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Open House

Higher Heating Bills And Mortgage Rates; Bernanke Will Replace Greenspan; ExxonMobil Has Record Third Quarter; Choosing The Right Insulation

Aired October 29, 2005 - 09:30   ET


BETTY NGUYEN, CNN ANCHOR: "Now in the News", we are following breaking news out of India's capital city this morning. There have been at least four separate explosions in New Delhi. At least two of them were at markets filled with people preparing for India's biggest festival. We'll have the latest New Delhi -- on New Delhi at the top of the hour.
Vice President Cheney's now-former chief of staff says he'll be cleared of all charges against him. Lewis Scooter Libby was indicted Friday on five counts in the CIA leak investigation, including perjury and obstruction of justice. If convicted, Libby could face up to 30 years in prison and could be fined more than $1 million.

The body of civil rights icon Rosa Parks will lie in honor in the U.S. Capitol Rotunda tomorrow and Monday. It is the first time that honor has been extended to a woman. President Bush will return from Camp David to view the body. As you recall, Parks died Monday in Detroit at the age of 92.

Well, just four days after Hurricane Wilma, tensions are brewing in Florida, thanks to extremely long lines at the pump. We'll tell you why just ahead, and find out if there's any relief in sight.

Tony and I will be back at the top of the hour.

"OPEN HOUSE" begins right now.

GERRI WILLIS, CNN ANCHOR: Homeowners, your budget is about to take a double hit if it hasn't already. Watch out for higher heating bills and mortgage rates.

Good morning, I'm Gerri Willis. Today on OPEN HOUSE, we'll show you how to fight back, and what you should do now to get your budget in line.

First, interest rates are nearing their highest levels in a year and projected to go even higher. Now, if you have an adjustable rate mortgage, I'll show you why now is the time to think about locking in that interest rate with a new loan.

We've been monitoring four new developments this week that could make a very big difference to your mortgage rate.

(BEGIN VIDEOTAPE) WILLIS (voice-over): One, the Mortgage Bankers Association now predicts new mortgage rate hikes, with adjustable rate loans the biggest. The MBA says the one-year adjustable rate will rise to 5.4 percent by the middle of next year. That means, if you got a $250,000 one-year adjustable rate mortgage just last year at 3.9 percent, you are paying $1,179 a month. But next year, at 5.4 percent, you'll be paying more than $1,400 a month. That's a difference of $2,700 a year.

Two, fixed rate mortgages are doing no better. The 30-year fixed topped the 6 percent mark for two weeks in a row. That hasn't happened since June of last year. It means right now, a $250,000 30-year mortgage is costing you $2,000 a year more than it would have cost in 2004.

MIKE MANDEL, CHIEF ECONOMIST, "BUSINESSWEEK": You can see the interest rates rising, making stuff more expensive for people. You can see there's a lot more people out there precariously balanced on the edge in terms of what they can afford.

That's not a good state for the housing market to be in.

WILLIS: Three, a warning over interest-only loans. FDIC Chairman Don Powell told bankers recently, housing booms don't last forever, and he said that may mean too much risk for holders of nontraditional mortgages like interest-only products.

Four, President Bush is replacing Federal Reserve Chairman Alan Greenspan with Ben Bernanke of the Council of Economic Advisers. There's some speculation he'll be a more of a by-the-book chairman than Greenspan. That could mean a few more interest rate hikes than we might have seen before.


WILLIS: So what can you do if you're faced with mortgage payments that are much more than you bargained for?

Joining me now is Bob Moulton, president of Americana Mortgage Group.Bob, good to see you.

BOB MOULTON, PRESIDENT, AMERICANA MORTGAGE GROUP: Good to see you too, Gerri. Thank you.

WILLIS: You know, seven straight weeks of mortgage rate hikes, I think people are getting very nervous, particularly those people in adjustable-rate mortgages who are facing a scenario where their rates could go higher. What should they do now?

MOULTON: Well, if they've been in the home for several years, and they have a three-year adjustable-rate mortgage, or a five-year adjustable-rate mortgage, they should refinance into a fixed rate before they get up around the 7 percent level. This will give them the security of the fixed rate payment that they deserve, particularly if they're going to stay in the house for at least another three or five years or even longer.

