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Open House

Curbing Predatory Lending; Answering Your Questions; Financial Crash Course

Aired September 01, 2007 - 09:31   ET

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

GERRI WILLIS, HOST: Hello. I'm Gerri Willis, and this is OPEN HOUSE, the show that saves you money.
The mortgage meltdown is gaining momentum on Capitol Hill. President Bush this week unveiled his proposals to aid the industry and what the government should or shouldn't be doing to help.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The government's got a role to play, but it is limited. A federal bailout of lenders would only encourage a recurrence of the problem. It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford.

(END VIDEO CLIP)

WILLIS: Bush announced one program that could help you right now. It's called FHA Secure.

Now, this program will allow homeowners who are in default right now to qualify for refinancing, but it's only for people who have good credit histories and were making their payments on time before their rates reset.

Now, you can get more information on this program at FHA.gov or by calling 1-800-CALL-FHA.

Last week we heard from the governor of Ohio about what should be done to combat the number of foreclosures in his state. And this week, Georgia State Senator Vincent Fort is joining us to talk about his efforts to curb predatory lending in his state for the past seven years.

You've been on this case for a long time, Senator.

VINCENT FORT, GEORGIA STATE SENATOR: Yes, I have. It's been a long struggle.

WILLIS: Well, let's talk about some of the numbers in your state, because the Georgia numbers really are astonishing.

More than 12,000 people in foreclosure in that state -- one in 299. Those are big numbers.

Why is it such a problem there? FORT: Yes, we're number two in the rate of foreclosures. One of the major reasons is because we have lax enforcement, lax laws, lax regulation in stopping predatory lenders where -- and many of these foreclosures are loans that probably should never have been made in the first place.

WILLIS: And you also have a really fast process for putting people through foreclosure, correct?

FORT: Yes. It's a nonjudicial foreclosure state. People can be on the courthouse steps literally within about 30 days. It's a fast process.

WILLIS: All right, Senator. You wrote state legislation to take care of this. Got it passed.

FORT: Yes.

WILLIS: Why doesn't it work?

FORT: Well, we wrote that legislation in the past in early 2002. It took effect in October of 2002. But a couple things happened. The governor that helped us to push that legislation through was not reelected in November of 2002.

WILLIS: How does that affect it?

FORT: Well, the new administration helps the lending industry, the rating agencies, and Freddie Mac to undo that law in 2003.

WILLIS: So it was really watered down is what you're saying.

FORT: Yes, that's right.

WILLIS: Let's talk about some of your constituents here, because they're the ones who are struggling right now. What are they saying to you?

FORT: I'm getting calls almost every day, at least a few calls a week, from people who are in these bad loans that were made over the last few years. And they're desperate.

They're getting foreclosed on or they're hitting the margin where they're not going to be able to pay their mortgage. There are a lot of desperate people here in Georgia, as there are around the country.

WILLIS: I hear you. You know, we get those e-mails too from folks who are absolutely desperate.

What should be done? What is the solution?

FORT: Well, there are at least a couple things that could be done.

One, I'm going to reintroduce a strong bill in January to try to deal with this situation. But there are a couple of other things that can be done on the federal level.

I think money has to be allocated to help people through this process. If we can spend $1.5 billion in Iraq to build housing in that country, we can help borrowers, the people who are facing foreclosure. We can help those people to get through this bad time.

WILLIS: Well, Senator Fort, thank you so much for joining us today. It was a pleasure chatting with you.

FORT: OK. Good to be with you.

WILLIS: All right.

Up next, Peter Schiff is the author of "Crash Proof: How to Profit from the Coming Economic Collapse".

(BEGIN VIDEOTAPE)

WILLIS: So, Peter, first off, I want you to respond to what the state senator had to say about maybe some federal money going to this problem.

What do you think?

PETER SCHIFF, AUTHOR, "CRASH PROOF": Well, I think that's just going to make the situation worse. And first of all, the problem is, these people that own subprime mortgages, most of them were not preyed-upon victims. They actively sought those mortgages out.

It was the only way that they could afford to pay inflated home prices. That's basically the problem. Home prices in the bubble got too high, and they're going to collapse.

