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Open House

Credit Card Crackdown; Buying Foreclosures; Home Renovations; Auto Loans

Aired February 23, 2008 - 09:30   ET

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

NGUYEN: That is some good information because we have got some major states playing come March 4.
LEVS: Huge day.

NGUYEN: Thanks Josh.

LEVS: Thanks.

HOLMES: And we'll be talking more about that stuff with our Bill Schneider, of course, he's part of the best political team on television. He's in Austin, Texas this morning to explain just how complicated elections are in the Lone Star State. He joins us live, that's next hour in the NEWSROOM.

NGUYEN: Coming up next hour, Patti Labelle. She has a new film and she is bringing down low out in the open.

HOLMES: So, we will see you at the top of the hour, but OPEN HOUSE with Geri Willis starts right now.

GERRI WILLIS, CNN NEWS ANCHOR: Hello I'm Gerri Willis and this is OPEN HOUSE, the show that saves you money. Coming up, as foreclosures flood the market, find out if you can get a bargain by buying one. Then renovations that pay off big-time, we'll show you how to maximize the values of your home. But first, Congresswoman Carol Maloney has introduced a bill to crackdown on the credit card companies and what she's calling unfair practices. Business delinquencies are on the rise and some are saying is credit card companies, not consumer spending habits are to blame.

Ed Mierzwinski is the consumer program direct for U.S. PIRG and he's joining us from Washington, yet again.

Good to see you, Ed.

ED MIERZWINSKI, CONSUMER ADVOCATE, U.S. PIRG: Hi Gerri.

WILLIS: What to you think of Congresswoman Maloney's bill is it the right bill at the right time?

MIERZWINSKI: Absolutely, all the consumer groups are supporting the credit card holder's bill of rights. It's a bill that we can pass this year, it's not everything that I would want, but everything in is it is important. It's a very difficult thing.

WILLIS: I hear compromise, Ed. Ed, it sounds like a compromise. Is that right?

MIERZWINSKI: No, it's a step forward, not a compromise. When I make my bill, when I'm in Congress, it will be a different bill than this, but this is one that we have to get through a committee that has a lot of people on it that won't vote with consumers. And so that's the issue that we're trying to address, here.

WILLIS: All right, now I know you are interested in the issue of universal default. Does this bill address that?

MIERZWINSKI: This bill addresses universal default in the following way: Universal default is when you have a perfect record with your credit card company, but they claim that your credit score declined or that you paid someone else late, they raise your rate from eight percent or 12 percent to 27 percent or 36 percent. This bill says that you can't do that on the balance that the consumer already owes. So, you can do it for future purchases, but the real gotcha fee that the banks have on consumers is the ability to reach back for products that they've already purchased and change the interest rate. If you owe the bank $1,000 at eight percent and they raise your interest rate to 36 percent, well then that eight percent that you might have bought a television with, is all of a sudden the television costs four times as much. It's not right.

WILLIS: That's right. You know, let's talk about delinquencies, credit card delinquencies, overall. Like forecloses, they're rising and rising dramatically. And I know that folks are really worried about the 30 percent rates, as you just described that some folks are finding on their credit card bills. Is this the fault of credit card companies or consumers?

MIERZWINSKI: Well the credit card companies have used credit cards as their cash cow. I should say the banks have credit card divisions that they use as their cash cows, it's their most profitable division and so they have stretched out, they have given credit to people that have never had credit, people that don't qualify for credit, college students who sirply are in college and that's the only criterion the companies use to issue cards to them and they hope then, that if the student is delinquent that the parent will simply pay. And now it's coming back to hit the credit card companies in the head that they extended too much credit. But what they're doing to consumers is, we think, patently unfair. They are trying to squeeze consumers by a lot of practices that are unfair, maybe increasing delinquencies unfairly.

WILLIS: Well, let's talk about this credit crunch? You brought it up. How long is it going to last?

MIERZWINSKI: Well, probably the credit crunch that was brought on by banks making a real stupid set of bets on mortgages and then some hedge funds, complicated things that even the banks didn't understand is a major problem for the economy, might last another year despite the staunching of the wounds that the fed is trying to do by cutting interest rates. I don't see credit card companies cutting consumer interest rates, in fact some are raising consumer interest rates. WILLIS: Yeah, we're definitely seeing that and of course people are going to want to protect themselves in this, obviously, you want to watch how many debt you have on that credit cards. Ed, thank you so much for helping us out today, we appreciate it.

