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Open House

Foreclosures Hit Record High in April; Living in Your Car; How to Protect Your Home and Family During Hurricane Season; College Debt Control for Graduates and Their Parents; How to Retire on Time in this Economy

Aired May 17, 2008 - 09:30   ET

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

GERRI WILLIS, CNN HOST: Hello, I'm Gerri Willis and this is OPEN HOUSE, the show that saves you money.
Coming up, hurricane season is just around the corner. We'll tell you how to prepare and protect your family and your home.

Plus, from college graduations to retirement plans, we've got plans for your money.

But first, foreclosures hit a record high in April. More than 243,000 households got hit with foreclosure filings last month, that's one in every 519 homes, nationwide. It is the highest number since RealtyTrac started keeping score back in January 2005. Nearly 55,000 homes were actually repossessed in April. The hardest hit areas continuing to be cities in California, Florida, as well as Nevada.

Now, think of Santa Barbara, California. I bet the image of people scrambling to find a place to sleep isn't what comes to mind, but that's what's happening to a growing number of women there who went from the comforts of home to life in a parking lot.

Thelma Gutierrez has the story.

(BEGIN VIDEOTAPE)

THELMA GUTIERREZ, CNN CORRESPONDENT (voice-over): Santa Barbara, a picturesque city on the coast where the median price of a home is more than $1 million.

BARBARA HARVEY, LIVES IN HER CAR: This is Barbara from the Davis Center.

GUTIERREZ: It's where Barbara Harvey made a good living processing mortgage loans. So, it may surprise you to learn that when Barbara leaves work, she heads for this parking lot behind the historic Santa Barbara mission. This is where Barbara sleeps at night in the back of her car with two golden retrievers.

HARVEY: Get my suitcase out. That goes underneath the car.

GUTIERREZ: It isn't how this 67-year-old planned on spending her golden years.

(on-camera): How did you find yourself in this predicament? HARVEY: I worked as a notary public signing loan documents. It went to hell in a hand basket.

GUTIERREZ (voice-over): She lost her full time job and now works part time at $8 an hour. And even though she also gets Social Security, she still cannot afford an apartment.

HARVEY: This is my bed, my dogs, this is my life in this car right now.

GUTIERREZ: Nancy Capps who was once homeless herself is an outreach worker with a nonprofit New Beginnings. She says she's noticed more women living on the street.

NANCY CAPPS, NEW BEGINNINGS: The way the economy is going, it's just amazing, the people that are becoming homeless. It's hit the middle class.

GUTIERREZ: It's a tough existence. People who live in their cars, like Barbara, have to constantly move them in search of parking. In California, it's illegal to sleep in your vehicle. The city of Santa Barbara, together with New Beginnings came up with the safe parking program. They opened up 11 lots where people are allowed to sleep in their cars from 7:00 p.m. to 7:00 a.m. This gated lot where Barbara sleeps is for women only.

(on-camera): Describe for me a typical night.

HARVEY: Well, I arrive here before dark, because that's when I can rearrange the car.

GUTIERREZ (voice-over): It's an exhausting juggle, turning her car into a sleeping space every night.

HARVEY: This is actually some Bavarian China and is part of a china set that I have.

GUTIERREZ: Pieces of her former life before she lost her condo two months ago.

(on-camera): It's 10:00 and already there are a half dozen women who settle into this parking lot for the night. There is no running water here, there's no bathroom facilities, but the women say at least they feel safe.

You sleep sitting up?

HARVEY: Yeah, I sleep sitting up.

(voice over): Lynn Lague lives in her car with four cats. She's 54 and use to be in the Army National Guard. Now she is on a waiting list for government housing, but the list is a year long.

(on camera): What is the most difficult part of living like this?

LYNN LAGUE, LIVES IN HER CAR: It's hygiene, staying clean.

GUTIERREZ (voice-over): When Barbara lost her condo, her 19- year- old went to live with friends.

HARVEY: My daughter, especially, is very unhappy. Sometimes she'll cry. She'll call and say mom, I just can't stand it that you are living in the car and she'll be very upset. I say you know what? This is OK for right now because I'm safe, I'm healthy, the dogs are doing OK and I have a job and things will get better.

GUTIERREZ: Another chapter in her life that she is certain she'll get through.

HARVEY: Goodnight.

(END VIDEOTAPE)

WILLIS: Thelma, what a sad story. It's just so hard to put together with Santa Barbara, which I think of as a really high-end tourist destination. Where are these parking lots located? Are they right in front of the public?

GUTIERREZ: Gerri, they actually are. We're talking about a parking lot right near the beach, another parking lot, where Barbara lives, up at the mission, which is a major tourist attraction. But this is a very carefully monitored program, and so the participants are not allowed to camp outside of their car. They're not allowed to cook outside of the car.