WILLIS: All right. So I know you say we're too late to do anything at all about it. We've got to just bring on the recession. People have to, you know, lose their houses en masse for this to cycle through the system.

That's your solution?

SCHIFF: Well, it's not a solution. This is the problem.

People overpaid for houses. They bought houses that they couldn't afford. They deliberately committed to make payments on mortgages they couldn't afford because they were speculating on housing price appreciation. But no one is going to be homeless. There's plenty of vacant houses out there to rent.

WILLIS: I think people are already homeless. We're hearing from people who have lost their homes, and they're very unhappy.

Let me get you to how you think this is going to work out, because you actually forecast all of this in your book.

SCHIFF: That's true. WILLIS: You said ahead of time there was going to be a credit crunch that was going to explode this economy. And now, right now, you are one of the few folks saying, we're headed for recession.

How long, how deep?

SCHIFF: Well, it's going to be substantial because, remember, our economy, ever since the bursting of the dot-com bubble, has been based on excessive consumer spending, and that's all been a function of these artificially high real estate prices and temporarily low mortgage payments. It freed up a lot of the extra consumption.

People thought they had a lot of wealth. A lot of people, you know, were wrong. They thought a house that you live in was an investment. They expected it to appreciate.

WILLIS: We know that millions of people are going to be in foreclosure over the coming year. It's going to be very painful.

So tell me, what happens? How long does it take to work its way through the system? What are the baby steps that will bring us out of it?

SCHIFF: Well, you know, ultimately, the market is going to purge all of these lax lending standards out of the system. We're going to go back to people needing a 20 percent down payment, people needing a fixed rate mortgage. But none of this can happen without housing prices collapsing.

So, even people who are prime borrowers, who have nothing to do with subprime, they're still going to see the value of their house collapse. And all the equity they thought they've accumulated over the past seven or eight years, it's all going to vanish.

WILLIS: That's what you believe, a do-nothing approach from government. Isn't that what we've had for the last several years?

SCHIFF: No. Remember, this is all the byproduct of what Alan Greenspan did.

First he blew up the bubble in the technology stocks, and then he blew up the housing bubble. I mean, he spiked the punchbowl. All Wall Street did was serve it up. But they're the ones that came up with the dot-coms. They come up with these secure ties mortgage products, but it's all a function of the Fed and the excess creation of money.

WILLIS: So blame the Federal Reserve is...

SCHIFF: It's the government that did it. The government is the main responsibility, then Wall Street. But we need to let the free market work it out. If the government gets in, it's just going to make the situation worse.

(END VIDEOTAPE)

WILLIS: You have questions, we have answers. Real solutions to your credit crunch questions coming up next.

And the kids head off to school. But don't let them get in debt. A financial crash course is coming right up.

And it's the final countdown to kickoff. Find out how to get the best deal on the best TVs that will have your friends coming to your house for the big game.

(BEGIN VIDEOTAPE)

WILLIS (voice over): Some products you purchase at the grocery come with "use by," "sell by," or "expiration date". Here's the scoop on what you really need to know.

Hamburger meat only holds one to two days in the fridge, three to four months in the freezer. Fish is only OK in the fridge for one to two days.

Lean fish like cod, flounder and sole will last six months in the ice box. Fatty fish like blue fish, mackerel only two to three months.

A whole chicken or turkey will last one to two days in your refrigerator, but an entire year in the freezer.

And while they may break easily, fresh eggs in the shell will last three to five weeks in the fridge.

That's your "Tip of the Day".

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: It's time to answer your questions.

Financial advisor Gary Schatsky is here to help.

Gary, great to see you.

GARY SCHATSKY, FINANCIAL ADVISOR: Good to see you.

WILLIS: All right. Let's get right to it. The first question is from Tyree.

(BEGIN VIDEO CLIP)

TYREE, NEW YORK: Will the current credit crunch that's supposed to be bringing property values down end up trickling down into lower rates for renters?

(END VIDEO CLIP)

WILLIS: What do you think of that, Gary?

SCHATSKY: Well, you know, it's unlikely. On one hand, you would hoped that would be the case, but what you might find is, with property values dropping, people might be hesitant to buy. And if that happens, then they'll be renting, which will increase demand.

