The Challenges Facing Today’s Mortgage Market Presented by Lori Stillwell

Presentation Overview  Yesterday  Today  Qualification Changes  “New” Products  Relocation Policy and Procedure  Yesterday  Today  Qualification Changes  “New” Products  Relocation Policy and Procedure

Yesterday…  Strong appetite for investors to buy mortgage backed securities  Low down payments  Low credit score options  Limited documentation; even on high balance loans  Speculators: Lenders and consumers jumped into the real estate market  Strong appetite for investors to buy mortgage backed securities  Low down payments  Low credit score options  Limited documentation; even on high balance loans  Speculators: Lenders and consumers jumped into the real estate market

Today…  Private securities still not selling; investors continue to consider (this makes conventional jumbo loans difficult to originate)  Significantly tightened underwriting standards  Transactions more complex for lenders and consumers  Government business consists of 13% (YTD 2008) vs. 3% (2007) of originations in overall mortgage market  New FHA guidelines as well as Freddie & Fannie Conforming loan limits  Mortgage companies and brokers continue to exit the market  Lenders working with consumers to avoid foreclosure  Increased loss on sale; reluctance to move  Great market for first time home buyers  Private securities still not selling; investors continue to consider (this makes conventional jumbo loans difficult to originate)  Significantly tightened underwriting standards  Transactions more complex for lenders and consumers  Government business consists of 13% (YTD 2008) vs. 3% (2007) of originations in overall mortgage market  New FHA guidelines as well as Freddie & Fannie Conforming loan limits  Mortgage companies and brokers continue to exit the market  Lenders working with consumers to avoid foreclosure  Increased loss on sale; reluctance to move  Great market for first time home buyers

Qualification Changes General Tightening of Underwriting Guidelines  Increased minimum FICO Score  Increased down payment requirements  Increased documentation requirements  Enhanced Appraisal Review General Tightening of Underwriting Guidelines  Increased minimum FICO Score  Increased down payment requirements  Increased documentation requirements  Enhanced Appraisal Review

What is “new”…again?  Fixed Rate Products  FHA Financing – increased loan limits  Fannie Mae/Freddie Mac – conforming loan limit increases  VA Financing  Private Mortgage Insurance (PMI)  Fixed Rate Products  FHA Financing – increased loan limits  Fannie Mae/Freddie Mac – conforming loan limit increases  VA Financing  Private Mortgage Insurance (PMI)

FHA Financing increased loan limits  FHA created in 1934 – became part of HUD in 1965  Go to for more information on FHA  FHA often viewed as a first time homeowner program – it’s more than that!  FHA loan limit increases available through 12/31/2008  $271,050 - $729,750 – varies based on location (higher for multi-unit dwellings)  Lenders acceptance will vary and will likely overlay their policies into FHA guidelines  FHA now a solid alternative to subprime  FHA still allows low down payment options  Down Payment can be gifted from family, government source or a non-profit agency  Lenders are beginning to leverage FHA flexibility in order to serve customer needs  Currently, LTV is not impacted by declining markets  FHA created in 1934 – became part of HUD in 1965  Go to for more information on FHA  FHA often viewed as a first time homeowner program – it’s more than that!  FHA loan limit increases available through 12/31/2008  $271,050 - $729,750 – varies based on location (higher for multi-unit dwellings)  Lenders acceptance will vary and will likely overlay their policies into FHA guidelines  FHA now a solid alternative to subprime  FHA still allows low down payment options  Down Payment can be gifted from family, government source or a non-profit agency  Lenders are beginning to leverage FHA flexibility in order to serve customer needs  Currently, LTV is not impacted by declining markets

VA Loans Home financing for: Active and previously active military personnel Reservists & Surviving spouses  Certificate of eligibility required for each customer  100% financing available  VA funding fee can be rolled into the mortgage  VA funding fee waived for disabled veteran  VA appraisal requires an in-depth property inspection with work orders to be completed by the seller prior to closing  Expanded maximum loan amount to $417,000 ($625,500 in designated high cost areas)  Seller concessions allowed up to 4% of the appraised value Home financing for: Active and previously active military personnel Reservists & Surviving spouses  Certificate of eligibility required for each customer  100% financing available  VA funding fee can be rolled into the mortgage  VA funding fee waived for disabled veteran  VA appraisal requires an in-depth property inspection with work orders to be completed by the seller prior to closing  Expanded maximum loan amount to $417,000 ($625,500 in designated high cost areas)  Seller concessions allowed up to 4% of the appraised value

PMI and Lender Paid Mortgage Insurance  Required when customer’s down payment is less than 20%  Utilization dropped as a result of increase in blended loans ( , etc.)  Blended loan guidelines have tightened across industry  Home equity has reduced due to declining property values resulting in smaller down payments  Borrower paid PMI  Low upfront paid at closing = higher monthly PMI cost  High upfront paid at closing = lower monthly PMI cost  Moderate upfront paid at closing = moderate monthly PMI  Lender paid PMI – lender covers cost of PMI through increased interest rate  No upfront cost  Required when customer’s down payment is less than 20%  Utilization dropped as a result of increase in blended loans ( , etc.)  Blended loan guidelines have tightened across industry  Home equity has reduced due to declining property values resulting in smaller down payments  Borrower paid PMI  Low upfront paid at closing = higher monthly PMI cost  High upfront paid at closing = lower monthly PMI cost  Moderate upfront paid at closing = moderate monthly PMI  Lender paid PMI – lender covers cost of PMI through increased interest rate  No upfront cost

Relocation Policy and Procedure  Tighten policy language around reimbursement of VA funding fee  Tighten policy language around PMI up-front fee reimbursement  Down Payment Assistance  Wells Fargo Recommendation: Consider Corporate Second Guarantee Program  Tighten policy language around reimbursement of VA funding fee  Tighten policy language around PMI up-front fee reimbursement  Down Payment Assistance  Wells Fargo Recommendation: Consider Corporate Second Guarantee Program

Overcoming Payment Challenges