WILLIS: So it's all about how long you're going to be in the house, right?

MOULTON: Absolutely. It wouldn't pay to refinance if they're only going to stay in the house for a couple of years. So they have to take a look to see how long they're going to stay in the house for, and that would make the most sense for them.

WILLIS: And that two years, you say, is really the tipping point?

MOULTON: It's tough to recoup the closing costs if they're only going to stay in the house for two years. So there -- it's worth taking the interest rate risk and not spending the money on the closing costs.

WILLIS: Now, you bring up closing costs. What proportion of, say, the value of your mortgage is closing costs?

MOULTON: Generally, closing costs run about 3 percent of the amount that you're going to borrow. There's title fees, attorney fees, appraisal fees, and things like that. So when you do the cost-benefit analysis, you have to see how much money you're going to save on a monthly basis, divide that into the closing costs, and that'll give you your breakeven point.

WILLIS: So given that the average home is about $220,000, we're talking a chunk of change here, thousands of dollars, in fact.

Let's talk about people who are shopping for a home now and looking for a mortgage. What's your recommendation to them?

MOULTON: It depends, again, how long they're going to stay in the house for. And with house prices appreciating at double digits the last five years, some prospective homeowners are stretching their borrowing power by still going into interest-only mortgages. And what's become very popular over the last few months are 40-year mortgages. So the 40-year mortgages can save the homeowner 10 percent per year, 10 percent per month. It's safer than an interest-only mortgage, and it'll amortize over 40 years, as opposed to 30 years.

WILLIS: And you'll be paying well into retirement, I gather. It seems to me like it'd be better just to find a cheaper house than to spread your payments over 40 years.

MOULTON: Well, when homeowners go out shopping, and they see what they can afford, and they see what the house is that they can pay for, they always have a little more expensive taste, and not necessarily can afford it at that time. And what they take into consideration is where their income will be in a few years from now. So they're willing to take the risk, they're willing to look at the adjustable rate mortgages...

WILLIS: Yes, exactly. It's...

MOULTON: ... and grow into the house.

WILLIS: ... hard to tell, though, where your income's going to be. And you bring up a great point here, which is that people have been going into really riskier and riskier mortgages all the time. We've heard a lot of criticism lately from regulators saying that the industry should do more to keep people from going into these mortgages. Are you guys prepared for the kinds of foreclosures you might see if rates were really to spike?

MOULTON: Well, if rates really spike. What happens at the end of the term of these interest-only mortgages or adjustable rate mortgages, they're going to be tied to an index, they're going to have a margin. Their rates could be fully indexed 6, 7, or 8 percent. If they don't have the income to carry that, we might see a softening in real estate prices, you might see more foreclosures, you're going to see mortgages with derogatory credit become more popular.

So we are getting ourselves prepared for that market right now.

WILLIS: Well, and I think we've maybe gotten into mortgages that are a little riskier than we need at this point, certainly with interest-only mortgages. Those people could really be in trouble, and certainly the option ARM people, where they don't even have to pay all of their monthly interest cost, people like that really need to opt for safety right now, don't you think?

MOULTON: I do. I think that people that do take the option-only mortgage, I was reading some statistics, 70 percent of those people defer the interest. Seventy percent of them make the minimum payment. If they can pay extra principal, they should do it while they can.

Same thing with the interest-only mortgage. If they can make extra principal payments, they should do so to that to avoid the risk at the end of the time period.

WILLIS: All right, Bob. Thanks for being with us today.

MOULTON: Thanks, Gerri.

WILLIS: As we've said, we're getting a new Fed chairman. This week, the president picked top economic adviser Ben Bernanke to replace Alan Greenspan.

So what's the difference in our world? Well, for one thing, Bernanke seems less concerned than Greenspan about a housing bubble bursting. Right before he was nominated, he downplayed bubble talk to a congressional panel, saying -- and I quote -- "These price increases largely reflect strong economic fundamentals," though he added, housing prices -- quote -- "are unlikely to continue rising at current rates."

Remember, just this past August, some accused Alan Greenspan of trying to take some air out of the bubble. At the time, he said -- quote -- "House turnover will decline from historic levels, while home price increases will slow, and prices could even decrease."

The real question, of course, is whether Bernanke will hike rates faster than Greenspan. The jury's still out, but you bet we'll be sure to follow it.

