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The Faces of America's Housing Market; African-Americans and Hispanics Are Less Prepared for Retirement; Minimum Wage Goes Up

Aired July 18, 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 YOUR BOTTOM LINE, the show that saves you money. The faces of America's housing market. We'll look at the communities hit hardest by the foreclosure epidemic as well as those rated the best places to live.

Also, a new study says African-Americans and Hispanics are significantly less prepared for retirement than white and Asian counterparts. We get to the bottom of why that is and what can be done about it. And the minimum wage, well, it goes up this week. That means more money in the pockets of millions of Americans. YOUR BOTTOM LINE starts right now.

We begin with the mid-year U.S. Foreclosure Market Report out just this week from RealtyTrac. Foreclosure filings are up in the first half of 2009 from the previous six months to a total of 1.9 million.

Now, to break that number down for you, that's roughly one in every 84 American homes and that translates into a nine percent increase in foreclosure filings and about a 15 percent increase from the beginning of 2008.

Here to help us break down those numbers and what it mean for the housing market is Rick Sharga, he's is senior vice president of RealtyTrac, and Bob Moulton the founder and CEO of Americana Mortgage.

Welcome to both of you.

UNIDENTIFIED MALE: Good morning, Gerri, thank you very much.

So, Rick, I want to start with you with the foreclosure numbers. I was expecting, maybe, maybe, we might get some kind of improvement, but not yet, the numbers are worse. Why is that?

RICK SHARGA, REALTYTRAC: Well, it's clear that despite what amounted to an industry-wide moratorium at the beginning of this year, numerous legislative delays and a state of activity on the loan modification front. We simply don't have a handle on how to stem the tide of these foreclosures. So what we're seeing is a run up that's probably beyond what anybody expected at this point.

WILLIS: You know, Bob, I look at mortgage rates all the time. I'm obsessed with them. They are 5.4 percent according to BankRate.com, and you would thing with rates that low, people would think people are running to get new mortgages, refinancing old mortgages. You know, I still hear that there is trouble in the marketplace. What does it take these days to get a new mortgage?

BOB MOULTON, AMERICANA MORTGAGE GROUP: You know, there's an influx of borrowers refinancing their homes, right now. But the key ingredient here is qualifying. Those homeowners who are upside-down in their mortgages...

WILLIS: Upside-down meaning they owe?

MOULTON: They owe more than their house is worth or those people who have, you know, maybe derogatory credit or can't necessarily show enough income, right now. Are having a hard time qualifying. So, the people that are benefiting are showing their tax returns, have a 700 credit score and have at least 20 percent equity in their home, so it's very, very...

WILLIS: All right, that's a high hurdle for a lot of people out there, Rick. Who are the buyers who are in the marketplace out there? Because I recently read Vegas has the highest number of sales ever in the previous month. What is buying?

SHARGA: Well, I think what Bob just said is absolutely correct. You're having first-time home buyers qualifying for FHA loans and you have investors. And in a lot of cases, the investors are using very nontraditional financing, either cash or private lending. So, those really comprise probably about 80 percent of the buyer's market right now.

WILLIS: Private lenders, wow. I think a lot of regular Americans are hard pressed to even define what a private banker is. Bob, what is the right tragedy, the right kind of institution to go to? Is it the small bank, is it the big bank, the SNL, the credit union?

MOULTON: Well, the thing is with the Obama administration they put $50 billion into this loan modification program and to help people that are upside-down or first-time homebuyers. That money's not necessarily trickling down to the street level.

So, when it comes down to the street level, things should loosen up. But they need to shop that mortgage around because each lender has different criteria and one lender that might allow 60 percent of your income to go towards housing, another might allow 30 or 40 percent, so you need to work with a qualified loan officers to find the right bank for your situation.

WILLIS: All right, real quickly, we don't have a lot of time left. But, I want to know, if you're out there and you're thinking you might want to buy one of these foreclosures, you might want to get in the marketplace, what do you need to know now right now?