Basically, they can just sleep there from 7:00 p.m., but by 7:00 a.m., they have to leave, and that presents a quandary, because they basically have to roam around and look for another place to park. And in Barbara's job, she is lucky because she is employed, she does have a job.

WILLIS: Well, you say she's employed and she gets social security, and what confounds me is she still can't afford a place to live? It's just tragic.

GUTIERREZ: Yeah, it absolutely is. I mean, you're talking about a woman who's 67-years-old. She does get $760 in social security, but she works part time, she makes $8 an hour. And so her combined income at the end of the month is about $1,400.

But Gerri, the average cost of a condo or a studio in Santa Barbara is about $1,600 a month. So, when you have to consider paying for food, gas, insurance for your car, that kind of thing, you really can't make it. And it's very difficult, because she can't leave because her daughter lives there, and she considers Santa Barbara home.

WILLIS: A tough situation. Thelma, thank you for bringing us that story.

From the mortgage meltdown to another type of threat to your home. Hurricane season begins June 1. Here to talk disaster insurance is Sharon Emek, she's with the Independent Insurance Agents and Brokers of America.

Sharon, good to see you.

SHARON EMEK, IND INSURANCE AGENTS & BROKERS OF AMER: Oh, good to see you, too.

WILLIS: All right, so the devil's in the details with a homeowners insurance policy, you're never sure what's going to be covered when it comes to wind, fire and flood. What is covered by a basic, no-frills policy?

EMEK: Well, a basic homeowners policy -- in fact, any homeowners policy does not cover flood. It is totally excluded. Everyone's under that misconception that their homeowners or renter's policy includes flood, it does not.

WILLIS: You have to buy that separately.

EMEK: Yes, through the National Flood Insurance program and it's not available in the free marketplace if you're in a flood zone.

WILLIS: So, let's talk about wind, because you know, we're talking about hurricane, we're talking about tornadoes. Is wind a covered peril?

EMEK: Yes. Wind is absolutely covered on all homeowners and renters policies, but it does have a different deductible if you're in a wind zone. It's not your regular policy deductible, it could be from one percent to five percent of the value of your home.

WILLIS: Wow. You may be on the hook for quite a bit, here.

EMEK: That's right.

WILLIS: All right, so we're getting a sense that a lot of things are not covered that you have to buy separate coverage for some events. Let's talk a little bit about when it comes to these wildfires in Florida. You know, this is so sad, these fires were started by somebody, and now these folks are on the hook for a lot of money. Will fire be covered by basic homeowners policy?

EMEK: Yes. Fire is totally covered. The issue, though, why people might not have enough money is many times people don't look at their homeowners policies for years, and now they're undervalued.

WILLIS: Right.

EMEK: And so today the cost to rebuild is so much more expensive than it might have been five years ago, or they did an addition, they did upgrades, and they never told their independent agent that they made changes, so now they're underinsured.

WILLIS: Well, OK, so let's say I have a disaster. What do I do, steps one, two, three? Because I think people, you know, they get upset, they're nervous, they're angry. What do you do? EMEK: Well, first thing is you call your trusted choice agent, whoever your agent is, and tell them you've just had a disaster. That's No. 1. And then you make sure you get in touch with your insurance company. Hopefully, the agent will as well.

But you need to do things up front prior to the disaster in order to make this an easier process. You should be either taking digital pictures of everything you own, you have to keep an inventory ...

WILLIS: You need a record.

EMEK: Yes.

WILLIS: And a detailed record, right?

EMEK: Yes, and you keep it off premise. Many people make a record and they leave it in the home and that burns to the ground, as well.

WILLIS: That's too bad. That's too bad.

EMEK: So, you need the inventory in order to make the process simpler and the transition easier.

WILLIS: So, make sure you have the coverage you need, that covers everything -- for example, jewelry, obviously, not always covered if you have an expensive jewelry collection.

EMEK: No, you need special floaters for your art, your jewelry, your furs. Homeowners policies cover your standard personal property, but not something that might be special.

WILLIS: Sharon, great information. Thanks for joining us today.

EMEK: Oh, you're quite welcome.

WILLIS: Still ahead on OPEN HOUSE, can you hear that? It's the sound of college seniors across the country graduating. Financial plans for them and their parents.

Plus, being forced to put off retirement in the wake of today's economy and how, that's right, you could be one to retire on time. OPEN HOUSE will be right back.

(COMMERCIAL BREAK)

WILLIS: College graduation is exciting, but it also means you're one step closer to paying back those thousands of dollars in student loans. So, how do you start chipping away at the balance and still get ahead financially as a new college grad?

Janet Bodnar is with "Kiplinger's Personal Finance."

