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YOUR MONEY

Paula Deen's Empire Crumbling; U.S. Housing Market Is Healing As Mortgage Rates Start To Climb

Aired June 29, 2013 - 09:30   ET

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


CHRISTINE ROMANS, CNN ANCHOR: Paula Deen's $17 million empire is crumbling like a butter-laden coffee cake. I'm Christine Romans. This is YOUR MONEY.

Deen is losing one business deal after another, following her admitted past use -- past use -- of racial slurs. Now it started with The Food Network and it hasn't stopped. Wal-Mart, Home Depot, Target, Caesar's Entertainment, Smithfield Foods, all will stop selling her goods or end whatever their business relationship is with her.

Even the diabetes drugmaker Novo Nordisk has cut its ties with Deen. She had been the face of its patient education about the disease.

And QVC, it says it is taking a pause. Her comeback trail is getting cloudier by the minute. But she's hardly the first celebrity to encounter scandal.

(BEGIN VIDEOTAPE)

ROMANS (voice-over): Martha Stewart went to prison for lying about a stock sale.

MARTHA STEWART, HOME FURNISHING MANUFACTURER: I'll be back. I will be back.

ROMANS (voice-over): She is. Last year her company did nearly $200 million in revenues.

NFL star Michael Vick also did time for bankrolling a dogfighting ring. Post prison, he became an ambassador against animal cruelty.

MICHAEL VICK, FORMER NFL STAR: I encourage you to love your animals, your animals or whatever you -- whatever animal you have, whether it's a dog, a cat, it's a reptile, you know, if it's a horse.

ROMANS (voice-over): Golfer Tiger Woods survived an infidelity scandal to regain the world's number one's ranking.

And, yes, sportscaster Marv Albert gradually rebuilt his career following an embarrassing sex scandal that ended with a misdemeanor assault plea.

But such comebacks are not guaranteed. Cycling legend Lance Armstrong fell from grace following a doping scandal; a confession to Oprah wasn't enough. OPRAH WINFREY, TALK SHOW HOST: Yes or no: did you ever take banned substances to enhance your cycling performance?

LANCE ARMSTRONG, FORMER PROFESSIONAL CYCLIST: Yes.

ROMANS (voice-over): The scandal cost him millions in endorsement deals, forced him to step down from the charity he founded.

But did Paula Deen cross an unforgivable line because her comments were about race?

Sports commentator Jimmy "The Greek" Snyder was fired by CBS in 1988 for this.

JIMMY SNYDER, FORMER CBS SPORTSCASTER: The black is a better athlete to begin with, because he's been bred to be that way.

ROMANS (voice-over): Mel Gibson's career has suffered since racist rants were caught on tape.

Then there's Don Imus. The broadcaster's offensive comments about the Rutgers women's basketball team cost him his radio and television show. But a few months later he was back on the air waves.

Gibson, Snyder and Imus all apologized for their remarks.

But will remorse save Deen? In a tearful "Today" show appearance, she insisted she is not racist and she got biblical.

PAULA DEEN, CELEBRITY COOK: If there is anyone out there that has never said something that they wished they could take back, if you are out there, please pick up that stone and throw it so hard at my head that it kills me.

(END VIDEO CLIP)

ROMANS: So is Paula Deen redeemable or has she uttered her last on- camera y'all?

Bob Zito is the founder of Zito Partners, which specializes, among other things, in crisis management.

And Pamela Brown is a CNN correspondent.

Bob, I want to start with you. Deen's "Today" show appearance, it didn't seem to help her. More companies dropped her after that appearance. We know she's hired a crisis management manager.

If you were managing -- if you were advising her, what would you tell her to do?

BOB ZITO, FOUNDER, ZITO PARTNERS: I don't know her, but I think it's very important with anyone that you not put them in a situation where they are uncomfortable. And boy did she look uncomfortable.

ROMANS: You thought she looked uncomfortable? ZITO: I really did. And anytime you make someone do something outside the box that they're comfortable in, it's a disaster.

ROMANS: What if you're -- well, the whole situation must be uncomfortable, quite frankly. You know, it started as a lawsuit and has blown up into a very big, big public fight.

If you are advising the companies, all of these companies dropping her or at least hitting the pause button, if you are advising those company boards, what do you tell them?

