- The Washington Times - Sunday, September 28, 2008

Sherry Rivera was raising two children by herself on $20,000 a year, relying on savings to make monthly mortgage payments of $1,875.

Somehow, she managed to keep her head above water long enough to see her new lending business through its rocky first couple of years, despite what she recalls as an “ever-present fear of being the bag lady.”

Guardian National Funding eventually started making regular loans — enough not only to pay the bills, but also to put her son and daughter through college. She was able to save up a considerable nest egg, too.

“When I look around, I don’t have a business,” Ms. Rivera says 16 years later.

She laid off her last employee about two years ago, gave up her office space and went through $150,000 in savings. In the past eight months, she’s made two loans. Now, at 59 and with less than $100,000 left in her 401(k) account, she worries about retirement.

“I’m hoping that God gives me the strength to work much longer,” she say. “I’m really scared.”

All eyes have been on politicians in recent days as they hammer out a bailout deal, each side taking breaks to blame the other for negotiations breaking down. Meanwhile, phrases like “economic meltdown” and “crisis on Wall Street” have punctuated newspaper headlines and cable news tickers.

But as Wall Street and Capitol Hill have dominated the spotlight, the people at the story’s core are getting laid off and watching their investment portfolios dwindle. Some of them are putting off retirement while others are just sitting tight and waiting for the market to determine their fate.

For some, like Ms. Rivera, it may as well be the end of the world.

“The average consumer is confused because he feels that he’s done everything right and now the bottom is falling out,” says Gail Cunningham, spokeswoman for the nonprofit National Foundation for Credit Counseling. “They were told to buy a house because homeownership is a great wealth-building tool. Even if they were able to make a house payment, they have seen their value decline. They were told to save for their retirement, now they’re watching the value of their portfolio decline.”

This year, the NFCC expects to assist some 2.5 million people across its 900 offices.

“These are real-life people with real-life problems,” Ms. Cunningham says, “and it’s a shame to see the fear in their eyes.”

‘What am I going to live on?’

After separating from her husband in 1987, Ms. Rivera, who lives in Long Island, struggled to find a job that could accommodate her two children, then 8 and 10. She wanted something with a base salary and not just commission to ensure a steady stream of income, but also a position that would let her take care of them when school was over. She entered the mortgage lending business in 1991 after a string of different jobs, and established her own firm in 1992.

“I never grew it too big because I was always cautious about who I hired. My business was built only on referral, I didn’t advertise,” she says.

Things started slowing down about two years ago. As the real-estate market tanked, banks became nervous about underwriting and peopled stopped seeking loans. Ms. Rivera was forced to dip into her savings.

“And I — foolishly, really — kept thinking, ‘I’ll make it better next month, something will happen,’” she says. “I depleted the bank account. … I lost the office.”

Ms. Rivera, who says she didn’t use many of the “wild products” employed by other lenders seeking to cash in during the housing craze, has been trying to focus on the commercial market rather than residential lending, but even that’s slow-going.

“I have a real-estate license but obviously that’s not very good at this time, either,” she says. “I don’t have a business and I’m trying to figure out what I’m going to be when I grow up. The worst part is now I’m 59 and I depleted my savings. I still have a very tiny bit of 401(k) … and now I need to build a retirement as well as something to live off of.”

Asked if her two children, now out of college, are aware of how bad things are, Ms. Rivera says she doesn’t want to worry them.

“I don’t exactly share it, I’m smiling. I’m not going to say it to them,” she says.

Ms. Rivera — clearly dejected — says she will probably be working at age 70.

“I would be willing to work as long as I could but what happens if I can’t? I need to find a way to make some money back to save for the future. If I don’t, then I’m going to be that old bag lady,” she says. “You don’t get very much for Social Security. What am I going to live on?”

Life after layoffs

Ilya Kostyukovsky survived the first three rounds of layoffs as part of the real estate finance group at UBS in New York City, but he would not make it past the fourth. When he was let go in April, the 25-year-old had spent about 1 1/2 years working for the U.S. headquarters of the Swiss financial giant.

“From my perspective, it’s kind of frustrating because it wasn’t anything in particular; that’s just what’s been going on in our sector,” says Mr. Kostyukovsky, whose work in commercial real estate loan originations was hampered by the inability of banks to make loans. His former group, once at 100 people, is now down to about 40.