(BEGIN VIDEOTAPE)

WILLIS: All right, you know, the good news here is that if you're graduating today, you don't have to start paying tomorrow, right?

JANET BODNAR, KIPLINGER'S PERSONAL FINANCE: Right, exactly. You've got a six-month grace period before those student loans start to kick in.

WILLIS: So there's a little time, a little breathing room, there.

BODNAR: Yes.

WILLIS: But you know, come on, how much should mom and dad get involved? I'm listening to that mother talk about how her daughter's going to kick the doors in and how good she's going to do, and I'm thinking, you're going to help her with the loans, aren't you? Should she do that?

BODNAR: No, I don't think you should help with the loans unless you can really afford to part with the money. These are student loans, they are an investment in a kid's future and the kid's education. I do, I share the kid's optimism that they will certainly eventually be able to get jobs.

But just to start paying back the loans on the best terms possible gets them off on the right foot as far as the credit rating is concerned and just getting into the discipline of repaying what you owe. If mom and dad can afford to help you out, so much the better, but don't depend on that.

WILLIS: Don't depend on it. And of course normally, you depend on mom and dad for some health insurance. You can keep that for at least a while, until you're about 24 or so for most folks, but what should kids be thinking about if they don't have that advantage?

BODNAR: If they don't have health insurance, kids and parents should know that it's very often very easy to get. It is possible, for example, for parents to continue the kids on a workplace plan for up to 36 months, or kids it go onto the independent insurance market and buy their own policies, and sometimes it's very inexpensive, maybe between $50 and $150 a month, until they might pick up insurance through a job.

WILLIS: I love that answer, so cheaper, cheaper, cheaper. OK, establishing credit.

BODNAR: Right.

WILLIS: If you're a grad, this is critical, because you want to start doing that right away. What's the best way?

BODNAR: Well, I think a lot of kids already have credit cards that they've got in college. If they do, the most important thing is, pay your bills on time, pay off the balances. If you've got them left over from old pizzas that you ate in college, and keep those balances low going forward. If you don't already have a credit card, perhaps the easiest way to get one is to apply for a secured credit card, where you make a deposit that's equal to your credit line to get interest on that.

WILLIS: I think most kids out there get those credit cards early and they spend a lot on them, but what about mom and dad, should they be tying their credit to their child's? Is that a good idea?

BODNAR: I do not think that's a good idea. I really think that kids need to do this on their own, and I think they're perfectly capable of doing it on their own if they do some of the things I've told you -- paying back the student loans on time, applying for a secured card if they don't already have credit, and once they have credit, paying off their balances in full. If they've got high balances, pay down those balances and make those payments on time and they can establish their own credit record.

WILLIS: Janet, great information. Thanks for joining us.

BODNAR: My pleasure.

(END VIDEOTAPE)

WILLIS: From college grads to planning for retirement, are you ready? A new study says probably not. We'll introduce you to one family whose dreams were deferred, baby boomers postponing retirement as the economy slumps. And we'll, of course, follow up with some advice. What to do, what not to do with your money.

(COMMERCIAL BREAK)

WILLIS: Welcome back to OPEN HOUSE. Issue No. 1, the slumping economy is hitting middle-aged and older Americans hard. As a brand new study by AARP shows a survey of Americans 45 years and older show that 1/4 of them are dipping into 401(k) plans and other investments or retirement savings just to make ends meet.

Nearly 1/3 are postponing paying bills. Seventeen percent are cutting back on buying the medications that they need. And one out of every four workers ages 45-plus, have put off their plans to retire. So, what about those empty-nesters who are looking forward to early retirement? Well, with growing expenses and shrinking 401(k)s, in some cases, they really need to rethink those plans.

CNN's Allan Chernoff introduces us to one couple who was ready to call it a day.

(BEGIN VIDEOTAPE)

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT, (voice over): Charles and Anna Burge had already started packing, expecting they'd retire this year to their condominium in Florida. They wrapped up the china, took down pictures and filled up cardboard boxes.

CHARLES BURGE, DELAYING RETIREMENT: Where you're standing now, our dining room table was here. We sold our kitchen table.

CHERNOFF: But then the housing market collapsed. And then the stock market took a hit, bruising the Burge's 401(k) retirement account. And now the price of gas is soaring.

(on camera): Does it make sense to retire now?

C. BURGE: No. Do I want to retire now? Yes.

CHERNOFF (voice over): Charles and Anna's dream of an early retirement is on hold even though 53-year-old Charles can get an annual pension worth nearly two-thirds of his salary, if he retires from his job as a superintendent with New York City's sanitation department.

C. BURGE: I have college to pay for. I have gas to pay for on three cars. It just doesn't make sense.

CHERNOFF: The value of their family home has dropped. And realtors warn the couple it could take nearly a year to sell even at today's reduced price, which they would need to do to retire.