ZITO: I think you want to -- you ask her to suggest that they withdraw for a while, let's step back, let's take a time out from the relationship. Let me deal with the issues that I have. Let me get through this and then let's talk about what we are going to do next.

ROMANS: And that's -- none of that happened there?

ZITO: That takes the company off the spot.

Instead, I am sure there is a morality clause in every agreement she has and she probably violated it and therefore the companies felt they had to.

ROMANS: Is there a playbook for stuff like this?

ZITO: There's a playbook, but as soon as it happens, you throw out the playbook.

ROMANS: Right, because every crisis is a little bit different.

ZITO: Yes.

ROMANS: Every crisis is a little bit different.

When you look at her book sales, Pamela, this week her books sales, soaring. I mean, some of these things are on back order. One -- her new book hasn't even been out yet. They've got lines in front of her restaurant, so her hardcore fans are outraged that she is being sort of victimized, in a way. It's interesting, that response.

PAMELA BROWN, CNN CORRESPONDENT: You know, it's almost like this backlash has galvanized her fans, you mention the long lines outside of her restaurants in Savannah, and also her cookbook skyrocketed to number one on Amazon.com. It went from the 1,500s to number one after the scandal.

I was reading through the comments and a lot of people are saying I don't even like to cook, but I am buying Paula Deen's book because I want to support her. This is my way of supporting her.

Her -- there was a second cruise line added after this because the ticket sales shot up from that.

Also what's interesting here, The Food Channel, not to be confused with The Food Network, is being inundated by Paula Deen's fans that are angry about this. The Food Channel is saying, hey, we're -- you've got the wrong network here. But we are interested in possibly picking up Paula Deen. In fact, Paula Deen's PR team have contacted The Food Channel to open up discussions about a relationship there.

So you know, obviously we have seen some big companies drop her, about half a dozen, but at the same time, we are seeing her fans come together and we could see some new opportunities spring up from this.

ROMANS: And we have seen -- you never count out a comeback. I mean, this is the comeback country, right? I mean this is how Martha Stewart handled the morning TV appearance when the insider trading scandal erupted for her back in 2004.

(BEGIN VIDEO CLIP)

STEWART: My employees and I are hard at work at making our company the best Omnimedia Company in the world, Jane, and we will continue to do that and I want to focus on my salad.

(END VIDEO CLIP)

ROMANS: I want to focus on my salad. Remember that?

Can Deen learn something from Martha Stewart?

ZITO: Different situation. And to the point we made earlier, Martha Stewart was on the board of the New York Stock Exchange and she withdrew.

ROMANS: That's right. And Bob Zito was working at the New York Stock Exchange -- that's a very, very good point. So she made the first move and withdrew from the board.

ZITO: Yes.

ROMANS: Huh. That's a really good point.

In the celebrity culture in America, Pamela, we see them built up and then we see them torn down so quickly.

Do you think that some of her fans were galvanized by all this, see that? They see her as sort of a scapegoat?

BROWN: I think we heard Reverend Jesse Jackson yesterday over Twitter, and basically that's exactly what he said, he said, look, let's not use her as this sacrificial lamb or scapegoat for what he called Southern culture, what -- you know, what the state of southern culture.

Whether you disagree with that or not, I do think that a lot of her fans are saying, look, she said this 30 years ago. Let's not take out any of our --

ROMANS: There are those who are saying that is this a word you say just one time? Just one time (inaudible) --

BROWN: And that's what the question still is.

ROMANS: And there are those who are galvanized by her appearance and feel like she's a made-to-be martyr. And then there's the other side of the fence, that they're saying, wait a minute, here. We think that there -- this is a tipping -- this is the tip of an iceberg.

I mean, her reputation has been very, very damaged here, Bob. How does she get it back?

ZITO: Her reputation is damaged. But remember, we sit in a city where Eliot Spitzer got a television show, where the mayoral candidate, Anthony Weiner, is leading the polls right now, and 70 miles up the road from where Michael Vick is lionized by 60,000 people every Sunday who pray the only thing that happens is he doesn't fumble. So yes, he can, she can make a comeback.