After living off savings for a few months, Mr. Kostyukovsky moved back home with his parents in New Jersey. He is still looking for a job, but with so many layoffs on Wall Street, it’s easier said than done.

“There’s just a lot of competition. Certainly, I have hope that I can find another job sooner rather than later, but for every guy like me there are hundreds of other people,” he says.

A self-described Libertarian, Mr. Kostyukovsky says he’s philosophically opposed to the notion of a bailout. But he acknowledges he could benefit from it in the short run.

“This whole bailout is just a giveaway to Wall Street in my opinion. It’s ridiculous,” he says. “But from my selfish perspective, I think it’s one of those things that might be good in the short-term but really awful maybe a couple of years from now.”

In the meantime, Mr. Kostyukovsky is applying to business school and hopes to start an MBA program in January - whether as a part-time or full-time student depends on if he has a job by then - and getting a lot of reading done.

Other ex-Wall Streeters aren’t in any rush to return soon, if ever.

Jessi Walter, a casualty of Bear Stearns & Co., was circulating her resume to other investment houses and meeting with headhunters soon after JPMorgan Chase announced plans to buy the company in March.

“But my heart wasn’t in it,” says the 27-year-old Ms. Walter, who worked at Bear Stearns for five years.

Instead, the Manhattan resident is trying to turn a hobby into a full-time job with Cupcake Kids!, a venture aimed at giving children “hands-on” cooking experience. She does birthday parties, offers classes and visits schools, teaching kids how to cook while giving them facts on nutrition and different foods. Only time will tell if Cupcake Kids! becomes a viable business, but for Ms. Walter it’s worth a shot.

“All my suits are gone, I wear jeans and a T-shirt all the time,” she says. “It’s great.”

‘We played by the rules’

Nicole Gnozzio says she and her husband have done everything they were supposed to do. She volunteers at a local elementary school and he’s in the U.S. Navy. They rent a home in Burke, Va., and are almost finished paying off the mortgage on their house in Seattle. They’ve put away money for their children’s college tuition and have consistently saved toward retirement.

The original plan was that her husband, who is 50, would leave the military in two years, at which point the family would move to Seattle. Now, she says it’s probably more like five or six years.

“I’m thinking at the rate we’re going, well we may have to put that off a little bit,” says Mrs. Gnozzio, 43.

The couple’s portfolio “runs the gamut,” but everything has taken a hit. Their retirement funds have plunged from $700,000 to $500,000 and they’ve watched the kids’ college fund - their oldest is a sophomore in high school - drop by a third to $60,000.

“It’s so frustrating when you’ve played by the rules. We’ve put away money every month, I clip coupons, we’ve paid our bills on time,” she says. “Just to see people get bailed out is really maddening because we played by the rules, why can’t these other people do it?”

For now, she says, the family intends to leave their finances unchanged in hopes the market will rebound.

“We’re OK, but I don’t want to see it keep tanking,” she says.

Local executive John Gautier, 57, estimates his portfolio has shrunk by about 30 percent over the past few weeks.

“It is a mix and supposedly I’ve done what they say to do, but in a market like this everything gets affected,” he says.

But Mr. Gautier, who is president of Reston-based TenCapitol, a public affairs advertising agency, isn’t inclined to make any changes to his investments.

“You think to yourself, well it’s a bell year and it’s going to come back like the stock market does,” he says, later adding, “Then you have a week like this and you wonder.”

When it comes to putting off retirement - he says his goal is somewhere between 62 and 65 - Mr. Gautier says it’s too soon to tell. But, he notes, “If I had to start rebuilding the basic stuff then I’m not getting any farther ahead.”

At 74, Jerry Ewan is much closer to retirement than Mr. Gautier or the Gnozzios; he’s more than a decade into it. The resident of Elk Township, N.J., collects Social Security payments and a pension from his career as a designer for flooring company Mannington.

“As the dollar decreases in value, so does my pension. It doesn’t go up with inflation. That’s one thing that doesn’t make me too comfortable,” he says.

He and his wife, Dolores, also have an investment portfolio, some certified deposit accounts and a pair of annuities - one with a variable rate and one that’s fixed. While he’s keeping an eye on Wall Street, Mr. Ewan says he can’t do anything about it.

“Back in 2001, 2002, things dropped pretty steep. I wasn’t too happy with that, but I did ride it out,” he notes. “At this point, I’m just sitting tight. I’m hoping somebody [in Washington] does the right thing, I have some doubt about it, but since I don’t have any control over it I can’t get too upset about it.”

