Return to Transcripts main page

Open House

Freezing Interest Rates; Home Heating Bills; Money Lies; Great Cheap Wine

Aired October 13, 2007 - 09:30   ET

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

BETTY NGUYEN, CNN ANCHOR: Check this out. Blood diamonds and the hip-hop industry. Look here Paul Wall for you this morning. A new documentary takes three rappers into the diamond mines of Sierra Leone. We're going to talk to Paul Wall about his emotional journey.
T.J. HOLMES, CNN ANCHOR: But from Paul Wall we go to Gerri Willis. We don't do that very often.

NGUYEN: Well, she doesn't rap, but she's got good info.

HOLMES: She got good info. Gerri Willis and OPEN HOUSE. That starts right now.

GERRI WILLIS, HOST: Hello, and welcome to OPEN HOUSE, the show that saves you money. I'm Gerri Willis. Lots of talk this week about the mortgage meltdown, one federal regulator proposes freezing, yes, freezing interest rates on subprime adjustable rate mortgages to protect consumers.

And treasury secretary Henry Paulson announced a new initiative that would bring major players in the mortgage industry together to help struggling borrowers restructure monthly payments and save their homes.

And there's lots of other proposals on Capitol Hill as well, but as we said right now, it's all talk and no action to help those losing their homes even as we speak. Here to talk about all sides of the issue in Washington Josh Nassar, vice president of Federal Affairs for the Center for Responsible Lending, and Joe Mason, he's an associate professor of finance at Drexel University, join us today from Philadelphia.

Welcome guys, great to see you.

JOSH NASSAR, CTR FOR RESPONSIBLE LENDING: Thank you very much. Great to be here.

WILLIS: Let's talk about this proposal from the FDIC that would freeze interest rates. That means I would get to keep my teaser rate. What a bonus for anybody out there. Josh, let's start with you. What do you make of this plan? I know you're a supporter. Is it all good things for all people?

NASSAR: I think it makes a great deal of sense when looking at the type of subprime loans that have been made over the past several years. The dominant subprime loans have been 228s and 327s which have a built-in payment shock of over 40 percent.

WILLIS: Ouch.

NASSAR: And so generally people have only been qualified on the initial teaser rate. In other words, they were never able to afford the adjusted rate in the first place. So we think it would save people their homes.

WILLIS: So that is a positive, right?

NASSAR: Oh, absolutely. And we think most importantly it will keep people in their homes and keep them in their mortgages, which we see as a win/win. Foreclosures, we got to avoid them.

WILLIS: Absolutely. Joe, I want to get you in on this because it's not just a consumer that we're talking about. There's a whole industry serving those consumers. How would they be impacted by this?

JOSEPH MASON, DREXEL UNIVERSITY: Well, let me just say the last time that the federal government intervened on a blanket basis to change the terms of contracts forcibly was the Great Depression.

WILLIS: What contract was that?

MASON: And this is no Great Depression.

WILLIS: What contract was that?

MASON: Those were contracts that required payment in gold rather than dollars. There were also foreclosure moratoria in the Great Depression. None of those worked well. They tremendously disrupted business to the point that business wasn't willing to lend money and get back on board with economic growth for another seven or eight years.

WILLIS: So, Joe, are you saying the last time the government got involved like this it led to the Great Depression?

MASON: It was part of the effects of the Great Depression and it's part of what drew the Great Depression out for so long. You can't just intervene in business contracts that are drawn up in the private sector without interrupting the fundamental flow of business.

WILLIS: Interesting. Well, let's let Josh in here because I mean, this is the debate. Do we have a blanket policy for everybody out there with a subprime mortgage or do we take it on case-by-case?

NASSAR: Case-by-case solutions have proven to be very infective. Only -- according to Moody's only one percent of loans outstanding in subprime market have been modified. The fact remains that foreclosures are having an absolutely devastating impact, and if we do not take action such as, you know, freezing the loans to the teaser rate, having loan modifications on a massive scale, we're going to see the foreclosure problem get much, much worse.

