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Homeowners Credit Crunch; Feds Bust Fraud Ring; Summer Money Sins; Home Curb Appeal; Airline Fee-For-All
Aired August 09, 2008 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN HOST: Hello and welcome to OPEN HOUSE, the show that saves you money. I'm Christine Romans, Gerri is off today.
Coming up, how to make sure you are not a victim of the latest identity theft ring. The government is calling it the largest credit card hacking case of all time.
Plus, summer money sins and how to dig yourself out of all that debt you've racked up. And we'll let you know about some new airline fees.
But first, let's talk housing. Morgan Stanley told thousands of its customers their home equity credit lines are now frozen because their houses are losing value. Those homeowners will no longer have access to the line of credit they thought was available to them.
And if you're looking to buy a home right now, you shouldn't have to look too hard. There are nearly four million unsold single family homes on the market, today. That's the most since the National Association of Realtors began tracking it back in 1982.
But, there is one positive sign pending home sales actually rose five percent in June. Those are homes currently under contract. Many in the business consider pending home sales an indicator of future trends. Break it all down, Greg McBride, senior financial analyst at bankrate.com.
Greg, welcome to the program.
GREG MCBRIDE, BANKRATE.COM: Thank you, Christine.
ROMANS: First of all, the HELOC, the home equity lines of credit, Morgan Stanley the latest to freeze some of those for some customers. Other institutions have already done it, this is because they can't really value your house to let you borrow money against it, essentially.
MCBRIDE: Home values are falling and a lot of these lines of credit were approved a couple years ago when homeowners had more equity at their disposal, so that line of credit may have been approved when you had $50,000 of equity, now you don't have 50,000 anymore. Lenders are scaling back their exposure either by cutting back the line of credit or freezing it altogether.
ROMANS: What do you do if yours have been frozen? MCBRIDE: Well, this can really leave people in the lurch, particularly if you're in the middle of a home remodeling project or looking to use that money for tuition payments. Best thing, pick up the phone, call the lender and appeal to them directly, because a lot of these decisions are made at 35,000 feet based on home price declines in your area. You may have to spring for an appraisal, you can also shop around with other lenders because not everybody is taking these draconian measures.
ROMANS: And we know, the study earlier this year that showed that a lot of these lenders are just looking at your zip code and freezing everything in the zip code, maybe if you call, talk to them, show them your current situation, you might be able to, you know, thaw that freeze.
MCBRIDE: Exactly, and some lenders realizing that you're in the midst of a home remodeling project, they're not going to leave you hanging, they're more inclined to let you access that and finish the job.
ROMANS: A home sales number that showed a little bit of strength, up five percent in June, some people are making a lot out of it saying that it's some sort of transition to a better market for the housing market, you say not so fast, one month is still one month.
MCBRIDE: Everybody is looking to this number to signal the bottom and, you know, when are we going to see a turn around? But, you know, there are a couple of different things in play. Home sales are one thing, home prices are another. With all the foreclosures on the market, that puts downward pressure on prices. Bargain hunters are out there, you're seeing that reflects in the sales, but that doesn't necessarily bode the same for home prices in the short-term.
ROMANS: Congress passed a housing bill before it went on vacation for some five weeks. You say there's something they overlooked in there. What's overlooked in that housing bill we should know about?
MCBRIDE: Well, there are a couple of things. The first thing is that you have -- now they have the ability in 2008 to deduct part of your property taxes even if you don't itemize. Half of homeowners don't itemize, they take the standard deduction. They can now deduct up to $500 if you're single, $1,000 if you file jointly off your property taxes. That's a big boost, particularly to retirees that may have small mortgages and don't get to deduct the interests.
ROMANS: And what about something in there for first-time home buyers?
MCBRIDE: There's a big tax credit for first-time home buyers that goes -- it's retroactive to any purchase made from April 8 of this year to June of next year. And that first-time home buyers is defined broadly, so if you haven't owned a home in the last three years, you're eligible. Basically $7,500 tax credit in year one, you then repay that in even monthly installments over a 15 year period. So, it's really just an interest-free loan. ROMANS: The housing bill then, overall does it make much of a difference in the housing market?