MIERZWINSKI: Thank you.

WILLIS: From credit and debt to the mortgage meltdown to health and retirement, your money is a top priority for us, here at CNN and now is the time to take charge of your money. We're on "FINANCIAL SECURITY WATCH" for you live every day this coming Monday through Friday from 12:00 p.m. to 1:00 p.m. Eastern and here is the good part. You'll be able to call in every day and get your questions answered. We hope you'll join us.

Coming up on OPEN HOUSE: Buying a foreclosure, big bargain or blunder? We'll break it down.

Then getting the best return on renovations. We'll tell you what upgrades return top dollar.

And we've talked a lot about the right mortgage, but what about getting the right loan on your car? What you need to know to wheel and deal.

(COMMERCIAL BREAK)

WILLIS: The mortgage meltdown has taken a toll on homeowners. But as foreclosures flood the market and folks lose their home, some are hoping to get a bargain by buying one.

(BEGIN VIDEOTAPE)

(voice over): Antonio Quental is a first-time home buyer, but his perspective new home isn't your average property, it's an REO, a real estate owned home. In short, he's buying a foreclosure.

ANTONIO QUENTAL, BUYING A FORECLOSURE: I hear on the news that there's a lot of foreclosures and I thought that I could probably get a better price.

WILLIS: As foreclosures flood the market, they're also working their way back onto the market and into the multiple listing services of real estate brokers.

CURTISS CLEMENS, SR., CENTRY21: The minute you see "being sold as is," you know it's an REO.

The actual foreclosure was once the REO or the bank or whoever they signed it to, takes title, then it go into the multiple listing service.

WILLIS: And that's where Antonio found this home on the Internet.

QUENTAL: The house is a colonial, has a one-car garage, it has -- it's about 1,400 to 1,500 square feet, has a finished -- a partially basement, 2-1/2 bathrooms, three bedrooms.

WILLIS: The price tag, 240,000. So, did he get a bargain?

QUENTAL: I do think that I purchased a house for maybe $15,000 to $20,000 less than I would have purchased it if it was not a foreclosure.

WILLIS: While foreclosures may come at a discount, they often come in need of TLC.

JULIE LENOS, ANTONIO'S REALTOR: I also had them include, for pretty much an entire ceiling replacement.

QUENTAL: The house has been vacant since, I believe it was 2006, so there was a log on the front door that said it was 2006. Because no one was living there, they had to winterize the house so pipes wouldn't burst and now they've had to dewinterize the house for the inspection.

CLEMENS: There are REO companies that are very efficient in doing these, and you get quick responses and it's a pretty much seamless transaction. However, there's REO companies out there that really don't know what they're doing and that becomes a nightmare.

WILLIS: In Antonio's case.

QUENTAL: Process, until now -- up until now has been very easy.

WILLIS: The only glitch, a faulty heating system for which the bank picked up the repair bill.

LENOS: For the most part the properties are being sold in as-is condition, which means, you know, it is what it is.

WILLIS: And that's one of the biggest risks in buying a foreclosure, hidden costs and small fixes can add up. For Antonio, the risk is worth the reward.

QUENTAL: I'm very happy. The feeling of, like, I'm going to have something that big as my own.

(END VIDEOTAPE)

WILLIS: OK, Antonio got a deal, but there are some pitfalls you should be aware of if you're thinking about buying a foreclosure. Here to help us is Danielle Babb, she is the author of "Finding Foreclosures," and she joins us from Irvine, California.

Danny, welcome, good to see you.

DANIELLE BABB, AUTHOR, FINDING FORECLOSURES: Good to see you, as well.

WILLIS: All right, let's start with, you know, Antonio, he bought an REO, but you can also buy at action. Which is better? BABB: I would say either the preforeclosure stage or the REO stage. At an auction you have -- you run the risk of needing to bring in either hard money, in other words cash to buy the home, or a very large down payment and prequalification, which is really tough with banking standards these days.

WILLIS: Yeah, bringing that cash to the auction can be a little intimidating, a very big check in your pocket, exactly. Let's talk about where to look for these a little bit, about how to know that that investment is going to pay off. What are the signs? What are you looking for? What's the research you got to do?

