Since the federal government seized control of Fannie Mae and Freddie Mac on Sept. 8, a flurry of buyouts, bailouts and failures have turned the national economy upside down. Lehman Bros. is in Chapter 11. Merrill Lynch is takingBank of America under its wing. Taxpayers now own insurance giant AIG . Morgan Stanley and Goldman Sachs have changed their business plans. Washington Mutual is now JPMorgan Chase & Co. , and Wachovia was snapped up by Citigroup . And during all this, Congress wrangled over a $700 billion bailout plan — and while it did the stock markets recorded some historic gains and loses.

How have Wall Street’s woes affected Main Street so far? This week the Austin Business Journal spoke to six local professionals — from a variety of industries and at a variety of levels — to uncover how the financial crisis is affecting them (see pages 14-15).

For many on so-called Main Street, it’s been business as usual. For others, things have changed. But in almost all cases, the clouded future of the financial industry has local business owners, economists and analysts expecting things to get worse before they get better. By most accounts, small businesses in particular — the backbone of Austin’s economy — are expected to be hit hardest in the coming weeks and months as lending standards tighten further.

Where Wall Street meets Main Street

The Realtor

Robert Grunnah, founder of Castle Hill Investments, a local real estate investment, brokerage and development firm, says home buyers are slowing down and their calls are “in a deep freeze” amid the recent financial turmoil.

“It’s eerily quiet,” he says. “I think buyers are petrified. It’s a very short-term human emotion: I’m not going to make any big decisions right now. … There is tremendous fear based on herd mentality, and people exaggerate the negative when it’s a fearful time.”

Buyers’ offers are coming in 10 percent to 20 percent below asking price, and they are being tougher on inspections and asking for larger repair allowances, Grunnah says. “Buyers are looking for big excuses for price cuts because the sky is falling.”

Some brokers, meanwhile, are experiencing a windfall because seller loyalty to their agents has deteriorated as sellers get nervous and impatient.

Grunnah predicts average sales volumes for brokerage businesses will fall 20 to 30 percent, but “it’s fine as long as you can survive. Some of the more established agents are seeing increased business because of it.”

Grunnah says he’s not panicked because Austin’s market remains somewhat insulated.

“We are definitely within a 10 percent bubble or 5 percent bubble,” he says. “We have such strong job growth and population growth, and prices didn’t get too high to begin with. I’m thanking my lucky stars that I’m in a market as dynamic as Austin.”

By Jean Kwon

The Car Salesman

Car dealers’ inventory and pricing haven’t changed much in the past two weeks, but the ability to secure financing has changed for some would-be car buyers.

One car dealer says good credit doesn’t necessarily mean financing is assured now that banks are having problems with liquidity.

“People who we were getting financed [with no problem], they aren’t even being considered now,” says the dealer, who asked not to be named out of concern for discouraging customers. “It’s not just credit, it’s advances too. … General Motors last week said their business is down 10 to 15 percent just because of that. It’s got nothing to do with the wants and desires of the marketplace. Is [the financial crisis] affecting our business? Absolutely.”

Meanwhile, borrowing rates have risen by several percentage points at some dealerships in the last couple weeks, the dealer says.

But other dealers aren’t sure the turmoil on Wall Street will have a direct effect on their businesses. Kyle Chapman, head of Kyle Chapman Motor Sales, says he’s noticed a steady rise in customers with bad credit over the past 20 years. But the impact of the last two weeks remains to be seen, he says.

Anxious to see how the next few weeks pan out, Chapman says his car lots’ future revolves around “what the government gets done, how it affects the big banks and how they affect the little banks,” Chapman says.

By Kate Harrington

The Retailer

For Stephanie Coultress, recent events on Wall Street have made life on Second Street surreal.

Coultress has run Estilo in Austin’s Second Street District for three years, just about the time her business’s performance was anticipated to hit a financial sweet spot. Instead, Coultress says she’s keeping a nervous eye on her loans.

While she says her loan terms haven’t changed on her and sales have been steady enough to keep up with loan payments, she can’t do much more than that.

“I’m only able to sustain the loan payment and make it,” she says. “You have to figure out what can go 60 days and what needs to be paid first, like rent and payroll.”

And whether Coultress’ clientele is feeling an actual pinch or having a purely psychological reaction to the last two weeks of turmoil in the markets, she has noticed a difference in client behavior recently.

“What’s sustained us has been our local customers who are loyal. That’s how we’ve continued to stay in business,” she says. “I used to get 20 people a day, now I get five a day. There are customers who used to spend $3,000 a transaction and now spend half that.”

Coultress says her sales are 50 to 60 percent below where she’d projected for this point in the year, but she estimates that sales will bounce back 50 percent by the holiday season in 2009. Until then, Coultress says she’s aware that she could be watching the fundamental face of business change as the country’s financial troubles play out.

