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Open House

Housing Rescue Bill; Home Inspections; Credit Cards Cutback; Haggling; House Swapping New Craze

Aired August 02, 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 OPEN HOUSE, the show that saves you money. Coming up, how to haggle your way to a good deal, the essentials of home inspections, and a new way to vacation on a budget by house swapping.
But first a busy week for the housing market, President Bush signed a massive housing bill into law. We saw record home price declines and a government program struggling to keep up with record foreclosures. What does it all mean to you? Let's put it into perspective. Jeanne Sahadi is a senior writer with CNN MONEY and covers the housing market. Mort Zuckerman is editor-in-chief of "U.S. News and World Report" and has been following the housing bill closely and is also something of a real estate mogul himself.

Welcome to both of you.

MORT ZUCKERMAN, U.S. NEWS & WORLD REPORTS: Thank you.

JEANNE SAHADI, CNNMONEY.COM: Thank you.

WILLIS: Jean, let's start with that housing bill and talk about one of the elements so important that's up to $300 billion, to backstop some of these loans that are in so much trouble. Of course, it takes lenders willing to agree to participate. Will they?

SAHADI: The program is completely voluntary, so the borrowers are in trouble at risk of losing homes are reliant on their lenders to say hey this is a good deal for me. And what they're going to be doing is making a business decision. They have to pay fees to the FHA to join the program and they have to agree to write homes down to below appraised value in order for the government to say we'll give this new borrower or an at risk borrower a 30-year fixed rate loan.

WILLIS: And when does it go into effect?

SAHADI: It goes into effect on October 1, but the mechanics of how it's going to work are still a little bit unclear. My colleague, Les Christy at cnnmoney.com, talked to a lot of lenders this week and said: hey, are you going to participate? And their answer was: we need to see final legislation; we really need to think about this, we need to know how it works. So, it's not clear yet.

WILLIS: So, we don't know. Big answer, we don't know. Mort, you've been something of a critic of Fannie Mae, Freddie Mac, Fannie Mae and of course you've been writing a lot about the topic of backstopping them with an unlimited credit supply. Why should we do that if they don't work well to begin with.

ZUCKERMAN: Well, we have no choice at this point but to try and preserve them. It's $5.5 trillion in mortgages which they either hold or have guaranteed and if they implicit federal guarantee was not made explicit, this entire mortgage market would have collapsed and banks all over the country and all over the world, indeed, which own Freddie Mac and Fannie Mae paper, would have found themselves in a desperate shape.

So, it was a systemic risk to the financial system. In that sense we had to save it. But there are a lot of problems with the bill including just to refer to what was just said, and accurately, the real question in that whole issue is, how do you do the appraisals? What's happened in the past is these appraisals have been inflated so that the banks can get more money or borrowers get more money. And if you have that again, you'll just have another rip-off of the financial system. So, there has to be a very careful way of regulating the way these appraisals are made. Because, you are now making appraisals in a falling house market so you don't know what the value is. In 15 months or 12 months, if house prices drop 15 percent, which is what is expect, all of these mortgages, as well, could be under water, so the federal government...

WILLIS: Yet again.

ZUCKERMAN: Yet again. And even worse than that, the whole Freddie and Fannie Mae systems is a disgrace. I mean, when Bar Stearns went bankrupt. You remember that, the Wall Street firm?

WILLIS: And we backstopped them, as well.

ZUCKERMAN: Well, we did, but they had leverage of only 32-1. Only 32-1. Fannie Mae and Freddie Mac have a leverage of 65-1, and never would have been able to do that if it weren't for the implicit federal guarantee, but they ran that company, those two companies, as private companies with all of the benefits to the shareholders and management and share holders made millions and millions of dollars and in the end, the losses came due and was put on the door of the public.

WILLIS: Mort, let's go back to something that you mentioned just a minute ago, and that's where housing prices are going we had some numbers, just this week, about some of these prices and some of these markets coming down 25 percent, year over year, right now, not six months from now. Tell me, when is this going to recover? Can it recover? Will the bill help?

