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Money Talk
 Dear Readers,
All around the nation, men and women are divided over many more issues than those they are in agreement on: politics and politicians, the war in Iraq, immigration, healthcare, education and numerous other social issues on which there are as many different viewpoints as there are citizens. However, in the past few weeks there has been growing consensus on one subject and that is the E-C-O-N-O-M-Y!
It’s taken us a very long time to get here. If we were to track the course from the early 90’s to today, it would tell a story of the 1990-1991 recession which lasted eight months and then of a strong economy which went into another eight month recession in 2001. Since then there have been years of growing employment and prosperity which led to out of control consumerism and a real estate boom that inevitably had to go bust.
As the housing market continues its downward spiral and as the mortgage market experiences escalating defaults there is a widespread impact into the manufacturing and service sectors and inexorably on unemployment and job growth. On a daily basis the economic news grows more and more dismal. With each economic report the hopes and the likelihood of avoiding another recession diminishes. There is every indication that this recession will last longer and be more severe than any of the previous economic downturns in the past two decades.
The two previous economic downturns that ended in 1975 and 1982, both lasted sixteen months and each more closely resembled current conditions: government budget deficits, the Vietnam War and double-digit inflation. While we aren’t currently in double digit inflation, consumer price inflation rose to its highest level in seventeen years in 2007.
In these challenging financial times it can seem a daunting task to figure out how best to manage your money and your life. Whatever you do, do not make the mistake of ignoring your finances. If there ever was a time to become proactive with your money, this is definitely it.
Whether or not a check from the government's stimulus package makes its way into your mailbox in coming months, the goal of such a package is to “Stimulate” the economy through consumer spending. The fact that the US economy depends on the spending of American consumers whose average credit card debt is already over $9,000, does not bode well for the economy, for consumers or for the country, and is totally counterintuitive to all basic financial principles.
As I speak with people from every area of the country and listen to their many heartbreaking stories of financial loss and struggle, I am reminded time and again of the stress and isolation which accompanies money problems and find myself more dedicated than ever to bringing the education, motivation and support so necessary for taking control of your money and gaining control of your life to clients, to the organizations that work with them and to the employers for whom they work.
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Reeta
Reeta Wolfsohn, CMSW, is the founder of Financial Social Work; she can be reached at 800.707.1002 or at
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Visit us at our website: www.financialsocialwork.com to read our blog and our monthly column "What You Need to Know about Money - NOW!"
News from the Center for Financial Social Work
Money-Wise University Schedule
"Money-Wise U" provides interactive and introspective classes/programs which expand personal awareness as well as increase financial skills and knowledge.
Become a more money-wise YOU at "Money-wise U"
What is Financial Social Work and Why Does It Matter?
Tuesday February 12, 2008 2 PM EST
Emotional stability is very dependent on financial stability and both rely on an absence of debt and an ability to grow assets; today, both remain the most elusive of achievements for every socio-economic group in America. Learn what additional components to financial literacy are needed to help to change financial behavior - because until and unless behavior changes, NOTHING changes.
Instructor: Reeta Wolfsohn, CMSW, founder of the Financial Social Work discipline.
Financial Social Work 101—The Basics Part I
February 27, 2008 2 PM EST
This webinar will introduce the basics of the Financial Social Work psychosocial, multi-disciplinary model and why it is the best practice for engaging clients into the process of creating a more realistic and effective plan for sustaining long-term personal and financial stability.
Cost $22 - Part I and Part II must both be registered for. Click here to register
Instructor: Reeta Wolfsohn, CMSW, founder of the Financial Social Work discipline.
Financial Social Work 101—The Basics Part II
February 27, 2008 2 PM EST
In this session you will learn more about how the various components of Financial Social Work function in tandem to provide the synergy for personal and financial change, stability and success.
Cost $22 - Part I and Part II must both be registered for. Click here to register
Instructor: Reeta Wolfsohn, CMSW, founder of the Financial Social Work discipline.