ANNA BURGE, DELAYING RETIREMENT: I was very disappointed. I was crying because I just want to go.

CHERNOFF (on camera): A growing number of aging baby boomers are deferring dreams of retirement. In the past year, nearly a million Americans aged 55 to 64 have rejoined the work force. And another 400,000 over the age of 65 have gone back to work.

Financial planner David Frisch says Charles is only one of his clients who is putting off retirement.

DAVID FRISCH, FINANCIAL PLANNER: People are scared. People are scared. The ultimate question is, how long is the market going to be suffering? How much will expenses rise? How long will it take for the housing market to come back into play?

CHERNOFF (voice over): Charles now plans to retire in three years when he hopes the real estate market will have recovered. Anna is counting on it, leaving her fine china exactly where it is.

A. BURGE: Now, everything stays in the box. It's too much. Too aggravation to take everything out of the box again and then start to pack again. So everything is going to be in the box.

CHERNOFF (on camera): For three years.

A. BURGE: For three years.

(END VIDEOTAPE)

CHERNOFF: The Burges are still determined to retire early, but for a growing number of Americans, the whole idea of early retirement or even retirement at age 65 is simply no longer an option.

WILLIS: Yeah. You can just forget about that. You know, we talk about that all the time, 50, 55, remember those days? Well, they're long gone.

CHERNOFF: The dot-com days, that's when everybody was talking about it, first.

WILLIS: That's all done, now. Let's talk about, though, what you can do. You've been out there talking to some of the smartest people about how they're advising people that handle their money. What do they say?

CHERNOFF: The only way to really do this is to start planning early. You've got to be putting money away every single year. Take advantage of IRAs, take advantage of 401(k)s, this is essential. And you have to be consistent. Keep on doing it. If you do it gradually, gradually, gradually, by the time you hit your 60s, you will have a nice lump sum.

WILLIS: And allocate it wisely. Allan Chernoff, thank you for that.

But wait, there's more. Are you ready for retirement? How to ensure you reach your golden years with a golden egg in the bank. We'll be right back.

(COMMERCIAL BREAK)

WILLIS: All right, so what can you do to make sure you're ready to retire when the time comes? Rick Van Benschoten is a managing partner with Lanox Advisers.

Rick, welcome. You know, this is a tough time for folks out there.

RICK VAN BENSCHOTEN, LENOX ADVISORS: It is.

WILLIS: You know, no more retiring at 50, 55, 60. 65 is good news for most folks out there. What do you do, here? Is a recession going to ruin people's retirement? And how do you know you're ready to retire?

VAN BENSCHOTEN: Well, I think the trend long term is that we're in a fairly low interest rate environment, and I think that will continue.

WILLIS: That's not good news for retirees, generally, right?

VAN BENSCHOTEN: No, because you'll have your CD rates, municipal bond rates all go down.

WILLIS: Plunge.

VAN BENSCHOTEN: Look at gas prices, real estate values are plummeting. You have inflation starting to percolate, plus, the biggest problem is people are living longer.

WILLIS: So, lots of issues here, and you said you're seeing people in your own practice who are delaying retirement. Now, is this a long-term trend or is this really just related to what's going on in the economy? VAN BENSCHOTEN: I believe it's a long-term trend, and I think interest rates, although low right now, they'll start to inch up over the next 12 to 24 months, but I think long term over the next decade, we're looking at a fairly low, relatively low interest rate cycle.

WILLIS: That's not good news. OK, so how do I know that I have enough money to retire? The big question, of course, is when are you ready, how do you know that you're ready?

VAN BENSCHOTEN: Right. So, there's a few things you can do. I think the most important is to find a financial adviser that you like and that you trust and that you can talk to. They can do financial projections for you, cash flow models to take you out 10 or 20 years to see what will your financial situation...

WILLIS: Get professional help.

VAN BENSCHOTEN: Absolutely.

WILLIS: Lots of different products out there for people to buy. I know you recommend annuities. One of the issues with annuities, though, is advisers charge a lot of money to buy these. The commission rates can be seven percent, they can be 14 percent. Why are annuities a good idea, now?

VAN BENSCHOTEN: Annuities are not for everybody and annuities used to be a very stale investment product, but now insurance companies have made annuities that are not too bad, the fees are the not too strong, but they do have some guaranteed rates, so you can get into a product that might pay you out a guaranteed five percent in retirement.

WILLIS: All right. Great help today, Rick. Thanks for your time.

VAN BENSCHOTEN: Thank you, 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 this "Project Savings" again, check out our Web site, cnn.com/openhouse.

You can hear much more about the impact of this week's 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.