WILLIS: You know, we also got some great e-mails.

Brenda in North Carolina has this question: "American Home Mortgage," which I know you've heard about, "has left us in a jam. They applied for bankruptcy and have decided not to give us our $5,000 in repair escrow. What can we do to get it back?"

SCHATSKY: Well, first of all, if someone's taking over your mortgage, they're taking over everything, including the escrow. So you really do have recourse there, because they can't be collecting your mortgage payment and say, oh, we're taking -- you owe us that, but the rest of the deal is not part of it.

Ultimately, if you have difficulties, go to your state attorney general office. But it shouldn't be a big problem.

WILLIS: You've got to go to the regulators who can make it right.

OK. The next question is from Michael. Let's take a listen.

(BEGIN VIDEO CLIP)

MICHAEL, NEW JERSEY: Have we seen the bottom yet in the mortgage market? And how has the recent credit debacle in the stock market affected mortgage rates, and where are we going from here?

(END VIDEO CLIP)

WILLIS: I wish we had better news here. You know?

I mean, this is a tough question because mortgage rates, who knows what's going to happen. It's not the mortgage rates in the marketplace, it's what bankers are charging that are the problem right now, because bankers are saying, hey, I need a lot of help here, a lot of insurance to make sure you're going to pay this mortgage off on time.

SCHATSKY: What you're seeing in a very big way is that, while interest rates themselves have not gone up, the rates people are paying have gone up substantially. And that's really putting a lot of pressure not only on the subprime borrower, but even on the prime borrower, because people, as you point out, want a much bigger latitude to protect themselves.

WILLIS: People -- banks. Let's be clear.

SCHATSKY: The banks do. It's just going to be profit to the bottom line. And, you know, over time, if this doesn't clear up, you're going to see property values get adversely impacted. Not only in the speculative lower end side, but really across the board.

WILLIS: Even the high end. You know, what's been interesting about this mortgage meltdown is that it's really impacted the jumbo loan rates. If you're buying a speculation house, I've got to tell you, you're going to pay a lot for it.

Let's move on though, because we've got a couple more questions. I really want to get to these. People really want answers.

Carrie from California has this question: "Why didn't the option of 'Deed in Lieu of Foreclosure' get brought up? Is this a bad option, and is this something we should consider?"

What do you think, Gary?

SCHATSKY: Well, first of all, Deed in Lieu of Foreclosure is normally an instance where you have mortgage trouble and you want to get out of it. One way to do it is say, look, I'll give you the deed as long as you don't foreclose on me.

You've got to understand that Deed in Lieu of Foreclosure gets you out from under the debt but it really does damage your credit. So, for some...

WILLIS: In a big way. I've got to tell you, if you can avoid this at all, you really should, because at the end of the day, you're ruining your credit for a long time.

We've seen this happen in Detroit, where people really have no options out there.

SCHATSKY: If you have no options, then it's something you consider. But you really have to be, much like with bankruptcy, you'd better think long and hard about what the right choice is.

WILLIS: Seven years on your credit history.

Gary, thanks.

SCHATSKY: A pleasure.

WILLIS: Keep those e-mails coming. Send us your questions and comments on the mortgage meltdown to openhouse@cnn.com.

And the average college kid has more than $2,000 in credit card debt. Make sure your child doesn't.

And get your hands on that big screen flat panel TV without laying down the big bucks.

But first, your mortgage numbers.

(COMMERCIAL BREAK)

WILLIS: Well, for many, college is not only the first time they'll live away from home, but also the first time they'll have to deal with money. It can be a big wakeup call for some who have never managed their own finances before.

Here to help, Janet Bodnar, deputy editor of "Kiplinger's Personal Finance," from Washington.

Welcome. Good to see you.

JANET BODNAR, DEPUTY EDITOR, "KIPLINGER'S PERSONAL FINANCE": Oh, thanks very much, Gerri.

WILLIS: All right. You say that when you send your kids to college, you really need to think about what they're going to come -- what they're going to be spending and actually come up with estimates.

Is that possible?