Why Budgets Don’t Work - and What Actually Does!
March 12, 2008, 2 PM EST
It seems the more we urge and encourage the use of a budget, the less it is used. Learn why the "B" work has such a negative connotation and meets with so much resistance and how just a few words can change everything.
Cost $22 Click here to register
Instructor: Reeta Wolfsohn, CMSW, founder of the Financial Social Work discipline.
Money Makeovers for the Financially Challenged Part I - (Assessing Your “Financial House”)
March 24th, 2008, 2 PM EST
Today everyone is encountering financial concerns and many people are experiencing new and unexpected financial problems due to these challenging economic times. Learn how to begin to measure your true financial situation so that you will be better prepared for the future. You can do this!
Cost $22 - Part I and Part II must both be registered for. Click here to register
Anyone who takes the "Money Makeover" classes will be invited to participate in our first ever "Saturday Support Group" every Saturday afternoon in April, at 2 PM Eastern. Group sessions will be 45 minutes and provide additional information, motivation and support for the "remodel of your financial house." Share and learn with others. FEE: $40 for ALL 4 sessions.
Instructor: Jon Scott is the Director of Education for the Center for Financial Social Work; he has an extensive background in credit counseling and other areas of finance.
Moderator: Reeta Wolfsohn, CMSW, founder of the Financial Social Work discipline.
Money Makeovers for the Financially Challenged Part II
(Beginning Steps in Remodeling Your “Financial House”)
March 25th, 2008, 2 PM EST
Change doesn't happen overnight, but it does happen over time; this workshop will explain how and where to begin YOUR Money Makeover and provide the "tools" to do so.
Cost $22 - Part I and Part II must both be registered for. Click here to register
Anyone who takes the "Money Makeover" classes will be invited to participate in our first ever "Saturday Support Group" every Saturday afternoon in April, at 2 PM Eastern. Group sessions will be 45 minutes and provide additional information, motivation and support for the "remodel of your financial house." Share and learn with others. FEE: $40 for ALL 4 sessions.
Instructor: Jon Scott is the Director of Education for the Center for Financial Social Work; he has an extensive background in credit counseling and other areas of finance.
Moderator: Reeta Wolfsohn, CMSW, founder of the Financial Social Work discipline.
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or visit our website: www.financialsocialwork.com and click on the "Money-Wise University" icon.
The increasing need for services and the growing homeless population are in a very large part due to the sub-prime mortgage debacle which has played such a major role in the decline of the US economy over the past year and will continue to do so in 2008 and beyond. That is why we continue to write about this topic (see article below) and to provide classes on it. If you would like to learn more on this topic, we are pleased to announce that since our FREE Janaury webinar on "Mortgage Meltdown - Everything You Always Wanted to Know but Didn't Know Whom to Ask" was such a success, we will be repeating it on March 13th at 2 PM eastern.
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Mortgage Meltdown - Everything You Ever Wanted to Know
but Didn't Know Whom to Ask
Rising foreclosures, falling home prices, and tight credit are daily headlines. How did we go from a real estate boom to a real estate bust? This informative webinar will help you to understand the dynamics of the current mortgage/real estate market and offer specific solutions on how to survive in these challenging economic times.
Beth Burdick - Instructor: Beth Burdick has over twenty years of financial management and lending experience. Her focus is on creative financing and educating consumers about the smart use of money in real estate transactions.
Money News You Need to Know - NOW
Financial Social Work addresses financial behavioral change and doesn’t traditionally provide lists of specific steps to take for various specific financial problems. However, this month we do want to offer a few suggestions for your consideration if you are finding it increasingly more difficult to pay your monthly bills.
1. This may be an excellent time to pay down credit card debt if you have cards with variable interest rates. Since the Fed reduced rates over the past month, some cards have lowered their rates. Unfortunately, because of the major losses some banks have experienced from the Mortgage Meltdown, they are actually raising the interest rates on their credit cards. Either scenario makes it more important than ever to manage credit card debt efficiently and to do everything possible to avoid building more.