BABB: Well, there's several things that I'm looking for when I'm trying to find foreclosures or helping others. First of all, I look at is the home in a low crime area? This is very important for resale later on and to make sure it will maintain its values. Are jobs in the area, are they about the same as the national unemployment rate or is it Detroit, for example, and it's significantly higher? There's a much greater risk there. What's the trend in the area? Has it been keeping up -- if the national decrease (INAUDIBLE) home buy has been 10 percent, and you're looking at 20 percent, that's a flag that it could be a little bit more risky? Also, you want to see pay is keeping up with inflation in the area? Are big companies moving in or out? Are baby boomers moving in or out, because they're going to play a significant role in what's trending in the next ten to 15 years?

And then one thing to look for that not a lot of people are aware of, is whether or not there's a tenant living there, because once someone moved, if it's going to be 30 to 60, 90 days before the bank actually takes ownership of the home, some people are moving tenants in to try and earn income during that period of time.

WILLIS: Wow, yeah now, that's a complication you don't want to have to deal with. OK, let's drill down. Where do you want to buy? What areas satisfy the kinds of prerogatives that you were just talking about, great locations, low rime, et cetera, where would you go?

BABB: I would go to Orange County, California, particularly Mission Viejo, I would go to Las Vegas, I know it's been battered by foreclosures and by low prices, but the jobs there, the number of jobs being created are very high. I would look in Florida, but I'd be very careful. I'd stay out of Miami, but I would look in Tampa and I would look in Palm Beach and I would definitely look at central Texas, everything Dallas and north of, Austin and Round Rock, for example.

WILLIS: All right, you know, everybody is asking me about foreclosures and how to buy them. Where can I send them on the Web? What are good Web sites to go to if you're deciding this morning, hey, I'm going to look for a foreclose your property?

BABB: Yeah, realtytrac.com is my favorite, it's a partner with my author -- my co-author and I have partnered with them. You can get a good deal three months free from which Web site at drdaniellebabb.com. You can go to realtytrac.com directly: r-e-a-l- t-y-t-r-a-c.com. They have excellent deals. You can also go to the counties recorder office for each of the counties that you're looking at buying property in.

WILLIS: Well, you know, and that brings up a whole different question which is this, aren't the laws about this different in every state? And what do you need to know about any, like, legal hang-ups you could get into with this? Because it sounds like it could be difficult and tricky.

BABB: Yeah, there are some legal hang-ups, first of all every state is either a judicial state or a nonjudicial state. That means that the foreclosure procedure goes through the courts, judicial or it does not go through the court. Now, if it goes through the court, it's just that there's a lot more checks and balances that occur. For example, there's a lot more checking to make sure there aren't smaller leans against the property that aren't showing up on a title search, like a mechanics lean. Someone goes in and repairs the home, the owner never pays the bill and they record a lean against the property, those are things that can come back later and they fail to become the responsibility of the owner. So, in some ways it helps to have a court proceeding. The downside, of course, is that it can take a lot longer to actually move into the home when you go through the court.

WILLIS: Right. OK, you know, I know you think it's important to have a home inspection. Can you always get access to the house and get in for that inspection?

BABB: No, you can't and that's one of the reasons I'm not a big fan of auctions, you often don't have any opportunity to view anything other than the outside. Now, if it's bank owned or if it's a preforeclosure -- in the preforeclosure state, you can save the owner from foreclosure and even get the best deals, but then you have an opportunity to do a full inspection and you can go back to the bank a second time and say hey, there's $20,000 worth of repairs, we may have agreed at 150, but now I really want this home for 130 because, you know, I'm going to put 20 grand into it.

WILLIS: Definitely, it's all about the price you pay. Danny, thanks so much. Great information, really appreciate it.

BABB: Good, thanks.

WILLIS: Still ahead on OPEN HOUSE, home renovations that pay. We'll tell what upgrades are worth your time and money. Then, finding the right car can be a challenge, but finding the right loan to finance it doesn't have to be. We'll tell you what to look out for, but first your mortgage numbers.