BODNAR: Sure. I think, as much as you can do ahead of time before you get there, the better off you are. So what that means is, looking at how much your kids are spending now on entertainment, food away from home, that sort of thing. Have them keep track with little Post-its. And if they're not doing it now, send them off to college with little Post-its and have them stick them on their desks.

WILLIS: Beer and pizza. Beer and pizza. Beer and Pizza. OK.

BODNAR: Exactly, which is the biggest drain on your money.

WILLIS: All right.

Some teens have a bank account before they go off to school, but some don't. So, when you're out there trying to figure out the right institution, how do you pick the right one, and then who manages the bank account?

BODNAR: Well, a couple things.

First of all, you want to look for one that's going to give the lowest fees. So you don't want a minimum balance, you don't want to have to pay for transactions, that sort of thing.

But one thing that parents may not think about, you want an institution that has got ATMs close to your child's dorm. The kids will not go out of their way to use the free ATM. They are going to go to the closest one. And if it costs them $2 a pop, they don't care.

So that's really very important. And...

WILLIS: That's true about adults too, you know.

BODNAR: Exactly. Convenience really counts. But parents tell me that they don't -- this is something they never thought about, and the ATMs were just too far away from where the kids were.

And the kids will be managing the account. They should be managing the account. That's part of their college education.

WILLIS: All right.

Well, you know, here's one of my pet peeves with college kids. Orientation day, they go. There are a million credit card companies pitching them, giving away free T-shirts, free beers, you name it.

These kids don't need credit cards necessarily, right?

BODNAR: They do not. Just say no. And I think parents should tell their kids this.

Believe it or not, your kids will listen to you. You don't believe it, but they will. And especially freshmen do not need credit cards.

A checking account with a debit card is fine as far as managing their money is concerned. And they've got plenty of time.

You know, once their juniors or seniors, even, and they've managed their money for two, three, four years, and you know they're not going to overdraw their account, they're living off campus, they're paying the rent on time, then they still have plenty of time to apply for a credit card before they graduate.

WILLIS: Janet, you are tough love, let me tell you.

BODNAR: I am. Yes. I've got three kids, too.

WILLIS: Let's go to textbooks and decorating the dorm.

BODNAR: Right.

WILLIS: You know, you can spend a lot of money on those. How do you save?

BODNAR: I think on this, to go to cut rate textbook sites. A lot of schools do this on their own. They have book exchanges online that the kids can go to. Or you can buy used books on Amazon, (INAUDIBLE). There are other textbook sites on the Web that specialize in texts.

Just make sure that you're buying the proper textbook with the right ISBN number for the course.

WILLIS: All right. I didn't know that.

BODNAR: Yes.

WILLIS: What about decorating the dorm room?

BODNAR: Call your roommate first and find out what the roommate is bringing. If the roommate is bringing the little mini refrigerator, then you can bring the little mini microwave.

There may not be room in the room for much else. So kind of get things, you know, worked out ahead of time. And try not to go overboard. Again, whatever you can shop for before you get there is a good idea because you don't necessarily want to be, you know, all descending on the same store at the same time...

WILLIS: It makes sense.

BODNAR: ... to pick up an extra pair of sheets.

WILLIS: Janet, good advice. Thank you so much for helping us out today.

BODNAR: Oh, my pleasure, Gerri.

WILLIS: As always, if you have an idea on how to save money, send us an e-mail to openhouse@cnn.com.

And, if you want to check out those project savings again, check out our Web site, cnn.com/openhouse.

Get ready for football fall premieres and CNN. That's right, CNN in HD, it's coming soon. How to get the best flat panel for your money. That's next.

But first, your "Local Lowdown".

(BEGIN VIDEOTAPE)

WILLIS (voice over): Washington D.C., land of the free, literally. At the National archives, you'll be able to research your family history and take a look at the Declaration of Independence for absolutely no cost.

Spend nothing watching money churn out at the Bureau of Engraving and Printing. If you want to watch the justices battle it out over today's hot-button issues, stop by the Supreme Court. All sessions are open to the public.

And the most popular attraction in D.C., White House tours. Don't expect to catch a glimpse of the president or first lady, but tell Barney I say hi.

That's your "Local Lowdown".