Beware: Late fees are also being raised, balance-transfer caps are being lifted and ATM fees are going up.
2. Home mortgage rates are the lowest they’ve been in several years making refinancing worth exploring.
3. “Loan Modifications” allow lenders to restructure mortgages in order to keep them at their original interest rate, rather than letting them reset to unaffordable higher rates. Unfortunately, this Treasury Department freeze is available only on a voluntary basis from lenders. Not surprisingly, not nearly enough foreclosures are being prevented with this method, but it is worth checking into by anyone who is struggling to keep a home.
4. Foreclosure is a serious hit to your credit score (which plays a very significant role in your financial future,) but your score suffers more if you miss multiple payments on your credit cards, cars, etc. Surprisingly, you may be able to improve your score more quickly following a foreclosure than following a bankruptcy!
If you are having trouble paying contact your lender EARLY! Depending a variety of circumstances your lender may be willing to work with you, so don't wait until it is too late, which is when the calls from the collection agency start coming.
 The American Dream Slips Away - Part II (You can read Part I on our website under "Community")
by Elizabeth Lipscombe - Certified Financial Social Worker
Part I ended with the following:
The Double Edged Sword ~It’s No One’s Fault, But Look Who Gets Hurt:
The sad tale today is that people who have lower incomes, lower assets, poorer credit and/or prior (out of their control) circumstances, can now only dream of having their own home since the Sub-Prime market is gone. On the other hand, mortgages will no longer be approved for those who have shown they cannot manage finances, or do not have this ability due to negative circumstances. Thus, they will not be put through a foreclosure, Deed in Lieu of Foreclosure, and/or other possibly traumatic events. These events include losing the equity in their home, losing closing costs and seeing their credit in the dumps. The lender, investor, and ultimately the economy (including you and I) are affected by this problem to the extent we are now seeing in the Sub-Prime market crisis.
Role of Financial Social Work:
As a social worker and a loan officer, I can understand both sides. I believe the answer is Financial Social Work, as we must educate borrowers on sound financial management, the I.S.S.P. Plan, Net Worth, saving and planning for emergencies, and the future. Once they have demonstrated sound financial management over 6 months or so, then a home purchase would be indicated.
After the Sub-Prime Crisis ~ What the future may hold (the crystal ball):
- Fewer people will be able to buy a home, and they will wait longer ~ We will see the mortgage industry move back to traditional mortgages of the 1970’s and 1980’s when good credit and substantial savings were required to qualify for a mortgage.
- Return of the FHA loan ~ This loan type was popular years ago for those who just didn’t quite qualify for a prime mortgage. These loans fell out of favor in recent years, as innovative mortgage programs were developed that had fewer restrictions. Those options are now gone.
- Increases in apartment rent costs ~ This is simple supply and demand. Fewer people will qualify for mortgages; therefore they will rent, and landlords will be able to charge higher rent.
- Some geographic areas will see a decline in home prices as the market softens ~ A “market softening” means the demand for homes is decreasing. Homes are harder to sell as they are competing for fewer buyers. This usually results in a longer time to sell a home, and lowering of the final sale price. In general this is called a “Housing Market Slow Down.”
- Bank Domination in the lending market ~ This is where we are headed with the Sub-Prime crisis forcing many lenders, mortgage brokers, and small bankers to go out of business. The banks will dominate the market, giving borrowers limited choices in lenders, decreasing competition and increasing the cost of a mortgage. Currently, banks charge set interest rates, and all fees are set and non-negotiable. Mortgage Bankers offer an alternative to traditional banks as they are often able to negotiate interest rates and fees due to financial backing by multiple investors. Competition is good for the consumer and the strength of the economy.
