college savings account.

Kirsten and Kale are part of an Oklahoma program studying what happens when you give newborns $1,000 for college. It's called SEED for Oklahoma Kids and state administrators hope planting the SEED money will get more children in college.

SCOTT MEACHAM, OKLAHOMA STATE TREASURER: If we spend this really minimal amount of money now, in the grand scheme of things, what we get is we get a more educated workforce that will earn higher statistically, will earn higher money, pay us for taxes down the road, they'll consume less government services.

WILLIS: Kirsten's parents say they plan to save for her education, college anyway, but this SEED account gave them an extra boost, a boost Kirsten's mother didn't have as a child.

SHANITA PORCHIA, SEED OK PARTICIPANT: College was never talked about with us with our family, but this seed would have been planted, if it would have been known and talked about when we were growing up, then we would have -- my parents would have been talking about it, because then they're like, OK, well, you have money to go to school and you will go to school.

WILLIS: The plan provides additional matching funds for low income families.

Researchers running the study from Washington University in St. Louis, hope the money will get families thinking of college as a possibility and investing their own funds.

MARGARET CLANCY, WASHINGTON UNIVERSITY: One of the benefits of these child development accounts in this case, SEED for Oklahoma Kids, is that we think that families will be talking about finances with their children.

WILLIS: Kale's parents are both high school teachers, they say this SEED money would be helpful to their students.

JODY WEBBER, SEED OK PARTICIPANT: It will be really interesting to see how our society, especially here in Oklahoma, in the Midwest uses that opportunity. I know we'll use it.

WILLIS: The SEEK OK program has just under 1,400 families participating. But, if it's successful, it could be adopted nationwide.

MEACHAM: That's our hope and the hope of the sponsors of the plan is that we can demonstrate and, you know, right here in the heartland of Oklahoma, that this plan works and then we can roll it out to the rest of the country.

WILLIS: And that could give every child a leg up.

(END VIDEOTAPE)

WILLIS: Oh, so cute. Well, these two families say their savings accounts have actually taken a beating in this stock market, but are they stopping investing? No, they're going to continue contributing and in 16 years, Kirsten and Kale should be all set for college.

Well, with details of the Madoff scandal continuously unfolding, what do you need to know to keep your investments safe?

(COMMERCIAL BREAK)

WILLIS: The impact of major losses among charities could be felt by millions of people and the Bernard Madoff scandal is definitely hitting those charities hard.

CNN's senior correspondent Allan Chernoff explains.

(BEGIN VIDEOTAPE)

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT (voice-over): City Harvest picking up food donations, one of hundreds of daily collections that help feed 1/4 of a million New Yorkers of all faiths. City Harvest received $150,000 last year from the Picower Family Foundation, which is now closing its doors because nearly all of the family's investments were with Bernard Madoff.

HEATHER WALLACE, CITY HARVEST: And that's a significant blow for City Harvest, they're one of our top 10 funders. They've been a six figure supporter of our work for nearly 10 years now and this is funding that's going to be difficult for us to recoup.

CHERNOFF: Clowns from the Big Apple Circus visit critically ill children, another program made possible through the Picower and other Jewish philanthropists.

GARY DUNNING, BIG APPLE CIRCUS: We make about 280,000 bedside visits each year. Their money supported those general operations in 19 hospitals across the country.

CHERNOFF: The Picower Foundation which has donated more than one quarter of a billion dollars over the years may have been hit the hardest. But dozens of other Jewish charities and foundations have suffered millions in losses because of Bernard Madoff's alleged Ponzi scheme. like the Carl and Ruth Shapiro Family Foundation of Boston. It has given millions to improve healthcare, helping to found the American Cancer Society, the American Heart Association, Brigham and Woman's Hospital and The Dana Farber Cancer Institute.

The Jewish Community Foundation of Los Angeles says it invested $18 million with Madoff, last year it granted $14 million to groups having no affiliation with Jewish causes, including a new support group for victims of gang violence in Los Angeles.

MARK CHARENDOFF, JEWISH FUNDERS NETWORK: Unfortunately, the impact is going to be on the average American not for profit out there. And the fact that, you know, the American Jewish community gives disproportionately to their, you know, to their percent of the population. So unfortunately, the impact is going to be disproportionate, as well.

(END OF VIDEOTAPE)

WILLIS: What a tragedy. That was CNN's senior correspondent Allan Chernoff reporting.

Well, it's the boldest Ponzi scheme in U.S. history and tonight CNN investigates just how Bernard Madoff fooled so many people. Don't miss "Madoff, Secrets of a Scandal," a CNN and "Fortune" special investigation, tonight at 8:00 Eastern on CNN.

Now, the Madoff scandal may not have affected you directly, but there are some important lessons for all investors. Make sure your brokers and investment advisers have not had run-ins with regulators. Check to see if they're licensed or registered. This is vital because if you do business with an unregistered securities broker or a firm that later goes out of business, there may be no way for you to recover your money.

Go to Financial Industry Regulatory Web site, it's finra.org and use their broker check, it's a free tool that will help you check the background of securities firms and brokers. And there's a hotline you can call, too, if you want more information. That number is 800-289- 9999. Remember, one phone call or Web search may save you from sending your money to a con artist, a bad financial professional or a disreputable firm.

As always, we thank you for spending part of your Saturday with us. OPEN HOUSE will be back next week with a new name: YOUR BOTTOM LINE, that's next Saturday at 9:30 a.m. Eastern, right here on CNN. After all, we are all about protecting your bottom line and giving you the information you need to do just that.

You can also catch us on "Headline News," HLN, every Saturday and Sunday at 3:30 p.m. Eastern Time. And 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.

Don't go anywhere, your top stories are next in the CNN "NEWSROOM," have a great weekend.