You know, Lehman Brothers predicts that 30 percent of subprime loans made last year are going to go completely under. We're talking about major impact here, and, you know, the fact remains that we need to make serious changes that will force loan modifications. We also think a change in the bankruptcy code would have tremendous positive effect in allowing people to stay in their homes.

WILLIS: Let's let Joe in here. Case-by-case, I think there's a good argument to be made for that because everybody's situation is different, right?

MASON: Not only is everybody's situation different, but there's been a tremendous variation in the use of what we call mortgage loans. We all know people on our blocks have used mortgage loans to buy cars, to pay for vacations. Why? Because they get that tremendous mortgage interest tax deduction, which has skewed the use of mortgages for a variety of purposes.

Now, I'm fine with helping a homeowner or a potential home buyer to try to better afford a home. I'm fine with providing a means of assistance for a borrower who is a first-time borrower who has a purchase loan, a first lien loan, not a refinancing that they cashed out their home equity and used their home as a piggy bank, but those type of customers who would otherwise have qualified for an FHA loan would be suitable for a refinancing into another FHA loan, which brings up another topic...

WILLIS: Well Joe, I got to drag you to one last question here, which I think is critical for anybody watching the show right now. Why is it taking so long? Why aren't we getting answers sooner? Josh, you first.

NASSAR: We are not getting answers sooner because you have -- mostly because you have industry players who are doing everything possible to stop meaningful reforms. The fact of the matter is that mortgage brokers wanting short-term profits through the yield spread premium, prepayment penalties that lenders have been charging instead of prime loans are having an enormous, devastating impact on homeowners, and policymakers need to create public policy, the Congress needs to take action to stop abuses in the lending area and allow people to have the means to save their homes through changes in the bankruptcy code.

WILLIS: Joe, can you quickly give me an answer as well on this?

MASON: The quick answer is you look at the blogs, you look at the public response, the public is really generally against a blanket bailout because they know that some of their neighbors have been using these mortgage loans inappropriately. There's $22 trillion worth of housing wealth in the U.S. only less than $12 trillion of that is mortgaged. In other words, a lot of people have worked hard to truly afford their loans and their homes and not played these games, and those people will be angry with a blanket...

WILLIS: We're going to have to leave it there. I think it's a great point to end on. I appreciate both of you being here. We'll have to have you back again. Thank you so much.

NASSAR: Thank you, Gerri.

MASON: Thank you.

WILLIS: Home heating bills are going up. Find out how you can save.

It's a tough year to figure out the stock market. What you should be doing with your 401-K.

And get into the spirit of wine without spending too much money.

But first your "Tip of the Day."

(BEGIN VIDEOTAPE)

WILLIS (voice-over): You can't start too early when it comes to college savings for your child or grandchild. According to the College Board, a degree from a private college today can cost over $30,000 a year. That same four-year education is likely to cost more than $260,000 12 years from now.

Make sure you check into a 529 plan. These tax advantaged savings plans offered in all 50 states are designed to encourage savings for future college costs -- 429s are offered in two forms, prepaid tuition plans and college savings plan.

But if you have only a few years until your child steps onto campus, a money market fund or savings account is beater bet. Check with a financial adviser to see which option is best for you. That's your "Tip of the Day."

(END VIDEOTAPE)

(COMMERCIAL BREAK)

WILLIS: Get ready to spend some money to stay warm this winter. Home heating bills will hit their highest level ever, an average of $977 for the season, that according to the federal government, but we have solutions. Here to talk about cheap and easy ways to save on your energy and utility bills is Alex Bandon with "This Old House" magazine.

Alex, welcome. It's great to see you.

ALEXANDRA BANDON, THIS OLD HOUSE MAGAZINE: Thanks for having me.

WILLIS: All right, we'll start with the furnace because this is the season to go check out your furnace. I have already hired someone to do the check for my oil furnace, yuck.