ZUCKERMAN: Well, the bill will help only slightly. The estimate is that they will perhaps save 400,000 to 500,000 homeowners over the next several years. In that period of time we're going to have another two to three million homes that are going to be foreclosed. We're foreclosing homes at rate of 500,000 a quarter, right now, and it's going up. And home prices are continuing to go down. And they're going to go down quite considerably, because even the numbers you see overstate the home prices because they don't take into account what are called sales incentives.

So, if you get somebody who says buy this home and I'll pay your four lawn, I'll pay for your living room, I'll pay for the rugs -- that doesn't show up in the price. The price is higher than it would otherwise be. So, the real price is lower.

Now, what's going to happen as prices go down, there are going to be many more millions of mortgages where the mortgage exceeds the value of the home. So, the plummeting house price condition, which has not happened since the 1930s, it's the first time in over 70 years, that is still the ongoing fundamental structural problem in our economy and nobody knows where the bottom is. And anybody who tells you they know where the bottom is doesn't know what they're talking about.

WILLIS: All right, sobering point, there. Jeanne, tell me, is there any reason for optimism?

SAHADI: Well in terms of the housing program that they're implementing, if in fact home prices do fall below the appraised value they get borrows into the 30 year fix rated mortgage, it's supposed to be an affordable mortgage for those homeowners, so it doesn't necessarily mean everybody is going to run out of their house and leave it at the doorstep of the government. It's a risk, but I mean, most people want to stay in their homes and if it's made affordable for them, they're more likely to, I think.

ZUCKERMAN: Oh, I agree. The people who benefit from this program will be the ones who are saved. My point is there are a lot of people who can't benefit, will not benefit from it. At the most they say this will help 400,000, 500,000 in their homes. It's something, but it's nowhere close to the size of the problem.

Now, the real problem now is on two levels. One is we have to save Fannie and Freddie because we simply cannot afford a financial catastrophe of that size. But even if you do, are you going to be able to permit them -- they now provide 75 percent of the home mortgages in the country, today. If they -- they not only have to be saved from losses, they have to have enough to continue lending. And if they can't continue lending at the rate they are, it's going to be a longer time before we come out of the current declines that we are in.

WILLIS: Great conversation from both of you and impassioned on both sides. Thanks to both of you.

SAHADI: Thanks.

WILLIS: Southern California hit hard by a magnitude 5.4 earthquake last week, you're looking right now at some of the amazing footage we brought in, including your i-Reports.

Now, this got us to thinking about home inspections, a truly vital part of buying home. With so many sellers trying to unload their homes, these days, you want to make sure you're getting the safest house for your money. Earlier, I sat down with the Kathleen Kuhn, the CEO of Housemaster, a home inspection service.

(BEGIN VIDEOTAPE)

All right. You know, people really underestimate the importance of home inspectors and clearly in this mark, it's important. But how do you find a good one?

KATHLEEN KUHN, CEO, HOUSEMASTER: Well, that's a great question, because there really is just no easy way. You have ask the questions, you have to do your homework. There are associations, which is a good first step.

WILLIS: And they have great Web sites, too. You just go online and Google it and find people who are members of groups.

KUHN: Absolutely. But, those are just the first steps. I mean, credentials still vary, after that. And even in state licensing credentials vary. So, regardless, you want to find maybe the association member and a state license inspector, but you want to ask questions.

WILLIS: Like what?

KUHN: You want to ask, what was the initial training of the inspector. What is the ongoing train of the inspector and what access to technical support do they have, because things change. They run into unusual things. You want to make sure that they know what they're doing and they're current. We always recommend you ask, are they annually tested, because many memberships or state licensing just it's a one-time test and 15 years later, they're never being tested again.

WILLIS: Technology challenges, the materials change, the houses are quite different.

KUHN: Absolutely, recalls. Yes.

WILLIS: Let's talk a little bit about the process. Let's say you find somebody you like, maybe they're accredited, maybe you find that they're a member of a good organization, up to date on everything. Then when you use them, you have to go with them, right?