(COMMERCIAL BREAK)

WILLIS: If you're trying to sell your home, you may think a renovation will help your chances, but before you go knocking down those walls, ripping out the fixtures, our next guest is here to tell us which renovations will pay off and which ones will leave you in the red. Amy Matthews is a licensed contractor and host DIY's "Sweat Equity" and joining us here.

Good to see you, Amy. AMY MATTHEWS, LICENSED CONTRACTOR: Thanks for having me.

WILLIS: All right, well let's start with the kitchen.

MATTHEWS: Yes.

WILLIS: You know, you're trying to build value in your home, that's what this is all about and values have been going down. You've got some examples here for us, a kitchen you actually renovated. Let's see the before picture because I think there's going to be a big contrast, here.

MATTHEWS: A huge difference. Well, this, in particular, this house was a house that was built in the suburbs, it didn't have a ton of personality and it really needed to bring in a lot of its own character.

WILLIS: This is like a grandma kitchen, here.

MATTHEWS: It's a little bit like a grandma kitchen, a little outdated, a little bit blah. And of course, people that are looking to buy are looking for the newest and the greatest and they want things to be spruced us up.

WILLIS: OK, let's talk about what you did. The after is really impressive, here. Now, you've really gone all out. It's the cabinets, it's the counter tops. It looks like you changed the floor, maybe too, I'm not sure about the lighting. How much did you spend?

MATTHEWS: Well, most of these kitchen remember novations, if you're doing a minor remodel and you're not gutting the kitchen, you can spent about $21,000, that's hiring someone to come in.

WILLIS: That's may be what I want in these times, not spending too much money.

MATTHEWS: Exactly, not gutting the entire place and just doing a facelift, like some of these options. Then you've got the option where you can go into a gut job, do a major remodel, even at a mid- range price and that's about $55,000.

WILLIS: That's a lot of money.

MATTHEWS: It's a lot of money, but the place that people are really saving money and making money is when they take some of the labor and they start doing it themselves, that's why the DIYers are not just getting the 83 percent return on a kitchen, they're getting100 percent plus because they're taking out the labor cost and they're still getting back the value.

WILLIS: Everybody loves the bathroom, it's a great a place, and you can end up spending a lot of money, particularly if you have this kind of problem. Look at the tile and the old-fashioned, the shower stall.

MATTHEWS: Oh, it's totally outdated. They did want to gut this space and put in a new, warm feeling. They redid the floors, so they tiled the shower, they retiled the shower, they put in a nice new glass shower enclosure and then they got creative on this particular bathroom. Things you can do in a minor bathroom remodel.

WILLIS: Look at that.

MATTHEWS: Yep. Putting in new fixtures, new sink and faucet, new cabinet.

WILLIS: Let me stop you there, because those sinks, I'm thinking if you have small children, maybe not the vessel sinks.

MATTHEWS: You know what? I would agree. As a remodeler, with vessel sinks, I love it for the style. This happened to be a master bedroom, so the kids will never use this. But in a kids bathroom, I would put in a regular undermount or a top mount sink.

WILLIS: How much did you spend on this one?

MATTHEWS: That one? That should have been probably about a $20,000 to $25,000 master bathroom remodel. Because they went to vintage stores, see the chandelier that they got for about $50?

WILLIS: I like the bathtub.

MATTHEWS: The bathtub is absolutely gorgeous.

With the clawed feet.

MATTHEWS: And they put in new doors on there that they got for about $100 at a thrift store that would have cost $500 somewhere else. They probably spent about 13,000 on that bathroom.

WILLIS: That's great. Now see, that makes a lot of sense when you're getting ready to sell that house, you know, it looks like $25,000, $30,000, but it's not.

MATTHEWS: It's not and these were done in a suburban house that didn't have a ton of personality. Every other house look pretty much exactly like theirs, so by adding that interest and that warmth, all the maybes want her to come and redo their houses for one, but if they put their house on the market, it'll sell immediately.

WILLIS: Amy, thank you so much for being with us today, we really appreciate it.

MATTHEWS: Thanks for having me.

WILLIS: As always, if you have an idea on how to save money, send us an email to openhouse@cnn.com. And if you want to check out this "Project Savings" again, check out our Web site, cnn.com/openhouse.

Coming up in the market for a brand new car? We'll show you how to get the best auto loan to go along with it, but first, you're "Local Lowdown." (BEGIN VIDEOTAPE)

(voice over): Denver, Colorado, nicknamed the Mile-High City, Denver is exactly one mile above sea level. But, you don't have to pay mile-high prices to have a good time in this town.