BANDON: Yeah, very good, because I'm telling you that first of all your oil furnaces -- you bills could go up over $1,800.

WILLIS: I know.

BANDON: It's even worse than it sounds, but the thing you should do this time of year always is to get your furnace maintained. And the best thing you can do every month is change the air filter and this is for forced air heating.

WILLIS: Forces air heating. Every month?

BANDON: Every month because if this gets clogged then you're making your furnace work really hard, and that's never good because you're wasting energy making it work.

WILLIS: All right. So, we have the furnace. Now, refrigerators, the biggest energy hog in the entire house.

BANDON: The energy suckers of your kitchen. They use up more than any other appliance. Well, there's a lot of little things that you can do. First of all, you can take the temperature of your refrigerator. Make sure it's operating at the right temperature.

WILLIS: Take a temperature?

BANDON: Get one of these little thermometers, put it in a bowl of water, and then make sure that it's between 37 and 40 degrees for the refrigerator. Don't go any higher because it's not safe, but don't go any lower because you're using too much energy and between zero and five degrees for the freezer. So, those are the good temperatures for that and you can just test it by doing that.

Now, if you've been playing around with your refrigerator and you can't get the temperature right, there might be -- the problem might be that the gasket is loose, and there's a way to test for that. You take a dollar bill, you slip it between the door...

WILLIS: We've actually got pictures of this. We want to show people. Alex actually came in and did this right here at CNN, and you put the bill in and then what happened?

BANDON: You put the bill in and close the door. Give it a second for the air to lock, and then see puck pull it out easily. If it slides right out, then your gasket is not working well, and you should replace it. You should have a little tug to it.

Another thing that could change the refrigerator temperature is if it's too close to the heat, if it's in the sun, if it's next to your range, maybe if it's next to the dishwasher.

WILLIS: What is that 70 bucks over the year you can save by just getting it in the right place?

BANDON: That's right.

WILLIS: Crazy.

BANDON: Because every degree it's over 70 degrees, then you're adding to the cost of keeping it running.

WILLIS: Let's talk a little bit -- because you have some great pictures and I desperately want to show them. You know drafts are such a big thing, and this year you're really going to have to fix that. You've got pictures...

BANDON: Yeah.

WILLIS: Of drafts. How did you get them?

BANDON: This is done with an infrared camera done by an emergency auditor. Comes to your house...

WILLIS: Wouldn't you say that, you know, this is obviously the base of a door that you're looking at and the dark part is the air coming in.

BANDON: Right, and they mimic a windy day by putting a machine over your door and make all the air suck out of your house and then they pull the air in from outside. And what you see is everywhere that air can get into your house, that means everywhere air can get in your house, air can escape in the winter or come in the summer and you're wasting energy trying to refill this.

WILLIS: We just saw a light, and now what are we seeing here?

BANDON: You're seeing where insulation hasn't filled the walls completely and that means cold spots and warm spots.

WILLIS: How much does an energy audit cost?

BANDON: And energy audit is like $400, but think about this, you can save so much money if you tighten up your house and reduce how much you're spending on heating. Again, if you're going to be spending $900 on heating this year, that's a lot of money.

WILLIS: $977, oh, my god, it's going to be a nightmare, but you can take simple steps, and you gave us a great guide for doing that today. Alex thank you so much.

BANDON: Thank you.

WILLIS: With home energy you can go green and save green at the same time. Cut down on hot water by installing low flow shower heads and sink aerators, hey they only cost a few bucks. Switching to cold water for your laundry can save the average household more than $400 a year.

Replace light bulbs can energy star compact fluorescent bulbs, that can save you 60 bucks a year. And if you're thinking about tossing out some items, consider using online groups that recycle and reuse your junk. Check out freesharing.org and freecicle.org you may even find some bargains out there for yourself.

Still ahead on OPEN HOUSE, women are better than man when it comes to managing money, we'll tell you why and how you can get a really good bottle of wine without spending big bucks. But first, your mortgage numbers.