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: Rear projection is so old school.

Well, football season is right around the corner, and what better way to watch the game than on a big, shiny, flat panel TV? But there are so many options, how do you know what's really worth it?

For the best flat screen buys without breaking the bank, we're going to talk to Dan Ackerman of CNET.

Thank you for joining me today. I appreciate it.

DAN ACKERMAN, SENIOR EDITOR, CNET: Thank you, Gerri.

WILLIS: Now, you've got to do the 101, you know, the basic tutorial on these things.

Let's start with flat panels. What am I looking for?

ACKERMAN: If you're looking to buy a flat panel TV, you're going to ask yourself three questions. Number one, what size do I want? Number two, about how much do I want to spend? And the third question is going to be do I want a plasma or do I want an LCD?

WILLIS: That's where I'm going next. What's the difference and what's better?

ACKERMAN: LCDs are much more like the desktop monitors you have connected to your computer. It's the same kind of technology, while plasmas are much more like your traditional TVs. They have big glass plate fonts.

Plasmas, people like them because they have richer, deeper black levels, although not as good as your old traditional tube TV, still. LCDs, they're a little bit lighter. They run a little bit cooler because the technology has been around longer. Some people think they're a little more reliable, but the blacks can be kind of washed out if you look at them side by side.

WILLIS: All right. So, lots of choices here.

You brought some TVs for us. Thanks very much.

ACKERMAN: I did.

WILLIS: Let's start with this Vizio. You say this is good for what kind of folks? It's a good price, right?

ACKERMAN: Vizio makes some really great low-priced TVs. This is a 50-inch, and that runs about $1,299, which is about as cheap as a 50-inch set is going to get.

Now, because it's a budget 50-inch set, you're not going to get all the bells and whistles, and the picture quality is pretty good, but it's not as good as some of the more expensive sets. You do get two HDMI inputs, which is pretty important.

WILLIS: All right.

Well, let's move on to the ViewSonic here. Now you like this. Why and what's the price point?

ACKERMAN: The ViewSonic is an LCD. It's about $700. It's a little bit smaller. This is a 37.

If you want something smaller than 42 inches, you're going to get an LCD. They're small, they're light and they work pretty good. The blacks are not going to be as deep and rich as on a plasma.

WILLIS: How much?

ACKERMAN: About $700.

WILLIS: Ooh, good deal.

OK. Well, let's look at the big screen. This is the 50-inch. How much is this one, and who makes it?

ACKERMAN: This is a larger Westinghouse. It's also an LCD. You're seeing more and more large LCDs these days.

Again, black, is a little washed out. You do get four HDMI inputs, which is great for around $1,500, but it does look a little cheap, and that's my main complaint about this one.

WILLIS: Oh, OK.

But best overall, you love the Samsung back here.

ACKERMAN: If you're going to step up just a tiny bit and spend about $2,200 -- and that's what the cheapest 42-inch cost, like, two years ago -- you really get a lot more bang for your buck here -- this is a 50-inch. It's a plasma.

The blacks are great, the colors are great. You get a lot of extras with it. It's a little bit of a step up, but the picture quality is so much better.

WILLIS: Wow. OK. So this one is how much?

ACKERMAN: This is about $2,200.

WILLIS: Let's just go with the prices -- $2,200.

Westinghouse?

ACKERMAN: About $1,500.

WILLIS: ViewSonic?

ACKERMAN: Seven hundred bucks.

WILLIS: And Vizio?

ACKERMAN: $1,299.

WILLIS: All right. Now, which of these are going to be totally, like, the technology will run past it in a year or two? Any of them?

ACKERMAN: In a year or two, you're going to see more, bigger LCDs as they make them better, as they get the colors richer and the blacks deeper on the LCDs. That's eventually going to take over from plasma, but not just yet.

WILLIS: OK.

Well, thank you so much, Dan.

ACKERMAN: Thank you.

WILLIS: Great to see you.

You can hear much more about the impact of this week's news on "YOUR $$$$$" with Christine Romans and Ali Velshi, coming up in a few hours at 1:00 p.m., 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 got anywhere. Your top stories are next in the "CNN NEWSROOM".

Have a great weekend.

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