ROMANS: Full disclosure: I've interviewed her several times, I mean, she wrote a little blurb. She read my book before I came out. She wrote a blurb for my book. She is someone I've never heard her use this language. Obviously, people around her have said, you know, who work with her daily, say they never heard this language. She is a saucy character, though. She says what she means. She doesn't have a filter. And I will say that about her.

And we'll see what the next chapter holds for Paula Deen. Nice to see both of you guys.

Coming up: mortgage rates just saw their biggest weekly jump in a quarter century. If you have been on the fence about buying or refinancing, it's time to get off the fence, folks. What rising rates mean for your wallet and the economy, next.

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(COMMERCIAL BREAK)

ROMANS: The U.S. housing market is healing, home prices are up, so are home sales and the pace of home construction. But so are mortgage rates and they are moving higher fast.

Last week mortgage rates soared, the biggest rise in mortgage rates in one week since April of 1987. Rates on 30-year fixed loans rose more than half a percent to 4.46 percent. That was just in one week; 15- year rates jumped to 3.5 percent.

Mortgage rates have been on the rise since late April. The average 30-year fixed loan was 3.35 percent as recently as early May. Now it's at the highest level since July 2011. So let's do the math.

A $200,000 home loan costs $880 a month, that's how much it was, a payment in early May. That same loan, a monthly payment on that same loan at today's rates would be $1,000. That's real money right out of the family budget.

So why is this happening? Federal Reserve chairman Ben Bernanke said last week the Fed may start tapering back its extraordinary stimulus as the economy improves. That stimulus has kept mortgage rates low. It can't last forever and that means you are going to pay more to borrow.

Don't get me wrong. Rates still historically low, but they're not nearly the deal you were getting a year ago. So if you want to lock in these low rates, you'd better do it soon.

I want to bring in Jonathan Miller, president and CEO of Miller Samuel (ph), a real estate appraiser.

Jonathan, is it your assumption that mortgage rates are going to keep rising and that they could pinch this recovery in housing?

JONATHAN MILLER, PRESIDENT AND CEO, MILLER SAMUEL (PH): Well, I don't know if pinch is the right word, but I think what it does is get housing back to reality. In other words, Fed policy is effectively what's driving housing prices up. Tightness of inventory is caused by tight credit.

I think as we see mortgage rates start to rise, yes, affordability drops, but I think we're going to see credit ease, which then brings in a broader array of buyers to housing.

ROMANS: Right, right, right. So it's not necessarily a tipping point. Higher mortgage rates are not necessarily a tipping point for consumers, really?

MILLER: I don't think so. And it's not like we didn't see this coming for the last couple of years. Rates basically couldn't go any lower. At some point that means they have to go up.

ROMANS: I would argue, too, if you're sensitive to -- I mean, don't get me wrong, it hurts, but if you can't buy a house because of that half a percentage point move, if you can't afford a house at 4.6 percent but you could at 3.5, you probably shouldn't be in the business of buying a house right now, right?

I mean, because there's still very low rates. You need money in the bank. You need a job. And then you should be able to buy a house no matter what these low rates are?

MILLER: Yes, it -- clearly, people on the margin that don't quite fit in -- what's interesting, though, is that with rates rising, that signals that the economy is probably getting better. It's not a direct correlation, but clearly, you know, we are seeing a better market going forward, a better economy going forward and that is good for housing. I think housing has been sort of addicted to low interest rates. And now we need to wean it off so that we get a real housing recovery as a period rather than just a period of better housing stats.

ROMANS: Yes. So let's talk about some of these stats. Home prices in particular, the Case Shiller index, home prices jumped 12.1 percent in April, versus a year ago, I mean, you can look at that trend over the past year. This is 20 cities as measured by S&P's Case Shiller. The top real estate markets really in the nation, the biggest annual jump in seven years, but inventory is still really tight.

Is it safe to assume that these price gains that we were just showing you, they are bound to slow?

MILLER: Yes, I think what you are going to see with rising rates, is you're -- it's actually a good thing in the long run, because what it's going to do is temper the pace of price appreciation. You think about it, a 12 percent rise in the Case Shiller index, did people's income rise 12 percent over the last -- ?

ROMANS: No.

MILLER: -- year? Right, it's a play on tightness of inventory.