SHARGA: Well, you obviously need to know what you're qualified to get in terms of a loan. Fannie and FHA both have programs that will allow you build repair costs into your mortgage, which are probably helpful. But, understand the repair costs that are going to be involved in buying one of these houses. Get an inspection of the property, also, try to figure out what the discount needs to be to make that foreclosure property more of a bargain than the other properties. Even though a foreclosure home might be selling for 30 or 40 percent less than it did last time, it doesn't mean it's a bargain if the rest of the homes in the neighborhood have also dropped in value by that much.

So, know what the house is really worth, know what it's really going to cost to fix it up to the way that you want to make it and know what you are qualified to spend.

WILLIS: Know what you are qualified to spend. Bob Moulton, what is the proportion of the monthly budget that you should be spending on housing?

MOULTON: Traditional lending guidelines is three times income. So, if you are making $50,000 a year, you should be look at a mortgage of $150,000.

WILLIS: Great advice, you two, great guests. Thanks for the help today, we appreciate it..

MOULTON: My pleasure.

SHARGA: Thanks, Gerri.

WILLIS: Detroit has become a symbol of all that is wrong with the so-called rust belt of America, shuttered factories, rampant crime and nearly one in six people out there out of a job. But, is their gold buried beneath all that rest?

CNNMoney.com's Poppy Harlow has more now on how some folks are making a bet on a Motor City renaissance.

(BEGIN VIDEOTAPE)

POPPY HARLOW, CNNMONEY.COM CORRESPONDENT: This house in northwest Detroit recently sold for $7,500, just $4,000 would have bought you this one, right across the street. You may have missed the investment opportunity of a lifetime.

MICHAEL ALEXANDER, INVESTOR: We have, actually, a waiting list of people to rent and to buy.

HARLOW: This man thinks he didn't. Michael Alexander has purchased 250 homes in Detroit betting the Motor City will rise, again.

ALEXANDER: When we find a nice street like this, we try to buy all of the available inventory on this street.

HARLOW (on camera): Why on earth is this a good place to put your money to work?

ALEXANDER: Well, that's a good question and I get asked it a lot. We're buying homes in that particular range and we're able to offer them at better prices. So, since everyone is going to need a place to live, we're offering value.

HARLOW (voice-over): Alexander's company invests between $10,000 and $20,000 rehabilitating the homes, which they say they've been able to flip for a 20 to 30 percent profit. And even with buyers scarce, Alexander says he's been able to rent many of these homes at attractive prices. But, it's far from a safe bet. Home values in Detroit are down 45 percent from their peak in 2005 and the city continues to battle a high crime rate.

ALEXANDER: This house, since we've acquired it, has been broken into. And I didn't know that until just a minute ago when we walked into the kitchen.

HARLOW (on camera): Really.

ALEXANDER: But, if you'll turn around, you'll see that someone has kicked in this door.

HARLOW: So, you've seen a home that's foreclosure and in shambles and you've seen a home that in the process of getting fixed up. But here's the finished product, what we're walking into. And for this investment to work out, you have to get someone to rent or buy this home. And the man in charge of doing that is Eric. He's a property manager.

ERIC JETER, PROPERTY MANAGER: Since winter, we've done about 70 homes and of the 70 homes we got about 64 of those homes, right now, have already been filled with families.

ALEXANDER: My partner and I have both been investing in real estate for over 30 years. And we're at a point where we want to give back, as well. And we saw an opportunity here were we could both make money and give back and help revitalize this community.

HARLOW (voice-over): As far as the rest of the city, there are some parts where Alexander just isn't willing to make the same bet.

ALEXANDER: There's a lot of properties available in the inner city which can be bought for little or next to nothing, but if I turn around and then invest $15,000 or $20,000 in a renovation, even though I may have bought it really cheap, if people are afraid to live there, my house is going to be empty.

HARLOW: In Detroit, Poppy Harlow, CNNMoney.com.

(END VIDEOTAPE)

WILLIS: And for more up to the minute news about YOUR BOTTOM LINE, your house, your job, your savings, you debt, log on anytime to CNNmoney.com.

Saving for retirement is vital to your financial health, why some Americans may be falling behind and how to get back on track.

