For families, 'worst factors coming together at once'

Alex Gary

When a local business adds staff, services and hours to keep up with demand, it’s celebrated as a success.

Not this time.

The business in question is Family Credit Management, a Rockford-based credit counseling and debt-management agency. And the surge in business is another sign of worsening economic times for working-class families.

“I’ve been here for five years, I’ve been in credit counseling for 10 years and, without question, this is absolutely the busiest we’ve ever been,” Vice President Heidi Berardi said. “It just seems like all of the worst factors are coming together at once. The job market is soft, banks are not lending as much, and expenses are just so high — gas, utilities and the cost of food.”

Family Credit also has offices in Chicago, Bloomington-Normal and Peoria. Its counselors, though, help people nationwide by phone. To try to meet the growing need for help, Family Credit added mortgage counseling to its services and staff to keep its offices open to midnight Mondays through Thursdays. It’s open until 7 p.m. Fridays and 3 p.m. Saturdays.

“Even with the changes we’ve made, there’s more demand than we can meet,” Berardi said.

In the 1960s, economist Arthur Okun created the “misery index,” which adds the unemployment rate to the inflation rate to better track the economic and social cost to the country. If the resulting number surpasses 10 percent, it signals tough times for the American consumer. When Jimmy Carter was president in 1980, the index climbed to its worst score to date, 20.76.

Today, the Rock River Valley misery index — combining the national rate of inflation with the local jobless rate — has topped 10 percent every month since October, with a 12.8 high in January. It slid to 11.1 percent in May.

What’s driving the inflation increase is common knowledge. The surging price of crude oil, driven largely by demand from developing countries, has pushed gas above $4 a gallon. The rush to pump out more ethanol to combat those fuel prices — and growing demand from developing countries, mainly India and China — means greater corn production, which has raised the cost of food worldwide. Some prices are more than 40 percent above their cost a year ago.

To track local food prices, Register Star reporters have been charting prices at Rockford grocery stores. Since April, costs of 16 staples — including milk, bread, eggs, cereal, beer and frozen pizza — have increased nearly 7 percent.

What’s pushing the jobless rate upward are manufacturing losses in the automotive sector and losses in residential construction industries. Chrysler eliminated a shift at its Belvidere assembly plant in March because of the company’s slumping fortunes, and suppliers around the plant consequently cut staff. Many tradesmen have gone months without working, and such companies as Estwing Manufacturing Co., which makes high-end hammers, had to lay off workers because of slumping sales.

But even those numbers don’t tell the whole story.

If bankruptcies, which are at three-year highs, and foreclosures, which have been rising for several years — including 2007, when a record 938 foreclosures were filed in Boone, Ogle and Winnebago counties — are included, the picture becomes increasingly bleak.

Many levels of the foreclosure market have to stabilize before that issue goes away.

“You have lenders trying to unload properties to investors and not-for-profits, but so many are in massive disrepair,” said Bob Campbell, executive director of the Rockford Affordable Housing Coalition, which also provides foreclosure-prevention services.

“The mortgage companies haven’t loosened lending standards, and that’s hurting buyers. Now we have issues where people are qualifying for mortgages through Fannie Mae or Freddie Mac, but the mortgage insurance companies have suffered such losses that they won’t give them insurance.”

The 2007 foreclosure record seems sure to be passed in 2008. Winnebago County foreclosures hit another high through May: 262, a 34 percent increase over the same period in 2007, which recorded 195.

What next?

Whether the economy is in a recession has been a popular debate for much of this year. The official definition is that the gross domestic product has to decline for two consecutive quarters, and there has yet to be one declining quarter.

Recession or not, much of the debate is about how long it will be before times begin improving.

Campbell doesn’t foresee an improvement until next spring or summer.

“The major difference today, compared with 2004 or 2005, is when people start to get into trouble, there’s no longer lending institutions willing to step in and bail them out.”

Some of the financial industry’s biggest names have been hammered in the fallout from the struggling housing market:

Merrill Lynch and Lehman Brothers have taken major losses.

Citigroup warned that its profits are going to take a hit.

AMCORE Financial was forced to shift millions to loan-loss provisions to guard against failing loans to land developers. Investors have punished the company for it, driving its stock price from a high of near $35 in February 2007 to less than $7.

Rick Bastian, president and CEO of Beloit, Wis.-based Blackhawk Bank, said the financial industry will have to stabilize before any turnaround.

“What disturbs me most about the current environment is the systemic chaos and near-collapse in the financial markets,” Bastian wrote in his blog at

“Economic activity and financing of an economic recovery depends on healthy flows of credit. It is going to take awhile for the gaping wounds to heal. Against the backdrop of rampant inflation, it won’t be easy.”