MCBRIDE: It's not going to be a cure-all. Is it going to help some people and enable them to stay in their homes? Yes. But, it's only going to kick the can down the road and delay the inevitable for others. Another key point this is really at the lender's disposal, not at the borrower's option. So, your lender has to decide that they're going to write down a chunk of your loan balance before you become eligible.
ROMANS: What do I need to know about being a home buyer, right now, and being a home seller in terms of how tight the credit is out there, how hard it is to get a loan or how hard it is for the person who's buying your house to get a loan?
MCBRIDE: It's a big idea for home sellers, you know, there's not a whole lot you can do because of the fact you're dependent on the credit underwriting. If you're a borrower you need good credit, proof of income and money for a down payment. If you those three things and you're borrowing less than the conforming loan limit, you should be good to go. Jumbo borrowers having to jump through more hoops then a circus act.
ROMANS: Wow, Greg McBride, thanks so much, Greg.
Coming up on OPEN HOUSE, homes are sitting on the market for months, even years. We'll tell you how to make yours sell more quickly. And be a lot of people spend more during the summer months on vacations, food, clothing, back-to-school supplies. Steps to get back on track financially.
And the details on what the government is calling the largest I.D. theft scheme ever -- 40 million credit and debit cards affected. Tips to make sure your identity is safe.
ROMANS: The Justice Department busted an alleged hacking and identity theft ring this week, but not before the scammers did a whole lot of damage.
CNN's Alina Cho has more on how authorities sniffed out their suspects.
MICHAEL MUKASEY, ATTORNEY GENERAL: They caused widespread losses by banks, retailers and customers.
ALINA CHO, CNN CORRESPONDENT (voice over): How much? The Feds say it may be too hard to add it all up, maybe tens of millions of dollars from people who shopped at places like Office Max, DSW, Barnes & Noble, Sports Authority, Forever 21, even Boston Market. All they do is sit outside with a laptop, wait for customers to make a purchase, then use a so-called sniffer program to get into a store's wireless network.
MUKASEY: This allowed the defendants to remotely capture sensitive information such as the card numbers, passwords and account information.
CHO: The hackers allegedly sold that personal information or used it themselves. Some numbers were stored on magnetic strips of bankcards and used to draw tens of thousands of dollars from ATMs.
MICHAEL CHERTOFF, HOMELAND SECURITY SECY: You know, this is, from a standpoint of what I guess you would describe as a white collar crime, probably one of the biggest challenges we face in the 21st century. Huge amounts of money move over the Internet.
CHO: Many people, whose numbers were stolen, may not realize they're victims yet, but homeland security secretary, Michael Chertoff, says they're working with stores to close the cyber holes.
CHERTOFF: The international system is safe, but I also have to tell you the bad guys are smart, too.
CHO (on camera): This is believed to be the largest hacking and identity theft case ever prosecuted by the Justice Department. The investigation took three years and the scheme allegedly stretched over five years in several states, with the ripped off money spent all over the world. And authorities say the key suspect was actually double dealing, giving the secret service tips and ripping off the public at the same time.
Alina Cho, CNN, New York.
ROMANS: A few tips now to make sure your personal information doesn't get into the wrong hands. Be careful when throwing out your mail, you should always use a shredder and play it safe on-line, you should use only your own personal computer for monetary transactions. Verify the Web sites you use, make sure they are all secure. And don't forget to clean out your wallet, leave your social security card and any unnecessary credit cards at home.
Did you go a little overboard this summer? Maybe you spent too much on a vacation or the high gas prices went right on your credit card. If you're facing some post-summer debt, we can help. Lynnette Khalfani-Cox is a personal finance expert and author of "Zero Debt."
Welcome to the program.
LYNNETTE KHALFANI-COX, AUTHOR "ZERO DEBT": Thank you very much.
ROMANS: Hey, what do you do first? First you got to get it in black and white and you got to say, OK, I need to know what my debt is. I think a lot of people underestimate how much money they owe.