(COMMERCIAL BREAK) WILLIS: Good news, about 4.5 million U.S. workers will see bigger paychecks starting this week. Now, on July 24, the minimum wage is set to rise 11 percent from $6.55 to $7.25 an hour. This is the third and final step a federally mandated increase. Restaurant and retail workers are expected to benefit most from the jump and, no surprise here, experts say higher wages reduce costly turnovers and increase worker productivity. But with unemployment at 9.5 percent some are wondering if this hike is enough to stimulate job growth.

A new study shows African-Americans and Hispanics are significantly less prepared for retirement than White and Asian counter parts. Why is that? And what can be done about it?

Here to discuss and of course offer us some advice is Barb Hogg of Hewitt Associates, one of the partners in the study along with the Ariel Education Initiative. Also joining us is Ryan Mack, the president of Optimum Capital Management.

Welcome to you both.

RYAN MACK, OPTIMUM CAPITAL MGMT: Thank you.

BARB HOGG, HEWITT ASSOCIATES: Thanks.

WILLIS: Guy, I want to start by showing some of these numbers from your study, Barbara, which I think are interesting. Participation rates 77 percent of White workers, 76 percent of Asian workers and then a big gap, a big drop among African-American workers 66 percent, Hispanic 65, you can see the numbers, right now. What's going on here?

HOGG: Well, I think there's a lot of things that could be impacting that. It was a study, it was a study of over three million workers and we just -- it was really designed to look at the differences by race ethnicity. So, there can be a lot of factors going into it, but even when we adjusted for factors like age or service or pay, we still saw disparities by race and ethnicity.

WILLIS: All right, when you look at reasons why this might be right, I think a lot of people might say, oh, it's financial education. Is that enough of an answer, here?

MACK: Well, I think that you also -- you can't remiss by looking at class and socioeconomic communities. You know, poverty levels in the White communities about 11.5 percent as opposed to the Black communities poverty is 32 percent. So, with three times the level of poverty, you might have less propensity to be able to invest...

WILLIS: So, African-Americans are putting their money in food on the table, a roof over your head instead of maybe 401(k)s.

MACK: Exactly.

WILLIS: Let's look at participation rates or contribution rates for just a second. Again, Asians and Whites leading the pack. African-Americans and Hispanics are behind. Barbara, let's talk about this for just a minutes. You know, what's interesting about this is that a lot of companies now are doing automatic 401(k) enrollment, so more people will be contributing. But why do we see such a disparity, here?

HOGG: Well, so this is the next part of the equation. So, the first step is do they get in the plan and that's the participation rate. But once they're in, at what rate are they saving? And here we saw a large disparity, even after we adjusted for things like pay, age and service.

So, the why behind it could be influenced by a lot of factors, such as their situation outside of the home or how much total household income they may have or it could be attributable to their comfort level with saving in a 401(k).

WILLIS: Ryan does this set up racial minorities in this country to be not stable in retirement, to have issues, problems, you know, paying for their households?

MACK: Well, it's definitely, it's a lot of issues in terms of we need to be more diligent and making sure we're preparing for our own retirements. And on one side, we're celebrating the 55th anniversary when Lyndon Johnson passed the Civil Rights Act back in 1964. So, per-Civil Rights era, there are a lot of things we were not given access to that could help us accumulate wealth, so therefore, you're getting a lot of . first generation investors that might not have had as much inheritance bequeathed to them.

At a second level, we also have over a 90 percent consumption rate within black and Hispanic communities, so we're spending a lot of...

WILLIS: Of income,. 90 percent of income.

MACK: Yeah, exactly. So, what we're doing is, we're sometimes using debt to purchase things that we don't need and impress people that we don't like. So, we have to be sure that we're being a lot more diligent about what we have to make sure we can save and start thinking more towards the future.

WILLIS: We all need to be more diligent, I think.

Barb, I want to dig down into your study, just a little bit more, here, because you've got another interesting finding that I was surprised by. And that's who invests in stocks and at what rate. Tell us your findings and what they tell you.

HOGG: Right. So, when it came to how much people invested in equities, we saw a disparity, especially among the African-American community, where less money was going into stocks, overall. And we saw this consistently across age. So, you look at age and can argue that people at younger ages should be invested more in stocks, but regardless of age, we saw a difference, there.