KUHN: You really should. A home inspection is really not just a laundry list of what's wrong with the house. It's an education on the house. So, a professional home inspector is going to educate them on how to maintain the home, they're going to tell them the type of systems, how to operate many of the systems in the home. It is a really good investment in their time.

WILLIS: All right, and of course, you know, there are red flags out there. Sometimes I think that some of the home inspectors out there, they're more loyal to the real estate industry than they are to the homeowners they're doing the service for. What do you think are the possible pitfalls out there?

KUHN: Well, that's one of the questions that we get a lot and we say regardless of where you get a referral from, friends, family, professionals you really have to ask the questions. Ask if the inspector will guarantee his work, which says that, you know, I really believe I'm going to be unbiased, I'm going to do my very best on the inspection. And that's in the consumer's best interest.

WILLIS: And you don't want them to be related to the contractor, they have to be independent.

KUHN: If they offer repairs, if they give you suggestions on who to get repairs, that's a big red flag.

WILLIS: One way that an inspector can be used right now in the marketplace is if you were trying to sell the home, maybe you have an older home, maybe systems could have gone bad, you go out and you hire an inspector, they give you a clean bill of health. You can use that as a selling tool, right?

KUHN: Absolutely. Plus, nowadays you can market the home as preinspected. At Housemaster we have icons you can put on the on-line listing so you can to identify or a buyer can identify the house that's preinspected. They can retrieve the report on-line and now the house stands out and a really big issue is that you've eliminated a lot of the buyer issues, you're not going to lose that buyer that, you know, few and far between buyer, at the last minute.

WILLIS: Great information. Kathleen Kuhn, thanks for your help today.

KUHN: Thank you.

WILlIS: Coming up on OPEN HOUSE, cash makes a comeback. The credit crunch inspires some to pay off their debts and ditch the plastic. Plus how to haggle, getting the best price for goods you want and services you need. And have you heard of house swapping? This might just be the way to take your family on their next vacation. We are the show that saves you money.

(COMMERCIAL BREAK)

WILLIS: No big shocker here, a private research group says consumers across the country remain very pessimistic about the economy, despite a slight rise into consumer confidence index. Now, soaring gas and food prices and a stumbling stock market, well, they're taking a toll on Americans and Americans are responding to these tough times by trying to fix up their finances, especially credit card debt. CNN's senior correspondent, Allan Chernoff joins us with that story.

ALLEN CHERNOFF, CNN SR. CORRESPONDENT: Gerri, you know the old saying, when times get tough, the tough go shopping? Well, truth is, times are so tough, that even the appeal of credit cards is fading fast. A new study out this week finds that many Americans now view credit cards as the enemy.

(BEGIN VIDEOTAPE)

CAPPIE PERRAS, CREDIT CARD HOLDER: That one, look at how much we've lost.

DON PERRAS, CREDIT CARD HOLDER: Right.

C. PERRAS: Incredible.

CHERNOFF (VOICE OVER): when Cappie and Don Perras saw their investment losses earlier this year, they decided it was time to tighten their belts. Kathy, a school teacher, and Don, a college professor, swore to stop using their credit cards unless absolutely necessary, a big change from their old attitude.

C. PERRAS: I felt secure with my credit cards, like, well i always have my credit cards. Now i feel like it's almost like there's a big caution sign in front of the credit card, you know, do not use, only in case of emergency.

CHERNOFF (on camera): The only plastic the praises are using today is their debit cards. They Perras' are economizing. They sold off their gas-guzzling SUV and bought this, a little gases miser of the car.

(voice over): And the couple's trying to attack their credit card debt of $8,000.

(on camera): How badly do you want to pay that off?

D. PERRAS: Oh, it would be a top priority. In fact we have made it such in our family.

CHERNOFF (voice over): Even so, the Perras' say they're barely making a dent in the credit card debt. Cappie and Don have plenty of company. Americans have built a mountain of credit card debt, nearly a trillion dollars and they're having trouble paying it down, even as 40 percent of households cut credit card use, largely middle income and middle aged Americans, according to Javelin Strategy and Research, a financial research firm.