- Return of the smaller, more affordable home ~ In the past few years we have seen new home construction lean towards larger and grander homes. With greater affluence due to a strong economy, low unemployment, imported goods from overseas, and interest-only loans, we have seen Americans able to afford (and want) bigger homes. As qualifying restrictions for mortgages return, people overall will qualify for less home even with good credit and assets. This is due to having to qualify on a fully amortizing payment (principle and interest), stricter debt-to-income ratios, tightening of qualifing credit scores and lowering of loan amounts to value of the home. The tritely gabled “McMansions” may end up on the endangered species list before this is over!
- Ripple effect of Sub-Prime mortgage crisis: ~ Here is an example of how one area of the market can determine the economic status of our country. Every stage of this cycle affects every one of us…and our clients.
~ Borrower is unable to qualify for a home loan, which leads to…
~ Down turn in the housing market, which leads to…
~ Job loss/insecurity, which leads to…
~ Decreased consumer spending/saving, which leads to…
~ Higher prices and interest rates, which leads to…
~ Increase in loan/credit defaults, foreclosures and bankruptcy which lead to…
~ Inflation, which leads to…
~ Employers unable to hire employees due to increased cost of raw material and decrease in demand
for products, which lead to…
~ Economic recession, and…
~ Borrowers unable to qualify for a home loan which takes us back to the top….
This is why circumstances may require the Federal Reserve to intervene with any number of tactics depending upon the specific economic factors needed to break the cycle (or slow it down or start to reverse it). Usually the Federal Reserve will only get involved if the cycle is escalating into an unhealthy spin that it is unable to stabilize itself without intervention.
What this means to Financial Social Workers and Our Clients:
- Financial social workers will need to understand the changes that are occurring in the mortgage industry, the home buying market and how these changes will affect them and their clients. The world of finance is ever-changing. Continual learning is required to remain current for ourselves and our clients. Knowledge is power, and whoever has the knowledge will fare better. The question is, “Who will it be….Banker or Social Worker (and clients)?”
· Loss of the dream. Our clients will struggle longer with not being able to purchase their piece of the American Dream. They will pay higher rent while striving to save for larger down payments. They’ll struggle with low paying jobs and increasing living costs. They will have less ability to save…perhaps none at all. They may go through the application process several times, continually being turned down. We will need to use the M.E.S.S.I.E model with them and counsel them for reactive depression to their circumstances.
· Poor credit and high loan amounts in relation to the value of home will no longer be accepted. Good credit will be the single most important factor in qualifying for a mortgage. As Financial Social Workers, we will have to educate our clients on managing credit and address areas where they’re struggling with spending, bill paying and saving for emergencies. Counseling for psychosocial issues that impair these areas will be critical.
· As the interest rates rise, mortgage related layoffs, ripple effect unemployment, underemployment and fear will play a factor in our clients' lives. Even if your client is not trying to buy a home, the economic fallout from the Sub-Prime crisis will affect everyone in his or her pocket book. It may be anything from higher consumer prices, higher rent, all the way to a potential job layoff. We need to look at all clients for possible financial fallout.
- It will be harder to save. As ripple effect inflation affects the consumers, it will be harder to save for an emergency fund, a home and/or long term assets. This will be true of everyone. Economic impact knows no boundaries.
- Affluent clients are not immune. Jumbo mortgages, those over $417,000, (especially for self-employed borrowers) are now harder for one to qualify. Investors do not want to put so much money on the line, especially with unsteady income borrowers. Do not be surprised as the more affluent seek counseling due to forced changes in spending, loss of disposable income and spending decisions they’ve never faced before.
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- Waiting longer to own a home. This will be hard for most, and we will need all our Financial Social Work skills to support them emotionally for the challenges and disappointments, as well as teaching life-long skills that will most certainly include the delay of gratification.
The Sub Prime crisis has brought many changes - both good and bad. These changes will eventually bring both stability and growth back into our economy to some degree, but at the expense of those who are struggling to achieve the “American Dream.” As Financial Social Workers we have an opportunity to educate and counsel people toward having the home they are dreaming of in these challenging times.
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