WILLIS: I think that's fascinating. You know, Ryan, I have to ask you, know, the Madoff headlines, what's gone on in the financial markets. Is it possible that racial minorities just don't trust the system enough to invest?

MACK: Well, I think that's a huge component of it. I do believe -- if you'd have asked my grandmother, her bank was actually her bosom, so she didn't trust the banks, didn't want to go to the banks.

But also, in addition to that, we have to make sure that in terms of just exposure and knowledge into the markets -- really, one of my aunts called me one time and said, Ryan, what is a stock. And that simple question really, there's not a discussions around Black and Hispanic dinner tables about investments, fiscal responsibility.

We need to up that, so you can bequeath investments, you can bequeath wealth, but you can also bequeath knowledge from one generation to the next generation. So, if you're teaching your children and having those conversations you can increase the likelihood that they'll be into increasing investments in equities and stock.

WILLIS: Great information. Ryan, Barb, thank you both so much for being with us, today.

MACK: Thank you.

WILLIS: This week, CNN continues its investigation of the most challenging issues facing African-Americans with its "Black in America 2." Be a part of the conversations, follow that matter to you, and track all the discussions at CNN/BlackinAmerica. Soledad O'Brien reports "Black in America 2" this Wednesday and Thursday at 8:00 p.m. Eastern, only on CNN.

And from low unemployment to great school systems to below average crime, the small towns on "Money" magazine's best places to live have a lot to offer. We'll tell you where they are, next.

(COMMERCIAL BREAK)

WILLIS: Well, that's time of year again, time for "Money" magazine's list of the best places to live. Did your town make the list? Let's find out. "Money" magazine's senior writer, Donna Rosato, she's here to give us their picks.

OK, your magazine has been doing this list for 25 years. You're really expert at picking the towns that have great job, great places to live, lots of opportunities for families. At the top of your list is a little town called Lewisville, right? Lewisville, Colorado.

DONNA ROSATO, MONEY MAGAZINE: That's right. Lewisville, Colorado is between Denver and Boulder, so it's in the Rocky Mountains and of course, when you think outdoors, you know, there's hiking, skiing, biking, you know, you name it, but it's got more than great stuff to do outside. There are a wealth of industries that have helped it really weather the recession. Its unemployment, for the county, is the lowest in the state and it's got jobs in energy, health care, as well as education and, of course, high tech.

WILLIS: Let's go over to Minnesota now, to Chanhassen another tiny town, not very big but you say wonderful. Why?

ROSATO: It's about 25 miles west of Minneapolis, it's a great little town. It's got -- never got the memo that is was in a recession. It's bond rating has been upgraded twice in the past year. It's got home prices have gone up slightly, there in the last year, and property taxes have gone down every year for the past five years.

WILLIS: People love that.

ROSATO: Yeah. They're building a brand new high school that's opening this fall. But it's just a lovely little town. It's got 11 lake, 34 parks and every house is within half a mile of a park.

WILLIS: Wow. That is truly impressive. OK, let's go to a suburb of Omaha.

ROSATO: Now, this is Papillion, Nebraska, this about 20 minutes from Omaha and it's got also amazing combination of a strong local economy, lots of jobs and very affordable homes. The unemployment rate there is 4.5 percent, less than half of the national unemployment rate.

WILLIS: Very nice.

ROSATO: Average three bedroom, two bath house...

WILLIS: Who's hiring there. I mean, what are the jobs there?

ROSATO: It's an extremely diverse town, you've go insurance, you've got Conagra is headquartered there, you've got transportation, agriculture. There's military Air Force base, there, there's a lot of defense contractors.

WILLIS: All right. Milton, Mass. This is Massachusetts town right outside of Boston.

ROSATO: Right, it's really like only 11 miles from downtown Boston, but, you know, people we interviewed there said it feels like a little slice of Vermont living there. It's classic New England town. It's got a very beautiful, like sort of a quiet country feel to it, historic homes, but it's also got very relatively low unemployment and lots to do.

WILLIS: OK, all right, now we get to my favorite, Peachtree City, Georgia, where people get around by golf carts.

