May 29, 2009
Still Working, but Making Do With Less
By MICHAEL LUO
LINCOLN, Calif. — The Ferrells have cut back on dance lessons for their twin daughters. Vaccinations for the family’s two cats and two dogs are out. Haircuts have become a luxury.
And before heading out recently to the discount grocery store that has become the family’s new lifeline, Sharon Ferrell checked her bank account balance one more time, dialing the toll-free number from memory.
“Your available balance for withdrawal is, $490.40,” the disembodied electronic voice informed her.
At the store, with that number firmly in mind, she punched the price of each item into a calculator as she dropped it into her cart, making sure she stayed under her limit. It was all part of a new regimen of fiscal restraint for the Ferrells, begun in January, when state workers, including Mrs. Ferrell’s husband, Jeff, were forced to accept two-day-a-month furloughs.
For millions of families, this is the recession: not a layoff, or a drastic reduction in income, but a pay cut that has forced them to thrash through daily calculations similar to the Ferrells’. Even if workers have managed to avoid being laid off, many employers have cut back in other ways, reducing employees’ hours, imposing furloughs and even sometimes trimming salaries.
About 6.7 million people were working fewer than 35 hours a week in April because of “slack work or business conditions,” nearly double the number a year earlier, according to the Bureau of Labor Statistics. A recent survey of 518 large companies by Hewitt Associates, a human resources consulting firm, found 16 percent had cut pay and 20 percent had cut hours or imposed furloughs, far more than the firm has seen in previous recessions. (The actual percentage of workers affected is likely to be significantly lower.)
Some have managed to absorb the shrinking of their paychecks with minimal pain, especially households where a second income has helped cushion the blow.
Melissa Saavedra, a customer service technician for the City of Redlands, Calif., who normally earned about $38,000 a year, took a 10 percent pay cut along with other city workers in January.
In part because Ms. Saavedra’s husband was still employed at an electronics company, the family of five had so far made only modest adjustments. She and her husband take their lunch to work now; she tries to buy meat on sale at the grocery and clips coupons. “We probably had extra money left over every month,” she said. “Now there’s less of that money, but we’re still O.K.”
For families like the Ferrells, however, who were already just a car repair or an appliance breakdown away from falling behind, even a modest step down can bring hard choices.
The furloughs meant a roughly 9 percent reduction to Mr. Ferrell’s $72,000-a-year salary as an industrial hygienist, in which he evaluates health hazards in the workplace. The couple and their two sets of twins — the older twins are 7 and the younger are 20 months — have had to make do with about $450 less per month.
Should they cut the $315 a month they were spending on ballet lessons for the older twins? What about the $55 a month for the satellite television service they had because they could not get regular cable in their semi-rural home here about 40 miles outside of Sacramento?
Rising living expenses over the last few years had mostly exhausted the family’s savings and led to several thousand dollars in credit card debt.
The Ferrells had only recently begun to relax a bit after Mr. Ferrell, 55, received a 5 percent raise in December. But the furloughs, which are slated to extend at least to mid-2010, took away the raise and then some, dropping Mr. Ferrell’s take-home pay to $4,856 a month from $5,308.
In January, the couple sat down at their computer in their cluttered living room and waded through their major bills, including the mortgage, utilities and car insurance. The Ferrells concluded they had just $1,200 a month left over to cover everything else, from groceries to diapers.
Many of their remaining expenses seemed impossible to reduce by much, like the roughly $360 a month for gas. It quickly became apparent how little the family had left over for necessities like food.
“People just say: ‘Oh, it’s just a 10 percent pay cut. Cut the fat out of your budget,’ ” Mrs. Ferrell said. “But we’ve cut the fat. We’ve cut the fat all along, and so this is really pushing us close to the bone now.”
Mrs. Ferrell began mapping out family dinners a month in advance on a refrigerator whiteboard. Instead of grocery shopping at regular supermarkets, she began loading up her minivan once a month at WinCo, a giant, no-frills discount grocery chain.
“That way I can control exactly what I buy,” she said. “I make menus so that I don’t over-shop, or don’t impulse-purchase at the store.”
Mrs. Ferrell estimated the approach saves the family as much as $200 a month.
When the Ferrells told the children’s dance teacher they might have to take a break, she let them attend free for a month. Eventually, the couple decided to continue to pay for lessons, on a reduced schedule, which saved $65 a month.