(COMMERCIAL BREAK) WILLIS: Save, spend, save, spend, we're constantly trying to decide what to do with our money. Rick Edelman is the author of "The Lies about Money" -- I have it right here.

Rick welcome, great to see you.

RICK EDELMAN, "THE LIES ABOUT MONEY": You too, Gerri, thank you.

WILLIS: All right, I love this whole idea behind the book which is lies about money and you debunk them. And my favorite one in the whole book is that men are the best investors.

EDELMAN: Right. No, women are much better investors than men.

WILLIS: Tell the world why we're better.

EDELMAN: I'm sure you want me to elaborate on this in great detail. The reason women are better than man at investing I think is the same reason that when women get lost while driving, they're willing to ask for help. Men tend to not do that, they tend to take the attitude that I know what's going on, I know how to get myself out of this mess and they are going to take dynamic, decisive action which just gets them more lost.

WILLIS: They do, they turn those stocks, don't they?

EDELMAN: And that's what they do in investing. They're constantly buying and selling, buying and selling and every academic study done shows the more often you trade, the worse you do. Women are more willing, more patient, more tolerant to let things go for a longer period.

WILLIS: And smarter and better looking. OK, I'm done. I'm done.

EDELMAN: I will certainly say that.

WILLIS: OK, let's talk about what's been a lot of stock market volatility out there. I think a lot of investors at this point are running scared, a lot of people think, hey, you know what, I'm just going to get out of the market.

EDELMAN: A lot of folks are worried about the volatility, the subprime lending crisis, the stock market is going to do well or poorly, the terrorism environment, the presidential election is freaking people out. And you're right, they're running for the hills and it's the wrong thing to do. What you need to remember is that investing should be based on goals. What are you trying to accomplish? Are you investing for your kids' college in the next 10 years? Retirement in 20 or 30 years? If so, what's happening today is utterly irrelevant. Doesn't matter.

WILLIS: And the worst culprits here are the 20-year-olds who think that they've got to be really conservative, and they've got the longest time... EDELMAN: It's really ironic. I showed in the book, "The Lies about Money," really clearly, that 20 somethings are investing like little old ladies. They grew up in an era post 9/11, and they have seen what it's like to have the stock market do terrible for a number of years, to see a massive uncertainty, and they're acting like they're scared of the future instead of recognizing the future opportunities that our nation is offering, and they're investing all in bonds and fixed income and money markets instead of the stock market. They're costing themselves hundreds of thousands of dollars in lost profits.

WILLIS: All right, I think that's a great point. I've got to take you to task though for one of the things you say in the book, which I think is so interesting. Now, we didn't say it at the first that you're a financial adviser. You get paid for the information, the advice, that you dole out and you say in your book, hey, you really need a financial adviser because you probably don't have the time or interest to do it yourself.

Hey Rick, I can't afford you. I mean, lots of people out there don't have the wherewithal; they don't have enough savings to even get you to spend 20 minutes.

EDELMAN: And it's a real problem in our industry. You're absolutely right, Gerri. A lot of financial advisers require you to have a half million dollars in assets before they'll talk to you. Which is obscene, I mean, it's incredibly rude.

WILLIS: Rick, thank you so much for sharing your information with us, we appreciate it.

EDELMAN: My pleasure.

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 the "Project Saving" again, check out our Web site cnn.com/openhouse.

Save lots of money when buying wine and it's good wine, too, but first, your "Local Lowdown."

(BEGIN VIDEO CLIP)

WILLIS (voice-over): Nashville, Tennessee, music city, USA. You might wear out your dancing shoes, but you won't wear out your wallet. Free concerts by the city's emerging jazz and country stars everywhere from bars to Nashville's public parks.

Be sure to stop by the Frisk Center for the Visual Arts. Formerly the Nashville Post Office, this modern art space is always free to members and offers free tours and events to the public.

And for a taste of Tennessee history, head to the Jack Daniels distillery. You can explore the nation's oldest distillery at absolutely no cost. Sorry though, no free samples.