ROSATO: That's right. This is a planned community that's got five villages that are connected by roads, but also 90 miles of golf cart paths. People take bikes or they ride the golf carts to school, to work.

WILLIS: You can see them right here.

ROSATO: Yeah. It's really a great way to get around and, boy, talk tab keeping low stress, as well.

WILLIS: Thank you so much for your help today. Really appreciate it.

The cost of organic foods can really add up, so how do you know which products are worth it? We'll help stretch your dollar and still keep your family healthy.

(COMMERCIAL BREAK)

WILLIS: While many businesses are trying to cut back, one organic food company is doing just the opposite and still giving back to the community.

CNN's Stephanie Elam took a ride up to Applegate Farms, where they've got a simple mission, to change the way you and your kids eat.

(BEGIN VIDEOTAPE)

STEPHEN MCDONNELL, APPLEGATE FARMS: This is a picture of me, of my failed attempt to become a vegetarian.

STEPHANIE ELAM, CNN BUSINESS CORRESPONDENT: How long did that last?

MCDONNELL: Oh, about an hour.

ELAM (voice-over): Stephen likes meat, but he doesn't like how most of it gets on the table. So in 1987 he started Applegate Farms.

(on camera): What's wrong with the way people eat meat now?

MCDONNELL: Well, a lot of the meat in America is produced really cheaply and unsustainably and inhumanely.

ELAM (voice-over): With the motto: "Taste. Truth. Trust." Applegate believes in transparency.

MCDONNELL: What we get to do in our structure is actually track every single animal from every farm all the way through to the finished product.

ELAM: But sustainable food production isn't cheap.

MCDONNELL: It's probably 20 percent or 30 percent more to do it in a sustainable way.

ELAM: Applegate sources its products from about 300 small farms that cultivate their animals organically.

MCDONNELL: Our farms can work for us 100 percent of the time, and we feel like we're creating lots of jobs that really have gone away for the last 20 years.

ELAM: While sales have suffered some this year, Applegate still expects to post double digit growth with sales just shy of $100 million. And the company is hiring.

MCDONNELL: We've increased our benefits package in the last year and now we're starting to hire more professional managers to kind of to help sort out how to run a larger business.

ELAM: But, it's not just their meat that's different, so is Applegate's office. From the massive kitchen that replace the lobby to the meditation room, Stephen believes in working outside the box.

MCDONNELL: This is how most decisions through the history of mankind were made, sitting on the floor, not up at a desk or a chair.

ELAM: One decision Applegate is committed to is teaching the kids of valued healthy eating by adopting seven kindergarten classrooms like this one and taking them to area farms to answer a basic question. Where does food come from?

UNIDENTIFIED FEMALE: Apples come from...

KIDS: Trees.

UNIDENTIFIED FEMALE: A tree. Trees grow in the...

KIDS: Forest.

GINA ASOUDEGEN, APPLEGATE FARMS: This connects kids to the source of foods. You know, how is it grown? Where is it grown? What makes it healthy? And to us, healthy food is real food.

ELAM: It's Applegate's simple recipe for good business, better products and happy customers.

Stephanie Elam, CNN, Bridgewater, New Jersey.

(END VIDEOTAPE)

WILLIS: Knowing which products to buy organic sometimes isn't easy. Here's what you need to know before you head to the store.

First, buying organic meats, dairy and poultry products, can reduce your risk of exposure to toxins for both you and your kids, and if you have a little one, organic baby foods are a good way to avoid pesticides commonly used on produce.

When it comes to fruits and vegetables like apple and peaches and spinach, expect to pay about 50 percent more on average. But buying this produce in the season can help you reduce your costs, as well.

Don't forget to surf around the Web for coupons. Many organic brands offer coupons right on their Web sites. When it comes to cleaning products, when you see the term "all natural," make sure the first ingredient isn't just simply water.

As always, we thank you for spending part of your Saturday with us. YOUR BOTTOM LINE will be back next week, right here on CNN. You can also catch us on HLN every Saturday and Sunday at 3:30 p.m. Eastern Time.

And 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's at 3:00, right here on CNN. Don't go anywhere, your top stories are next in the CNN "NEWSROOM." Have a great weekend.