JAMES VAN DYKE, JAVELIN STRATEGY & RESEARCH: Credit card companies are running a bit scared right now and for good reason because people are having a difficult time paying off their balance.

CHERNOFF: In fact, 70 percent of banks say they're cutting back on credit card solicitations. Many are reducing credit lines to existing card holders, as well. Even so, banks say, they've got the situation under control.

JAMES CHESSEN, AMERICAN BANKERS ASSOC: You know the economy is riskier today than it was a year ago, so you naturally take that into account so you have the capacity to come out of this even stronger than you came into it.

(END VIDEOTAPE)

CHERNOFF: But until the economy picks up and inflation slows down, credit card debt is certain to remain a huge burden for American households, as well as a threat to bank profits -- Gerri.

WILLIS: Allen, thank you for that.

Still ahead on OPEN HOUSE, that price, well, it's not set in stone, you can negotiate. We'll tell you how to haggle. And we'll tell how to house swap. I said house swap! Live like a local on your next vacation for less.

(COMMERCIAL BREAK)

WILLIS: Getting a bargain, something we all want. And my next guest says you can get a deal on just about anything if you haggle the right way. Amanda Gengler is with "Money" magazine.

Hey Amanda, I love this topic and it's just one of those things you love to do sometimes and you can't bring yourself to do it. Do you bring an attitude to it? How do you not insult the person and still get what you want?

AMANDA GENGLER, MONEY MAGAZINE: You always want to be cordial, but you need to remember that you have the power today. One recent study showed that 70 percent of Americans have recently negotiated down a price and that's up 12 percentage points from a year ago.

WILLIS: Wow, OK, well that's great news.

GENGLER: Just remember that.

WILLIS: And what we're going to do is like look at some different places in your life where you can haggle, negotiate, get a better price. You want to start with mortgage brokers. Now, I'm thinking these fellas are having a hard time right now. Are they really going to give you something?

GENGLER: They need your business. Brokers are hurting because volumes are low. And don't beat around the bush, just simply ask can we negotiate your commission. Typically brokers earn about one to two percent of the loan amount. You, for a $250,000 loan, you should be able to get that down to about three-quarters of a percent. But, there's one trick, here. Brokers get paid from you, from the lender or from both. So, you want to make sure that that commission that you negotiated is the total commission and he's not going to put you in a worse loan so then he can get that higher commission from the lender on the back end.

WILLIS: Very well put. OK, let's talk about health clubs. Because, you know, that's one of those things you can spend whatever you want so how do i get that price down? How do I negotiate with the health club? It's usually just some membership person sitting there, it's not like you're talking to the owner.

GENGLER: Well, you don't usually think of the health club being a place that you can negotiate. But, the industry was booming in the '90s and sales have slowed and with the economy the way it's going now, some industry insiders are saying that almost every single club is going to have to cut prices to some extent.

WILLIS: But, can you say that? Can, hey, the market, the economy is terrible, give me a deal?

GENGLER: I think you can -- if you're new and you want to open up a new membership you can say what kind of deal can you give me? August is one of the slowest periods, sales reps need to hit their goal. Can you drop off the initiation fee or possibly give me a lower monthly fee?

WILLIS: All right, well, that makes sense. Cell phones, cable TV, can you haggle on that? Come on.

GENGLER: With these companies they're in turf wars. You threaten to leave if they won't beat a price that you have found elsewhere. I mean, the big point here, especially with cell phone providers is they spend a lot of money to get you as a customer, so they need you to stay for a while to make money off you.

WILLIS: And you say call retentions department.

GENGLER: Say that if they can't beat the price, you have better offers elsewhere and that you're thinking about canceling. If you don't get anywhere, ask if you can speak to their retentions department and start the conversation all over.

WILLIS: How about clothing? Now, me and all the young -- the women on the staff want to know how to negotiate on clothing.

GENGLER: You don't necessarily think of clothing or sort of these big retail stores as places that you can negotiate. But, comparison shop before you go at sites like Shopzilla, printout the lowest price, go in and the trick is finding who can give you the authority to cut -- or who can have the authority to cut the price. So, you may have to ask for the clerk's supervisor. But, show them the lowest price deal and ask them if they can beat that by 10 of 15 percent.