ROMANS: And talk a little bit about that tightness of inventory because I mean maybe for some people who aren't familiar with the terminology, there aren't enough houses for sale in some of these markets, so home prices are popping because if you have to buy, you just don't have a lot to choose from.

MILLER: Right, inventory is down, virtually across every major market in the U.S.

ROMANS: Because people are underwater?

MILLER: Well, that's a big part of it. Roughly about --

ROMANS: Can't afford to sell it. You can't afford to put it on the market?

MILLER: Right, right, exactly. Homeowners, when they sell their home, they have to buy or rent, and rents are rising across the country.

They have to qualify. If they don't qualify, what do they do? Nothing. They don't list their home, therefore inventory remains tight.

We are not replacing the housing stock that is being sold by new housing stock because credit remains historically tight.

ROMANS: Another reason why we are seeing the pop in home prices is because sometimes the foreclosures have been keeping prices down in some neighborhoods, as you work through those foreclosures, get them out of the system then prices can start to rise, too.

What is the foreclosure situation in your view?

MILLER: Foreclosure situation is clearly trending towards the -- on the downward slope that we are still significantly elevated, and there is a heavy concentration in four or five states, where over half of the foreclosures are occurring, but it's getting better and it's not what it was back a couple years ago.

Still, housing market can't truly be qualified as recovered until we get distressed real estate more fully absorbed. ROMANS: If you were to give a letter grade on the housing market what would it be?

MILLER: I think I'd give it a C plus, really trying hard for a B minus.

(LAUGHTER)

ROMANS: Your one piece of advice for sellers?

MILLER: I think you have to look at the market. What sellers do, is when they -- they read about everything popping, they get greedy. And not everything is selling. You have to price within the market norms at that point.

ROMANS: Price it right. And what about for buyers?

MILLER: Buyers, I think I wouldn't panic if you really want to take advantage of rates. I think rates will be pretty reasonable over the next couple of years, and don't -- just take your time. Find something that you want. Just don't rush in and buy something just because you think you are supposed to.

ROMANS: Buying real estate is not buying an ETF or something, you know, it's a very big commitment that is a lot of money. It's so nice to see you. Thank you for coming in.

MILLER: Good to be here.

ROMANS: Take it easy.

All right. Up next, hey, college kids, you are going to pay double to borrow money for tuition next year, as if college isn't already expensive enough.

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(COMMERCIAL BREAK)

ROMANS: All right. This next story is going to affect about 7 million people.

On Monday, student loan interest rates set to double from 3.4 percent to 6.8 percent. They will double. That's because Congress failed to reach a deal before the July 4th recess. Zain Asher joins us now for what this means for students and for those footing their bills.

ZAIN ASHER, CNN CORRESPONDENT: Right. So first of all, it's not all types of student loans that are going to be affected. It's subsidized Stafford loans. These are need-based loans for students who can demonstrate some degree of financial hardship.

But yes. When these loan rates do double, as we anticipate they're going to, those students could end up paying $3,000 to $5,000 more over the life of the loan. Take a listen.

(BEGIN VIDEOTAPE)

RACHEL BOEHR, STUDENT: I am almost $60,000 in debt, which will affect my ability to get a mortgage, to have children and put them through a good education and it will affect what kinds of jobs that I choose.

ASHER (voice-over): Columbia student Rachel Boehr started out studying drama, but skyrocketing tuition costs forced her to drop out. Now at age 30, she's only just finished her undergraduate degree.

BOEHR: We're asking too much of our college students, and we're narrowing and narrowing the field of who can be a college student in the country.

ASHER (voice-over): American college grads are more than $1 trillion in collective student loans. As tuition costs continue to soar, rising interest rates could soon be their next headache. Interest rates for need-based or subsidized Stafford loans were affixed at 3.4 percent. Now that Congress hasn't intervened, that rate is scheduled to double.

RYAN MORGAN, STUDENT: I definitely think that doubling the rate to 6.8 percent would definitely increase default rates because, again, the students who are receiving the subsidized loans are from the lowest income brackets.

ASHER (voice-over): While some lawmakers want to keep the rate at the lower 3.4 percent at least temporarily, others say student loan rates should be allowed to fluctuate along with market forces.

KALMAN CHANY, AUTHOR: I think there's going to be some kind of compromise, some kind of adjustment. I don't know if they're going to go to a variable rate loan. My guess is they may just kick the can down the road and say we'll just do this for one year and we'll revisit it another year later.

