|Volume 9, Issue 1, 2009||Federal Reserve Bank of Dallas|
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Notes from the Field: Interview with CCCS of Greater Dallas
In an interview with the Federal Reserve Bank of Dallas, Todd Mark, vice president of education at Consumer Credit Counseling Service (CCCS) of Greater Dallas, discusses the biggest issues clients are facing.
Dallas Fed: What is your call volume and how has it changed over the past year?
Todd Mark: We had a 41 percent increase in counseling sessions from 2007 to 2008. This increase accounts for 60- to 90-minute one-on-one sessions on budgeting, fixing credit and addressing housing problems. The vast majority of this increase came from the 15,500 housing counseling sessions we conducted with clients. This number represents a 294 percent increase in housing sessions, which do not account for the 50,000-plus calls we have received.
In addition to running one-on-one sessions, we taught more than 1,200 classes last year, reaching just over 30,000 people. We also helped approximately 15,000 of our clients create debt management plans so that they could pay down their debts.
Dallas Fed: What are the biggest issues your clients are facing?
Todd Mark: Foreclosures, debt and job loss. In 2007, one-fifth of our work was counseling people facing foreclosure. Now a little more than half of our work is foreclosure prevention. Typically clients' problems are that they borrowed too much or didn't understand the financial products they purchased.
More recently, however, the problem we're seeing is with income. They lost their jobs, or their employer cut back the hours they were dependent on. Loans that they got were based on their old income, so while they could stay above water before, now they're in crisis mode.
Before this current economic downturn, we saw credit card debt average around $22,000. Now the average debt is close to $28,000. The average gross income of our clients is $39,000, so this jump in debt has significant and serious consequences.
With less spending money and little or no savings, people are using their credit cards more, so they are accelerating their balances at a faster rate, and when they max out, they often fall delinquent on their mortgages.
The negative savings rate is at the heart of this economic crisis. With no emergency savings and no contingency plans, consumers have no buffer as times get tough.
Of those who have adjustable-rate mortgages, when their payments go up, they're even more strapped. The drop in home values has meant that there is little to no home equity to borrow, and this is often a barrier to refinancing. Sometimes an option is to dip into their 401(k) accounts, which cripples their retirement plans and is certainly a poor option during a down market. For many, their credit lines are maxed out or closed, which can compound their financial problems because their cash flow is severely limited. This is the crisis that we're seeing many clients face.
Dallas Fed: Do your clients tend to contact you immediately, when they know they will not be able to pay all their bills?
Todd Mark: No. We usually get calls when people are months late in paying their mortgage. Oftentimes clients already have received a foreclosure notice in the mail.
Dallas Fed: When clients call to ask how they can avoid foreclosure, what do you do?
Todd Mark: We focus on their entire financial situation, from their mortgage and car payments, utilities, food and insurance to credit card debts and beyond. We examine if they have an income shortage, monthly expenses beyond their means, a life-cycle event (such as a layoff, divorce or medical problem), or if they are experiencing payment shock from their mortgage resetting.
When we work on clients' mortgage issues, we are finding that mortgage servicers are increasingly willing to make borrowers' payments more affordable so that they can get caught up on their payments. As a result, more of our clients have positive outcomes.
Dallas Fed: What lessons can we take away from your clients' experiences?
Todd Mark: People need to be focused on recession-proofing their finances so that they have savings to absorb unexpected expenses, from increases in gas and food prices to medical emergencies.
Emergency savings is vital. With savings, unexpected expenses are just a bump in the road; without savings, these expenses can be a crater that you crash into. CCCS' message to everyone is to have a financial plan and implement it. This means knowing how to prioritize monthly expenses and be able to discern between wants and needs. It is vital to set short- and long-term financial goals so that we can make better money management decisions. Financial education and empowerment is the key.
—Elizabeth Sobel Blum
e-Perspectives, Volume 9, Issue 1, 2009