“It’s surreal and scary, and probably the worst time to own a business,” she says. “I’m lucky I’ve been open for three years and in that first year, I established a good clientele. … Without them, I wouldn’t be in business.”

By Kate Harrington

The Investment Adviser

Pierre Johnson, a financial adviser at Edward Jones, says it’s been business as usual for the past several weeks — but not because his clients aren’t worried.

Although he’s been working a little more after hours and on weekends, Johnson’s been steadfast in his counsel to clients.

Having been in the industry nearly 12 years and having experienced market corrections, Johnson says being proactive is key, as is ensuring clients are diversifying and that their allocations fit their objectives.

“Nothing is foolproof, but the idea is to put strategies in place to allow portfolios to weather market conditions,” he says. “If something needs to be changed, you do it based on objectives and not emotions.”

Johnson says he’s gotten calls from clients to “reconfirm” the advice he’s shared with them.

“No one has called panicking, saying, ‘Let’s sell everything,’” he adds.

Johnson says he’s told business owners they should be reviewing their investment policy statements and educational programs on the design of 401Ks and other retirement savings plans.

“This would be an appropriate time to be proactive about that because participants will want to know if their balance is going down, and it could just be an issue of education or fund selection,” he says.

Johnson says clients look to him to feel a sense of confidence, and he’s had no difficulty offering that peace of mind.

He relates the situation to an airplane ride he took when the pilot said there would be turbulence while steering around a storm.

“It was pretty bumpy for 45 minutes, but there was nothing you could do about it; same thing here,” he says. “There’s turbulence in the market, yes. And is it emotional? Yes. But it’s something you have to deal with. You just need to make sure your investments fit with your long-term objectives.”

By Jean Kwon

The Credit Union Executive

Laurie Roberts and her team of mortgage advisers have had their hands full dealing with natural and man-made disasters.

Roberts, president of Members Home Advisor, University Federal Credit Union’s wholly-owned subsidiary, already had her professional life turned upside down by Hurricane Ike, which destroyed UFCU’s Galveston branch.

Now the human-generated problems of national financial institutions such as Merrill Lynch, Washington Mutual, Wachovia and others have trickled down to the mortgage business’s frontline staffers.

Mortgage lending professionals are spending about twice as much time counseling prospective home buyers as usual, Roberts says.

“Our advice hasn’t changed, but people need more explanation and more information about the market and home prices,” she says.

The difference is that Central Texans are open to the advice, Roberts says.

“They want the advice now,” she says. “Before … it was ‘Well, I’ll go down the street and they’ll give me what I want.’”

Because the credit union refrained from subprime lending, it has been able to get through the mortgage mess relatively unscathed, and that has placed UFCU in a trusted position with consumers, Roberts says.

That doesn’t mean there haven’t been challenges.

“Where it really affects us is in our ability to sell loans on the secondary market. We’ve seen the pendulum swing from anything goes to almost nobody can get one,” Roberts says.

Roberts says the bank has slowed in the last few weeks. While fall is typically a slow period for the credit union, customers are also taking a step back, she says.

“I think so much depends on what this bailout looks like overall,” she says.

By Sandra Zaragoza

The Nonprofit Head

Walter Moreau, executive director of Foundation Communities, views the flurry of problems on Wall Street with a mixture of disbelief and anger.

“If you would have told me a year ago that our small nonprofit would be in business and huge financial powerhouses would be gone — that would’ve been unbelievable to me,” Moreau says.

The loose underwriting standards that led to the national mortgage crisis are also hard for Moreau to digest. Financial risk is something Foundation Communities, a real estate nonprofit serving low-income people through housing and education, has worked hard to minimize.

“We have a strong balance sheet, and we are very conservative about borrowing money because we want to be around Austin a long, long time,” Moreau says.

Five of Foundation Communities’ apartment complexes, which house low-income and homeless individuals, have commercial mortgages from Fannie Mae, Freddie Mac and one other troubled financial institution.

Moreau is waiting to hear what effect, if any, the changes at those mortgage companies will have on the nonprofit’s loans.

But after more than a week of negative news from Wall Street, Moreau has been hearing positive things from lending partners who are confirming that funding is still available for the nonprofit’s future projects. He even received a cold call from one major national lender saying it would be willing to extend a line of credit. And this week, the nonprofit’s board approved a $750,000 loan from Wells Fargo to help with green building practices.

“Underwriting has gotten a little tougher, so have debt coverage requirements. But it’s probably just closer to our own internal standards,” he says.

“We are still looking to grow and be realistic about new projects. We are not giving up,” Moreau says.

By Sandra Zaragoza

See also the Opinion section of the ABJ for the week of October 3, 2008, for related stories.

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