That's your "Local Lowdown." (END VIDEO CLIP)

(COMMERCIAL BREAK)

WILLIS: Bottle of red, bottle of white, everybody's their favorite wine. Ray Isle is the senior wine editor with "Food and Wine" magazine and he's going to show us how to get a great bottle of wine for under $20.

Now, everybody tells me if I want a really great bottle of wine I have to pay a lot of money. Is it true?

RAY ISLE, "FOOD AND WINE" MAGAZINE: No, it's actually not true. You can get terrific bottles of wine for under $20. And I do a large part of my job is finding extraordinary bottles that are not that expensive and writing about them...

WILLIS: Love that idea. So, if it's not the price, is it the label? Can you tell by the label if it's good?

ISLE: You can't actually tell by the label itself. I mean, labels, it's are marketing, you know, they can make a beautiful label on a cheap bottle blanc and they can make an ugly label on a very expensive bottle of wine. But there are tricks you can do. Finding out for instance, just to take an example, these two bottles. The burgundy white, burgundy chardonnay, it's made from chardonnay. This is (INAUDIBLE), arguably one of the greatest producers there, $115 a bottle, (INAUDIBLE) this one...

WILLIS: How much is this?

ISLE: Sixteen bucks a bottle.

WILLIS: Like the price, like the price, Ray.

ISLE: The label is (INAUDIBLE) blanc, but in fact, the vineyards for this are on the Plene (ph) Hill, they're just not in that sort of premiere...

WILLIS: So these two wines come from the same area. The grapes are probably very, very similar. The wines are similar.

ISLE: The wines, you get similar flavors. Now this is not as insanely concentrated. It's not going to age for 20 years, but if you want a hint of what this wine is like, you buy this wine.

WILLIS: All right, another question. You know, screw tops, we've one right here. It just screams cheap wine. Does it mean that?

ISLE: Screw tops do no longer mean cheap wine. It used to be if you bought a screw top bottle a party everybody looked at you like thanks (INAUDIBLE), guy. But now you're finding more and more expensive bottles of wine with screw tops. Anywhere up to $70, $80 a bottle.

WILLIS: All right, let's move on. Let's talk about these two wines and how do I get value here.

ISLE: These are Rieslings from (INAUDIBLE) in France. Not sweet, dry. Dry, crisp, lemony, mineraly, wonderful, great seafood wine. This one -- and the point I'm making with these wines is that most great producers make a range of wines. They will make a top wine like this one which is a single vineyard, special (INAUDIBLE) small production, 50 bucks a bottle, but they'll make an intro level wine that's about, in this case, 16 bucks a bottle. Beautiful flavors. And carries some of the characteristics of their very, very high level wines, but gives you an intro level.

WILLIS: So, gets you started for less money. Let's talk about these. What are we looking at here?

ISLE: OK, Australian Shiraz.

WILLIS: Everybody drinks it and it's cheap, it's good.

ISLE: It's cheat, it's good. This is the sort of logic here is look to the region. This is Grant (INAUDIBLE), 14 bucks a bottle, same region Barossa Valley in Australia one of the great Shiraz regions. But this one is much like, a lot of blackberry character, doesn't have that kind of like volume pushed up all the way, but beautiful wine. I mean, and a steal.

WILLIS: How much was this one?

ISLE: Fourteen.

WILLIS: That's perfect. You know, I could keep you here you all, but we're going to have to go. Thank you Ray for joining us and giving us such great advice.

ISLE: It's been a pleasure. Thanks for having me.

WILLIS: Time now for the list. Remember, that a fancy label, hey, it doesn't guarantee a great wine, and also don't knock those screw tops. They're the same in quality and price as their corked counterparts.

And ask for a spillover bottle. It's how an expensive vineyard uses leftover grapes. You'll get great wine from a pricey vineyard at half the price.

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, coming up in a few hours at 1:00 p.m. Eastern, 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. Your top stories are next in the 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.voxant.com