Coming up on OPEN HOUSE, turn down the thermostat, and put on an extra sweater? Get real. We'll find out the truth about lowering your energy bills this winter.

And later, what you need to know about insulation for your home, what kind to buy, how much to buy, and will it really save you money this winter?

That's ahead on OPEN HOUSE.

But now, your tip of the day.


WILLIS (voice-over): Save on your energy bills with a home energy audit. Contact your legal utility company for a free or low-cost audit, or you can hire an independent energy auditor for a more comprehensive checkup. Look for one in your local Yellow Pages.

The audit should cover everything from insulation, to heating and cooling systems, to appliances. Once it's done, you'll know exactly where your house is losing dollars.

Learn more at the Energy Department's Web site at, and click on Energy Audits.

And that's your tip of the day.


WILLIS: There's one news report this week that just blew me away. Oil company ExxonMobil said it made more money in the third quarter this year than ever before, $10 billion, or $75,000, very nearly, each and every minute.

Guess who's paying for it? You and me.

Chris Huntington reports.


CHRIS HUNTINGTON, CNN CORRESPONDENT (voice-over): Homeowners, get ready to dig deeper into your pockets this winter. You may have to keep your hands warm. With fuel prices soaring, heating your home may cost more than ever.

HOWARD GRUENSPECHT, ENERGY INFORMATION ADMINISTRATION: We had tight markets for oil and natural gas even before the hurricanes hit. The hurricanes certainly made things worse by affecting production of oil and natural gas, and also by affecting refining.

HUNTINGTON: Last year, heating a home with natural gas cost an average of $742 for the entire winter season. It cost just under $1,200 for those using home heating oil. The Department of Energy predicts this winter, natural gas users will see a 48 percent increase, on average, to almost $1,100 for the season, while oil users should expect an average 32 percent increase in their bills, to a total of $1,582.

Every region can expect price hikes, but the Midwest is likely to be hardest hit. Complicating the matters, weather patterns indicate this winter will be worse than last year.

MICHAEL SCHLACTER, CHIEF METEOROLOGIST, WEATHER 2000: We had a very hot and dry summer, followed immediately by a very active and damaging and ferocious hurricane season, which is now leading to a very cold and snowy winter. People are going from turning on their air conditioning, to turning on their heat, in just four weeks, which is a very abbreviated autumn.

HUNTINGTON (on camera): With winter fast approaching, it's unlikely that fuel costs will come down, if at all. More than 60 percent of U.S. oil production in the Gulf of Mexico is still offline due to the hurricanes, and recovery there is slow. And that makes conservation just about the only way that consumers can keep their fuel bills in check.

Chris Huntington, CNN, New York.


WILLIS: So if you're one of those people using space heaters to save money on your heating bill, listen up. Our next guest is taking on energy myths like that one and debunking them.

Jennifer Thorne Amann is a senior associate with the American Council for an Energy Efficient Economy. Jennifer, welcome.


WILLIS: So let's start with the space heater. Is it not all it's cracked up to be?

THORNE AMANN: Yes, you know, there are -- there's a time and a place for space heaters. And we like to recommend that people rely on their central heating system if they do need to heat their whole house. But there can be times when a space heater can make sense. For instance, if you work from a home office, it can make a lot of sense if you're able to turn down the heat substantially in the rest of your home and just use a small electric space heater to heat the office during the day while you're there.

Of course, you have to have the discipline to make sure you really do cut back the heat in the rest of the home. And we like to caution people to stay away from any space heaters that burn open flames.

WILLIS: All right. You got to be careful with those.


WILLIS: Does Daylight Savings Time really save money, or no?

THORNE AMANN: Well, we've found that in the, you know, 20 or 30 years since Daylight Savings Time was first instituted, that it certainly is an energy saver for the economy as a whole. Now, the recent energy bill did extend the time for Daylight Savings beginning in 2007. We'll have a longer Daylight Savings period. And it's unclear at this time how much energy savings that will bring. But overall, the concept of Daylight Savings Time is an energy saver for us as a nation.

WILLIS: Well, that's good to know.

Let's talk about dropping that temperature in your house when you leave for work, turning it back up when you come home. It occurs to me that maybe it costs a lot of money to rev that furnace back up and get the house warm. Is that true?