“They’re little girls, and they shouldn’t have to worry about it,” Mr. Ferrell said. “They should be able to enjoy their childhood. They only get the one.”
The couple decided to keep the satellite television because of the children’s programming.
But Mrs. Ferrell has not had a haircut in six months; Mr. Farrell longer than that. They have also cut back on trims for the older twins.
“We put a lot of conditioner in,” Mrs. Ferrell said.
When the family ran short on sliced bread, Mrs. Ferrell hauled out the breadmaker. She takes few pictures of their toddlers now, because of the cost of film and developing. The Dollar Store has become a regular stop.
The air-conditioning in Mrs. Ferrell’s minivan broke recently. Instead of fixing it, she tries to drive only when it is cool out, or go to places where she knows she can park in the shade.
In the end, a stash of savings bonds that Mrs. Ferrell’s grandparents gave her as a child, which the couple had hoped to save for a home renovation, has become the family’s salvation. In late March, Mrs. Ferrell redeemed one for $2,300. She calculates that at their current rate they have enough bonds to last another year. Gov. Arnold Schwarzenegger, however, is proposing an additional 5 percent salary cut. Mrs. Ferrell hopes her family can simply hang on.
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More prime, fixed-rate mortgages heading into foreclosure
By Steve Johnson
Mercury News
Posted: 05/28/2009 06:01:43 PM PDT
With unemployment rampant, the foreclosure crisis no longer can be blamed entirely on adjustable-rate loans, particularly the risky kind known as subprime mortgages.
For the first time, fixed-rate prime loans — those typically given to people with the best credit — triggered the largest share of foreclosures initiated nationwide in the first quarter, according to a survey released Thursday by the Mortgage Bankers Association.
The development indicates that a "second wave" of the foreclosure crisis — caused by the recession and job losses, rather than subprime loans — is washing over the country.
Nationally, nearly 29 percent of foreclosure proceedings begun in the first three months of this year involved fixed-rate prime mortgages, the association said. That is up from about 25 percent in the fourth quarter last year and about 19 percent a year ago.
By contrast, subprime adjustable-rate mortgages, which represented 30 percent of foreclosures during the fourth quarter and 39 percent a year ago, accounted for just under 27 percent during the first three months of this year.
In California, most foreclosures still involve adjustable-rate mortgages, both subprime and prime. Experts say that's because the state's high cost of housing forces more people to rely upon those types of loans.
But fixed-rate prime loans are faltering here, too. They accounted for 19 percent of foreclosed mortgages in the
first quarter of this year, up from about 11 percent in the fourth quarter and 8 percent a year ago.
Overall, the association reported, 12 percent of mortgages nationally were in trouble in the first quarter, either in foreclosure or past due by at least one payment. That is the highest level ever recorded.
Dustin Hobbs, a spokesman with the California Mortgage Bankers Association, agreed that layoffs were a key cause of the spike in fixed-rate prime-loan foreclosures.
"We have one of the highest unemployment rates in the country," he said. "There aren't a lot of businesses opening up in California, and there isn't a lot of capital flowing into California. Until that happens, it will continue to be driven by the economy and unemployment."
Cathy Warshawsky, president of the California Association of Mortgage Brokers' Silicon Valley chapter, said she also has seen a surge in people who have lost jobs and now are facing foreclosure on their fixed-rate prime loans.
"If they don't have anything in savings, they can't afford to keep making payments on the mortgages they've got," she said. "Getting people working, in my opinion, is the key" to easing the foreclosure trend.
Some valley real estate agents, however, say they've seen an uptick in sales in recent weeks, suggesting the housing crisis may be beginning to abate. Quincy Virgilio, president of the Santa Clara County Association of Realtors, is among them.
"It's hard to interpret these (foreclosure) numbers as to whether or not they're going to impact our market down the road," he said. "Does this mean we're going to see more foreclosed properties on the market in a few years? That's the concern I have. We're seeing a brisk marketplace now. Is that going to end?"
The most recent data from ForeclosureRadar, a Discovery Bay outfit that tracks California foreclosures, hasn't helped to clear up that confusion. The number of Santa Clara County foreclosures spiked in April, but the number of "notices of default" issued declined.
Because those notices are the first step in the foreclosure process, typically sent to borrowers who are a few months behind in their mortgage payments, some experts said it might signal that the housing crisis could be easing in the county — at least for now.
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