WILLIS: I love the attitude, Amanda. Thanks for the direction on haggling, great information.

GENGLER: Thanks Gerri.

WILLIS: Up next, how swapping and how it can save you some cold hard cash on your next vacation.

(COMMERCIAL BREAK)

WILLIS: Strangers in your house, sleeping in your bed. Would you call the police or stay at their house for a unique vacation? It's called house swapping and it's the latest way to cut down vacation costs. Here's CNN's Zain Verjee.

(BEGIN VIDEOTAPE)

ZAIN VERJEE, CNN NEWS CORRESPONDENT (voice over): For 20 years, Lauren Kahn has been welcoming total strangers to her home. She's about to meet Ken and Shirley Bullock for the first time and hand over her house keys.

LAUREN KAHN, HOUSE SWAPPER: You all made it. Hi, how are you?

VERJEE: The Bullock's are trading their home in Australia for Lauren's in McLean, Virginia for a month.

KAHN: It's not everybody's idea of a conventional vacation.

VERJEE (on camera): If you want more than a one-night stay for free, all you have to do is go to some of these home swapping Web sites and your entire world is open.

(voice over): It's already popular in Europe, now picking up steam in the U.S. and elsewhere as eager swappers showcase their homes.

(on camera): Oh, Kenya. Nice.

KEN BULLOCK, HOUSE SWAPPER: It's an adventure.

VERJEE (voice over): This will be Lauren's 35th house swap.

KAHN: What you do get is a lot of cultural experiences.

VERJEE: They also swap cars.

BULLOCK: Lauren and ourselves we're exchanging cell phones so she'll be using ours there and we'll be using hers, here.

KAHN: But don't call China.

VERJEE: Travel editor, Keith Bellows, champions house swapping, but warns do your homework.

KEITH BELLOWS, NATIONAL GEOGRAPHIC TRAVEL EDITOR: You really need to think through, am I willing to leave my home in someone else's hands, somebody I've never met before.

SHIRLEY BULLOCK, HOUSE SWAPPER: That's the question that people keep asking. You can let people in your home, they say. But, you'll be in their house.

VERJEE: Even with careful research, you could be in for a surprise.

KAHN: The worst one was the house in Bavaria which was absolutely filthy, the car didn't work.

VERJEE: The rules, a clean home and advice for guests.

KAHN: How to drive the car. I have a new car and they get new car with less than 1,000 miles. Where to go to get food, where to go for other shopping.

VERJEE: On to Wanna (ph) Island in Australia. The Bullocks leave Lauren treats.

KAHN: Oh, some chocolates.

VERJEE: And a welcome first meal.

KAHN: (INAUDIBLE) casserole.

VERJEE: A couple vacationing in the U.S. Spends on average $250 a day in meals and hotels. The Bullocks are spending only $75 per day.

VERJEE (on camera): Is it the money that you save?

S. BULLOCK: I'd still have to say money has become last. It's the people.

KAHN: You also do it, of course, to save money, but I would never have had the quality of vacations that I've had and experiences I've had without all my exchanges. I wouldn't give them up for the world, because what i like more than anything else is the travel?

Reporter: Zain Verjee, CNN, McClain, Virginia.

(END VIDEOTAPE)

WILLIS: Well, earlier in the show we spoke about home inspections, now before we go, an insurance cheat sheets to make sure your No. 1 investment is properly covered. Chances are you probably have a cash value policy. This means that whatever settlement you get for damaged furniture, clothes and other household goods will be depreciated for wear and tear, so that flat panel TV screen you bought for $1,000 two years ago, well hey, it maybe only be worth $500, now.

When it comes to insuring your home better off with replacement cost coverage which will cover that difference. Knowing what's not covered in your policy is just as important. Your homeowner's policy covers perils like fire, theft, tornadoes and storms, but when it comes to flooding, you are on your own. You can purchase flood insurance separately from your insurance company or the federal government.

You can hear more about 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 on the CNN NEWSROOM. Have a great weekend.