A success story

Berardi of Family Credit Management said families are falling behind for a variety of reasons. Her agency added mortgage counseling because of the number of people holding loans with prohibitive interest rates or who bought homes at low “teaser” rates that are resetting at higher rates.

“We’re living this lifestyle that we believe is attainable, but we’re ultimately denying ourselves a future. We are not saving for retirement or for emergencies. When something happens, there’s nothing to fall back on,” she said.

She has also seen a marked increase in the number of senior citizens who can no longer afford the lifestyle they planned because of illness or skyrocketing expenses.

Charles Hartman, 68, of Rockford sought Family Credit’s help after a head injury knocked him out of work for several months. After he recovered, his employer — a small engine-repair shop — had already filled his job.

It was the latest hit to his golden years. Hartman worked for Textron Fastening Systems for decades until Textron closed several of its local operations and sold off the division.

“We have our Social Security and my wife has a job, but without that extra income, we just started falling deeper into a hole,” he said. “We’re not the type to walk away from things. We feel we have an obligation to pay our bills. We were talking with one of our loan companies, and they suggested Family Credit.”

Hartman signed up for Family Credit’s debt-management services, where counselors contacted his creditors to negotiate lower rates and payment plans.

“When we called credit card companies, we didn’t get very far. But when they called, they were able to make changes right away.”

Hartman was reluctant to talk about his finances at first, “but if anything comes out of this, I want people to know they can get help.”

Alex Gary can be reached at or (815) 987-1339.

You can avoid foreclosure: 10 tips from HUD

Are you having trouble keeping up with your mortgage payments? Have you received a notice from your lender asking you to contact them?

1 Don’t ignore the problem.

The further behind you become, the harder it will be to reinstate your loan and the more likely you will lose your house.

2 Contact your lender as soon as you realize you have a problem.

Lenders do not want your house. They are financial institutions, not real estate agencies, and have options to help borrowers through difficult financial times.  

3 Open and respond to all mail from your lender.

The first notices you receive will offer good information about foreclosure-prevention options that can help you weather financial problems. Later mail may include important notices of pending legal action. Failure to open the mail is not an excuse in foreclosure court.

4 Know your mortgage rights.

Find your loan documents and read them so you know what your lender may do if you can’t make your payments. Learn about the foreclosure laws and time frames in your state (every state is different) by contacting the State Government Housing Office. 

5 Understand foreclosure-prevention options.

Information about foreclosure prevention, also called loss mitigation, can be found at

6 Contact a HUD-approved housing counselor.

The Department of Housing and Urban Development funds free or low-cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender if needed. Find a HUD-approved housing counselor near you by calling 800-569-4287.

7 Prioritize your spending.

After health care, keeping your house should be your first priority. Review your finances and see where you can cut spending to make your mortgage payment. Look for expenses you can eliminate: cable TV, memberships, entertainment. Delay payments on credit cards and other “unsecured” debt until you have paid your mortgage.

8 Use your assets.

Do you have a second car, jewelry or a whole-life insurance policy you can sell? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don’t significantly increase your available cash, they demonstrate to your lender that you are willing to make sacrifices to keep your home. 

9 Avoid foreclosure-prevention companies.

You don’t need to pay fees for foreclosure prevention help. Pay the mortgage instead. Many for-profit companies will contact you, promising to negotiate with your lender. These may be legitimate businesses, but they may charge a hefty fee (often two or three months’ mortgage payment) for information and services your lender or a HUD-approved counselor will provide free if you contact them.

10 Don’t lose your house to foreclosure-recovery scams.

If any firm claims that it can stop your foreclosure immediately if you sign a document appointing it to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home. Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional or a HUD-approved counselor.

Source: U.S. Department of Housing and Urban Development

How to avoid bankruptcy

Start using a budget

Determine what you make each month, what you have in bills, then see what you have left to spend. If you stick to your budget each month, you can decrease the amount of credit card debt you will be accruing and you can also budget in a savings account as well.

Avoid overextending credit card debt

Many people make the mistake of using their credit cards when they don’t have cash. Then they end up with bills they either can’t pay or can only afford the minimum payment, and end up in debt that is too much for them to handle.

Talk with your creditors

Often, when you take the initiative to talk to creditors, they will work with you so you will not have to resort to filing bankruptcy. Many times, they will reduce the interest rate, waive fees or reduce the amount of debt you owe them to help you pay off what you owe.

Source: Alan King,