THORNE AMANN: Well, you know, that's a common question that we get a lot. And it's certainly one of the larger myths about home energy use. It definitely makes sense, if you're going to be away from the home, and even overnight when you're asleep, cozy in the covers, to cut back the thermostat.

We found that for each degree that you set back the thermostat, you can save 2 to 3 percent on your heating bill. So you figure if you set it back five degrees, that's 10 percent or even more.

WILLIS: Makes a lot of sense. I like to hear that.

Let's talk about wood-burning stoves, because, you know, people talk a lot about how terrific they are. Do you really get good savings out of them?

THORNE AMANN: You know, it really depends on the stove. Nowadays, there are some new, modern wood stoves that are designed to serve as main space heaters for your home. They're very well sealed, so they don't suck a lot of air out of the home. And those can make sense.

But given the prices of wood that we've seen in recent years, a lot of times it only make makes sense if you have access to wood you can cut yourself. So, for instance, if you have some wooded property or some other access to free firewood, it can be a sensible option. Otherwise, it's not so clear that the payoff is there.

WILLIS: Very interesting. Heating and cooling, is bigger always better? I know a lot of older homes, they put in huge furnaces, and sometimes that can be a good thing, but does it save you money?

THORNE AMANN: Not necessarily. One of the things you want to be careful about, when you're looking at a new heating or cooling system for your home, is, in many cases, over the years since your home was built, efforts have been taken to improve the efficiency of your building envelope -- by that, I mean the walls and the windows. So if you've put in insulation in your home, or replaced your windows, then your heating and cooling load is going to be much lower, and your system can be sized down. All ... WILLIS: Well, we're going to be talking a little bit about insulation. That's helpful to know. I wonder about cooking, though. If you're cooking, can you tell me, is it better to use a microwave, a Crockpot, the oven? What really saves you money?

THORNE AMANN: Well, you really want to size the -- you know, pick the tool that's the size for the job that you have at hand. And in that way, a microwave, that can cook really fast, or a Crockpot, that really focuses the heat on the dish you're cooking can make sense. In many cases, the toaster oven might make more sense than using the full oven, just because you're heating a lot of space sometimes to cook one dish.

Now, I know, you know, a lot of folks really like to cook, and they like the way food comes when it comes out of the oven, nice and crispy, some things that are harder to get from other cooking appliances. And you know, cooking is one of the smaller energy users in the home. So, you know, if you have an option, it's a great place to make a little savings, but it probably isn't going to make a big deal in the overall energy picture in your home.

WILLIS: Well, Jennifer, I got to tell you, I feel smarter already, and I think I'm going to be saving money. Thanks for your help today.

THORNE AMANN: Oh, good. Thank you.

WILLIS: There are lots of options, but what's really going to save you money on your heating bills this winter? When we come back, we'll check out different types of insulation, and find out what will work best in your home. That's next on OPEN HOUSE.

But first, your mortgage numbers.


WILLIS: Welcome back to OPEN HOUSE.

Look, we know your home heating bills are on the rise. What's the solution? Insulation.

Joining me now is Jason Carpenter, special projects editor at "This Old House." Hi, Jason.


WILLIS: I'm great. You know, I'm looking at all the varieties of insulation here. How do I get started? How do I know which one to pick?

CARPENTER: Well, you need to think about a few different factors, the first one being the R-factor, and that's the ability for the insulation to deflect heat flow. In the winter, you want to deflect the heat flow back inside, and in the summer you want to deflect the heat flow back to the outside air. WILLIS: So it's how efficient it is, how well its does its job, right?

CARPENTER: Right. The higher the number, the more efficient it is.

WILLIS: Now, we have foam insulation, we have fiber insulation. How do I figure out which one to choose?

CARPENTER: Well, the thing about foam insulation, like as in this soy-based product here...

WILLIS: That's made out of soy?

CARPENTER: Yes, it's got a soy oil replacing an oil-based chemical in traditional polyurethane insulation. And this type of insulation is sprayed in, so you're not necessarily going do that yourself.

And also, the cellulose one over here is...


CARPENTER: ... blown in as well, and this is literally yesterday's news. I mean, these are -- this is newspaper that's...