KHALFANI-COX: They absolutely do because frankly, a lot of times those credit card bills come in the mail and they're like, oh, they put them to the side. Step No. 1, list all your bills in black and white, write down every dime that you owe.
ROMANS: You have to know the brutal reality before you can fix it.
KHALFANI-COX: Exactly. It's going to help you overall to know here's the game plan, this is what I'm working with, this is how much I have to knock out.
ROMANS: You can call your creditors and negotiate, as well. That is something I think people think they're kind of a victim of their own debt, but you can take the bull by the horns if you need to.
KHALFANI-COX: Absolutely. You know, a lot of consumers feel like, oh, it's just little old me against a big bad bank when frankly nothing could be further from the truth.
ROMANS: They want your money, no matter what.
KHALFANI-COX: Yeah, they want your -- and actually, many of them are quite flexible. Studies have shown 70 percent of all consumers who call up their banks and ask their credit card companies to lower their interest rates, actually get that lower rate right on the spot. So, you can save yourself hundreds, perhaps thousands, depending on how much debt you've charged up over all, just by getting those interest rates lowered. So, do yourself a favor by getting on the phone and negotiating.
ROMANS: Another piece of advice that I think that I want to say that you have you to be very prudent about this one and that is, you know, transferring your balances, your credit card balances to a lower rate. Now, this can get some people in trouble, people who are not managing their debt wisely and got themselves into trouble in the first place, if you're really set on fixing your problems, you can get some of these lower teaser rates and moving to a lower rate.
KHALFANI-COX: Correct. I call this, you know, a zero debt strategy, not just a shifting debt strategy. But you're right, it is kind of part art and science, here. You don't want to open a slew of new credit cards just to get zero percent or 2.9 percent because frankly you'll hurt your FICO credit score with all those new inquiries.
But, let's say you try to negotiate with one of your credit card companies and they have a punitive interest rate, a very high interest rate and they won't budge, yes, it can be in your best interest to get one new credit card, perhaps every 12 months or so, on the maximum side, and go ahead and transfer your balance so that you can get a zero percent, a 4.9 percent interest rate that will save you a lot of money in finance charges in the long run.
ROMANS: But, you have to be disciplined and you have to set a timeframe and some goals and stick to it.
KHALFANI-COX: And this is one of the key pieces of advice for anybody who's gotten themselves into summer debt troubles. You don't want to let the debt drag on and linger on and wind up Christmas time, now I'm trying to pay off the debt or next summer comes around. Look at the amount of debt you've charged, let's say it's $3,000, set a time limit.
If you want to knock it out in six months say, make that resolution to pay $500 a month so you can know OK, in six months time roughly, that debt will be wiped out. Otherwise, the debt will linger. You can't make the minimum payments, that's a trap, you'll be making those payments year after year after year.
ROMANS: All right. Lynnette Khalfani-Cox, thank you so much.
KHALFANI-COX: Thank you.
ROMANS: Still ahead on OPEN HOUSE spruce up your home to sell. It's not easy to unload a house these days, but we'll show you how to do it. Plus, we'll breakdown the latest airline extras as in charges, and we'll tell you about one fee you just might jump at the chance to pay. We're back right after this.
ROMANS: If you're trying to sell your house these days, good luck, there's a ten month supply of homes just sitting on the market waiting to sell. But there are some things you can do to give your house a better chance. Gerri Willis teams up with Amy Matthews of the "DIY Network" to find curb appeal for less.
GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: Obviously the front door is critically important. It's the first thing that somebody who might want to buy your home would touch. What would you say here? What needs to be done?
AMY MATTHEWS, DIY NETWORK: Well, the door sets the tone for everything happening on the inside. So, if it looks good out there it should look good out here. The first thing here that I see is a lot of the wood on the edges needs to be replaced. This is all crumbling, the wood is falling apart, probably even termite damage or just water damage.
WILLIS: Not good.
MATTHEWS: No. It should be repainted and fixed, edges caulked. They can take this storm door off here if they want, you don't have to have them on. And definitely on the inside here, this old door is cracked and it's in bad shape. It's a hollow core, it doesn't feel very sturdy.
WILLIS: How much should I pay for a new door?