No paws left behind

As president of Houston-based Integrated Mortgage Solutions, Cheryl Lang dispatches field agents across the country to inspect and attend to properties that have been foreclosed. Earlier this year, one of her representatives called her after encountering a horrific sight at a home in Arkansas.

“There were three dogs that had been left behind, that were in the carriers and left to die,” she recalls.

One dog was in the middle of the yard, on a leash, about a foot away from a bowl of food. They were all decomposed by the time the agent got there, several weeks after the foreclosure.

“I said, ‘You know what, we’re going to see three more years of this and we’re not going to look at this,’” says Ms. Lang, who in March established No Paws Left Behind, an organization dedicated to preventing “foreclosure pets.”

“Our goal is to eliminate borrowers leaving their pets behind - that should not be an option - and to find other options for them to take them to a no-kill shelter or find a foster-care shelter for them and then reunite them with their pets,” she says.

Ms. Lang operates No Paws Left Behind from her home. The group uses the same ZIP code-based system as her property inspection firm to report would-be foreclosure pets. She then calls one of her regular agents in the area and asks him or her to stop by and take care of the animal while she arranges for a new home.

So far, the organization has saved about 150 pets. But that’s not all - in instances where an owner is fighting off foreclosure and too cash-strapped to buy food or pet medicine, No Paws Left Behind sometimes foots the bill. Ms. Lang even advises callers, sometimes helping them avoid foreclosure by negotiating with their lenders.

“We work with defaults day in, day out. I can help them,” she says. “Maybe you can save your home, maybe you can do a modification or maybe you can do a short sale.”

Ms. Lang has applied for nonprofit status and hopes to develop a stable base of donors to keep the organization going. As the market worsens, she says she could use the help of an additional employee.

“It’s just something that needs to be done and I feel that strongly about it that I will work late and I’ll do it on the weekends,” she says. “Especially as things start getting worse as they appear to be.”

But the pets that are saved and handed over to shelters face yet another challenge as the volatile economy has slowed adoptions. The Washington Humane Society says it is seeing “much slower” adoption traffic in its shelters lately, a problem that it highlighted in a special e-mail blast to supporters last week.

‘Just trying to understand’

As dire as things may seem, financial advisers say consumers should be cautious when considering taking action.

“The extremes they’re reading about may not be their personal experience,” warns Stuart Ritter, a financial planner with T. Rowe Price in Baltimore. “Peoples’ emotions are based on what they perceive to be happening. So before you take an action, let’s double-check that perception.”

People should “actually sit down” and see what’s going on with their portfolio and put things into the context, Mr. Ritter says.

“Many people are finding when they look at their whole portfolio - not just one fund or one stock or picking two dates to compare - things aren’t nearly as bad as some of the extremes that they’ve been hearing about,” he says. While he isn’t being flooded with panicked calls, that’s not to say his clients aren’t worried.

“I’m not saying people aren’t feeling anxiety; I’d be worried if they weren’t,” he says. “People are just trying to understand what’s going on.”

Likewise, many of those who call the National Foundation for Credit Counseling are wondering how a bank failure or bailout on Wall Street affects them, Ms. Cunningham says.

“I just think that for the average consumer, it’s really hard to get your mind wrapped around $700 billion and the complexity of what got us into this mess and what’s going to get us out,” she says.

Her best advice to consumers is to safeguard their credit.

“In this economic environment, I would not only have my financial ducks in a row, I’d have them standing at attention. Since creditors cannot afford to have one more bad debt, one financial misstep and they’re going to move you to the risk folder and some very negative things are going to happen to you,” she says.

Mr. Ritter says he’s telling consumers with well thought-out portfolios to do nothing.

“If you had a plan in place where you had a mix of stocks, bonds and short-term investments that was based on your time horizon and you had diversified within each of those categories … and you had a plan of how you were going to change that mix over time as your time horizon shrunk, stick to the plan,” he says. “If you didn’t have that kind of a plan, now is a really good time to go get one.”

As for how the current downturn will play out, he says it’s anyone’s guess. But again, he urges people to have perspective.

“Shocks are not new and the market is resilient. Each shock is unique and this one is different in its own way and no one can predict the future but a shock in and of itself doesn’t mean we’re going to have another Great Depression,” he says.

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