ASHER (voice-over): The higher rates could be a revenue booster for government generating $36 billion this year at a time when Congress is scrambling for new sources of cash.

But raising the rates could also cost students as much as $5,000 more in loan repayments over the next 10 years.

SARAH SCHUTZ, STUDENT: The president and Ms. Obama just finished paying off their student loans and I think that the fact that they are 40 years old and they still were paying off student loan debt is really scary. We could even be 50, 60 years old without having paid off our student loans.

BOEHR: The politicians have to look beyond their own self-interest because college students like myself and my peers are counting on them.

(END VIDEOTAPE)

ASHER: Right. So the good news is that Congress can actually reach an agreement after Monday and then enact it retroactively, but right now lawmakers are deadlocked. On the one hand, should they allow loan rates to fluctuate along with, for example, the 10-year treasury? But is that really fair on students and parents not to give them any safety net?

On the other hand, if you extend the lower loan rates at 3.4 percent is that really fair on the government when we are under so much pressure to reduce the deficit?

ROMANS: And taxpayers. I mean, it is taxpayers who foot that bill. So you can also make sort of this ideological argument that do you want to fund someone else's degree that maybe they're not going to get a job in? Or their five years at school? You know what I mean? We have to start to think about is it taxpayer support of out-of-control tuition?

ASHER: And I actually spoke to students and they were saying to me, listen, Zain, on the one hand, it is important to lower the loan rates. But on the other hand, the government should really look at ways to actually lower the cost of actually going to college. So $31,000, it's so much, especially when you can't guarantee you're going to get a job after.

ROMANS: I know. I think if you're going to spend $60,000 or $100,000 to go to a big fancy private school, you should think about a state school. Guess what? You're going to graduate with a lot less debt.

Zain, nice to see you.

All right. Coming up, do you follow Justin Bieber? Do you follow Kim Kardashian on Twitter? Why their tweets may not always be what they seem.

(COMMERCIAL BREAK)

ROMANS: If you're one of the millions of people who follow celebrities on Twitter, you get an inside look at what the rich and famous are up to, but how can you tell if you're reading a genuine tweet or just an expensive ad?

(BEGIN VIDEOTAPE)

ROMANS (voice-over): Justin Bieber gives tips on where to buy Mother's Day flowers. Miley Cyrus raves about her airline carrier. And Kim Kardashian tweets about her lip balm. But how do her 18 million followers know if she's getting paid or if she just really loves her ChapStick?

MARY ENGLE, ASSOCIATE DIRECTOR OF ADVERTISING PRACTICES, FTC: It's really important for the audience to be able to understand when someone is endorsing a product, saying positive things about it, whether they've been paid to do that or not.

BILL COSBY, COMEDIAN: How long has it been since your mom has fixed Jell-O pudding for you?

ROMANS (voice-over): For decades advertisers have used celebrity endorsements to push their products. Having a famous spokesperson gets a brand more attention and more credibility. Now social media has opened up a whole new world for advertisers. They can access a star's millions of followers with just one tweet.

But that attention doesn't come cheap, ranging from a couple hundred bucks to tens of thousands of dollars for one little tweet. The Federal Trade Commission requires companies to disclose a paid advertisement.

ENGLE: We don't prescribe specific rules or words that have to be used, but ad is very clear.

ROMANS (voice-over): Some celebrities are using the disclosure. Like when Hilary Duff wished her husband a Happy Father's Day or when Charlie Sheen went searching for an intern, so his 10 million followers knew he were compensated for plugging internships.com.

ENGLE: The beauty of ad is only two characters long. And so it should be easy to do, even in a tweet.

ROMANS: But with only 140 characters to spare, some say there's no room for an extra hashtag.

(END VIDEOTAPE)

ROMANS: Thanks for joining the conversation this week on YOUR MONEY. Coming up at 2:00 pm, if this generation has Marissa Mayer, my generation had Carly Fiorino, the first female CEO of Fortune 50 company. She knows how to create jobs and she joins me for a brand new YOUR MONEY at 2:00 pm Eastern.

Until then, you can find me on Facebook and on Twitter. My handle is @christineromans.

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