Check out one of Colorado's best known companies, Coors. Take a tour of the brewery and enjoy up to three free samples. Find out how money is made at Denver's U.S. mint, one of six mints in the country. Tours are offered every hour at no cost, but it's best to call ahead for a reservation.

And be sure to stop by the Colorado state capitol building for a free tour. The unique gold dome is plated with ultrathin rows of Colorado gold. It required only 57 ounces to cover the entire dome. That's your "Local Lowdown."

(COMMERCIAL BREAK)

WILLIS: Much of the mortgage meltdown stems from adjustable rate mortgages that reset to higher payments that borrowers simply couldn't afford. There are no adjustable rate car loans, but loan terms, well, they're getting longer and longer. So, how can you make these loans work for you and your budget? Philip Reed from Edmonds.com.

(BEGIN VIDEOTAPE)

You know what's interesting about this topic? Is that people spent all kinds of time thinking about what they're paying for the car, but they don't think about how they're paying, the loan.

PHILIP REED, SR CONSUMER ADVICE EDITOR, EDMONDS.COM: Yeah, and that's absolutely right. You know, people actually go on a car lot, they get very excited about the car they really only start thinking about the car loan when they get into signing the contract and that puts them at an enormous disadvantage.

WILLIS: Now, we're hearing about seven-year car loans. I got to say, stretching out that debt over that period of time sounds like a bad idea. What do you think?

REED: I think it's a terrible idea, I think a five-year car loan for purchasing a car is not as acceptable, given how expensive cars are these days, and if you're going to be leasing, we recommend a three-year lease, but the longer you stretch it out, you run the risk of becoming way upside down at the beginning of the loan and also, by the end of the car loan, you're just going to hate that car.

WILLIS: No kidding. You know, you lose about 20 percent of the value of a car as soon as you drive it off the lot, so you know, financing that much over that period of time, what are the automakers hoping to get out of this?

REED: Well, obviously, they want to keep the factories churning out new cars, they want to get those cars into the hands of the consumer, so they're always scrambling for new ways to finance cars so that they can fit into the household budget. The price of cars has been rising steadily in relationship to the annual earning power of most families, so it becomes more difficult to do this.

WILLIS: Well, are we keeping those cars longer? I mean, it might make sense if you kept your car, seven, eight, 10 years.

REED: Well no, actually statistics show that we're keeping it shorter periods of time, that we're going into a sort of a shorter care ownership cycle. So, no, it defiantly reflects more of the cost of the car than our user habits.

WILLIS: Over paying, how do I keep from doing that?

REED: Well, it's a good idea to consider financing before you even really begin. Consider whether you want to lease or buy and then make a very smart decision about the car. You need to pull-up a car, for example for edmonds.com, that you're interested in, but then make sure that look at competing vehicles. There's a lot of new cares out there and sometimes people are just unaware of what they have to choose from.

WILLIS: OK, what about the critical things you need to rember before you sign?

REED: Well, you should know the terms of loan, you should know the length of the loan, you should have -- before you go near a car dealership, you should know the percentage that you deserve. In other words, you need to know what your credit score is and what kind of a loan you qualify for. It's not a bad idea to talk about getting preapproved financing before you go to a dealership. And then when you're at the dealership, if they can beat those terms, let them do it. But at least in this way, you're covered.

WILLIS: All right, Philip Reed from edmonds.com, great Web site and great advice. Thank you so much.

REED: Thank you , Gerri.

(END VIDEOTAPE)

WILLIS: We hope you join us every weekend on OPEN HOUSE, but next week is a special one here at CNN. FINANCIAL SECURITY WATCH. Your home, you investments, you job, you debt. We'll have answers for you as you work to manage your money and we are going to take your phone calls. That's FINANCIAL SECURITY WATCH, this Monday through Friday 12:00 p.m. Eastern Time, right here on CNN.

You can hear much more about the impact of this week's news on your money on YOUR MONEY with Christine Romans and Ali Velshi, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN.

As always, we thank you for spending part of your Saturday with us. Don't go anywhere, your top stories are next in the CNN NEWSROOM. Have a great weekend.

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