WILLIS: These are newspapers.

CARPENTER: It's crumpled up...

WILLIS: Often.

CARPENTER: ... and treated to be flame retardant.

WILLIS: That's a green alternative too, right?

CARPENTER: Certainly. Certainly ...

WILLIS: What other alternatives are environmentally friendly?

CARPENTER: Well, there's cotton here, which is as American as blue jeans. In fact, there's recycled blue jeans in this material.

WILLIS: And I want to talk about fiberglass. Because I always thought fiberglass was really dangerous, and not something that you wanted to use.

CARPENTER: Right. Well, fiberglass has actually become a little bit greener. It's not the same old pink stuff that you'd see, you know, your dad rolling out in the attic.

WILLIS: Now, we've got one more we haven't talked about down here. What is this?

CARPENTER: This is wool. It's good old-fashioned sheep's wool, you know, and it makes a great sweater for your body, and it makes a great sweater for your house. This is probably one of the world's oldest insulators. It is more expensive than all the others.

WILLIS: Well, let's talk a little bit about just how much money I'm going to save by using these.

CARPENTER: There's no hard-and-fast rule to how much money you're going to save. But the difference between a poorly insulated home and a well-insulated home can result in about 30 percent savings in your energy bills.

WILLIS: And if I'm installing this myself, which of these can I use?

CARPENTER: If you're installing yourself, well, you can install the new fiberglass. It's rolled out and encased in plastic. That shouldn't be too difficult. You just staple it, staple it in.

WILLIS: Be careful with it, though.

CARPENTER: You definitely need to be careful with it.

The cotton is also rolled out in bats, so that one can be done on your own as well as the wool.

But again, these products that are blown in or wet-sprayed in, those are -- those need to be done by a professional.

WILLIS: But I do want to go over cost. Let's see what we learned today. Starting with the fiberglass, how much am I paying for this, and what am I getting?

CARPENTER: OK, this is the cheapest of the materials that we have here. It's about 50 cents a square foot installed.

WILLIS: All right, so it's 50 cents per square foot, and it's got the value R-19, right?


WILLIS: Cellulose.

CARPENTER: Cellulose, this is an R-21, and this is still under $1 a square foot, so it's on the cheaper end of the scale. And, you know, it's a green resource.

WILLIS: Awesome. OK, now this, the blue jeans insulation.

CARPENTER: Yes, the blue jeans. This is, again, about $1 a square foot or slightly under. Its R-value is 19, which is similar to the fiberglass.

WILLIS: Very good. And this is what blows me away. So these are beans.

CARPENTER: Yes. It's a soy-based product, although you wouldn't want to eat this one, even though it looks like tofu. But this has the highest R-value of what we have here today, at 22. It's also one of the more expensive at $2 a square foot installed.

WILLIS: And wool, expensive. Is it worth the money? Boy!

CARPENTER: Well, you know, a cashmere sweater is worth it, isn't it? This is at about $4 a square foot, which is significantly more than the rest, but its R-value is around 21. And again, you know, no animals are harmed in creating this.

WILLIS: (INAUDIBLE). Jason, thanks so much.

CARPENTER: Thank you very much.

WILLIS: We'll be right back.


WILLIS: Still on the fence about insulation? Well, get this. Only 20 percent of the homes built before 1980 are adequately insulated, and that fact comes not from the insulation industry, but from the federal government.

Keep in mind, if you typically get icicles on your roof when it snows, well, it's a signal that you need more insulation.

Here are the places you need to be sure you're covered, as you can see.

Also, drafty electrical outlets and cold floors signal a need for an insulation upgrade.

Now, if you want more direction on how to get started, go to the Energy Department's Web site at, where you'll find a calculator that will help you figure out your tab for your insulation.

They also have a chart to show you exactly what efficiency rating is recommended for your part of the country.

And finally, Halloween is coming up Monday. Don't forget to clear the yard of hoses, dog leashes -- well, anything that little trick-or- treaters might trip on. Have fun, and have a safe Halloween.

And remember, we want to hear from you. Send us your comments, your questions, to

And remember, you can find links to this week's guests and Web sites at

Thanks for watching OPEN HOUSE. We'll see you here next week.

The top stories are next on CNN SATURDAY.

Have a great weekend.