MATTHEWS: You could pay anywhere from a few hundred to more that $3,000 to $5,000. So, really try to keep it a low thing in your budget. It's going to make a lot of impact, so the less you can spend to get good impact, the better.
WILLIS: And maybe a bright color.
WILLIS: Let's talk about landscaping for just a second, because people really notice the posies.
MATTHEWS: It makes all the difference.
WILLIS: What's your advice?
MATTHEWS: Well, I think they did a great example of what to do, here. They've got some nice plants that have been established, they're keeping them green and watered, keeping everything healthy is important and they have it nicely manicured and they've set a nice walkway up to the front of the house.
WILLIS: Can I tell you how pretty this brickwork is? Really nice.
MATTHEWS: Yeah, they've done a great job. If you don't have a lot of landscaping or trees going on, some potted plants, some mulch, some rocks, something to manicure it, to keep it looking tidy.
WILLIS: So, let's start by looking at these drawer pulls. This is a cheap and easy upgrade, it can really make a big difference and you don't have to spend a million dollars.
MATTHEWS: No, you don't. You can find door pulls anywhere from $3 to $23. So, find something that fits within your price range. But what they do is they give a facelift to cabinets behind it. And if you're not in the mood to replace your cabinets for $25,000, these little babies can make them look absolutely fresh in no time.
WILLIS: So Amy, you like the lighting here, you think that's a big improvement and also inexpensive.
MATTHEWS: It's inexpensive, it adds a lot of impact, you can find lighting at all different pricing. But like the ones they have here, you can buy for about $20 and they don't have to be hard wired in, they can actually be plugged in. So, that's a great option, and that's going to add interest to your kitchen. People are going to walk in and it's going to have that wow factor.
WILLIS: Not expensive.
All right, let's go upstairs to the bathroom. The bathroom is critical. Let's talk about, for example, caulking, fixtures, all the things that will make a bathroom look really great to a buyer.
MATTHEWS: For sure, the fixtures, the lighting, if it's updated, the place gets a whole new facelift. Outdated faucets look really bad. You put one on a basic old countertop and the whole thing will look like new. So, those are two...
WILLIS: Not that expensive. MATTHEWS: You don't have to do that expensive, and this is, of course, a gorgeous marble countertop, but this is going to make a Formica countertop look great. So those two things are going to give new life.
And then the caulking is really important. Most of the people have caulking around the tub that you don't change out, and you should. You should really replace your caulk or recaulk every year. Not a lot of people do it, so it gets really dingy and kind of dark and full of mold. To clean out the old, put a new bead of caulk in there, it will cost you $5 to $10 for a tube or two of caulk. It is quick...
WILLIS: And 10 minutes, and it takes no time.
MATTHEWS: Exactly, and it will really refresh everything in the bathroom, so don't forget to do that.
WILLIS: OK, Amy. You say one subtle thing, the flooring, you really want to fix the flooring.
MATTHEWS: For sure. Especially if you've got old carpet that has any staining, it's really going to leave a bad impression for those potential buyers. So, get that old flooring out.
WILLIS: What about hardwoods?
MATTHEWS: Hardwoods are so gorgeous and in fact, a lot of real estate agents will tell you that they add instant impact and perceived value to the home. So, if you have hardwood floor under that old carpet, don't recarpet it, keep the hardwood floor and refinish it. Or if you have hardwood floors to begin with, get them done, get them resanded and sealed, and they're going to look beautiful and really give the whole house a facelift.
WILLIS: Well, how much am I going to they pay for that?
MATTHEWS: On average for a hardwood floor that doesn't need a lot of fixing, it's going to be around $3.50 to $4 a square foot.
WILLIS: So, let's review what we learned today. If you're going to sell your house, make small improvements that will be really attractive to buyers. Start at the front door, work your way up to the kitchen, the bath, even the flooring can go make a big difference, and remember you may not get every dollar back that you invest, but the benefit is you'll probably sell your home, fast.
ROMANS: Up next, the latest news from 35,000 feet. More fees, more setbacks, but one airline says, hey, we're ready to offer our customers something new -- for a fee, of course.
ROMANS: Call it a fee for all, the airline industry charging now for just about everything. CNN's Susan Candiotti breaks down the carriers by the charges.
SUSAN CANDIOTTI, CNN NATIONAL CORRESPONDENT (voice-over): If you want to get comfy on JetBlue's leather seats with a pillow and blanket, get ready to pony up $7. We couldn't find any takers on a New York to Florida run.
UNIDENTIFIED FEMALE: I'll use my own pillow, thank you very much.
CANDIOTTI (on camera): You have your own pillow.
UNIDENTIFIED FEMALE: I have my own pillow, right here.
CANDIOTTI: I'll be darned. There it is.
(voice-over): Personal pillows, the latest add-on fee to help offset rising fuel costs. JetBlue also charges up to $20 for extra leg room, estimating it will step up revenue by $40 million, this year.
UNIDENTIFIED MALE: I don't think it's fair to us as consumers.
CANDIOTTI: Whether it's $15 for your first checked bag on five airlines, or $2 for a soft drink and water, as U.S. Airways charges, passengers aren't happy.
(on camera): Will you pay extra for all those little things you used to get for free?
UNIDENTIFIED FEMALE: Not me.
CANDIOTTI: Not ever?
UNIDENTIFIED FEMALE: Never.
CANDIOTTI (voice-over): Southwest is the only airline not charging for extras, and poking fun at others who are.
ANNOUNCER: Southwest, fees don't fly with us.
JUSTIN BERGMAN, BUDGET TRAVEL: People are just sick of being nickel and dimed to death. You know, they want to know what they're going to have to pay.
CANDIOTTI: OK, says Spirit Airlines CEO. In exchange for cut- rate fares, Spirit charges a la carte fees for most everything else.
BEN BALDANZA, PRESIDENT, CEO SPIRIT AIRLINES: You can decide to pack a little lighter. You can decide to take less baggage. You can decide to eat something before you get on the airplane and avoid the fee, as opposed to just raising the base fares $20 or $30 to cover and you have to pay that no matter what you do, so it puts control in the consumers' hands, and we like that. CANDIOTTI (on camera): With airlines taking in millions, thanks to those new special fees, it looks like those a la carte items may be here to stay.
Susan Candiotti, CNN, Fort Lauderdale.
ROMANS: And as far as we know, no carrier yet has started charging for the lavatory, but one carrier is offering a new service that air travelers just might be happy to pay for.
Here is CNN's Rusty Dornin.
RUSTY DORNIN, CNN CORRESPONDENT (voice-over): You can get wireless Internet here, but except on a few test flights, you can't up here, so passengers scramble, frantically texting and e-mailing before the doors close. But next month, Delta says it will offer a Wi-Fi service called "gogo" on some of its domestic flights.
TIM MAPES, DELTA AIRLINES: People are going to be able to get on Delta Airlines and on 330 planes by the time we're done and over 1,000 flights a day, open up their laptop and be able to access the Internet every time we're above 10,000 feet.
DORNIN: The airline says the service won't interfere with electronics and communication, but could the thing most passengers dread be next -- cell phones during flight?
MAPES: People will not have the capability to connect to their cell phones and that is very much at the request of our passengers.
DORNIN: Some members of Congress are supporting a bill that would continue the cell phone ban, but this new service would be allowed.
REP. JERRY COSTELLO (D), ILLINOIS: We are not limiting the use of BlackBerries, e-mail. This would only restrict and prohibit voice communication in flight.
DORNIN: For some fliers, it's worth paying the fee, between $10 and $13 for longer flights.
LESTER RIDEL, BUSINESS TRAVELER: Most of us work off of our laptops and the ability to continue to do that on the airplane, especially considering some of the delays that some of the airlines have been having, that would be fantastic.
DORNIN: Most of the other major airlines are testing and planning to roll out similar systems, making getting connected in some cases easier than making a connection.
Rusty Dornin, CNN, Atlanta.
ROMANS: You can hear much more about the impact of this week's news on your money on YOUR MONEY, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN. We'll see you back here next weekend, but don't move just yet. CNN NEWSROOM starts right now.