Mortgage Market Meltdown What it Means to You Presented to you by: Billy Campbell Mortgage Planner/President Alpine Equity Group Sponsored by

Mortgage Market Meltdown Perfect Storm

Mortgage Market Meltdown The Basics:  Primary Mortgage Market:  Lender deals directly with the borrower for underwriting (risk analysis to determine if the loan should be made), and origination of the loan (direct interaction with the borrower) Secondary Mortgage Market:  Mortgage Loans and securities backed by mortgage loans are sold to investors, for inclusion as part of an investors portfolio assets (ie. like a mutual fund, their assets could comprise various stocks and bonds, some of which are mortgage backed securities)

How the Mortgage Market works Borrower Mortgage Professional Lender Borrowed moneys from investors

How the Mortgage Market works Rating Agency Lender Bought by investors Mortgage Backed Securities

Mortgage Market Meltdown History/ Major developments  Prior to 1930’s, no organized secondary market  Great Depression sparks President Roosevelt's “New Deal” program  1934 Federal Housing Administration (FHA)  Promote 30 year fixed rate mortgage  1938 Federal National Mortgage Association (Fannie Mae)  Created to purchase FHA loans

Mortgage Market Meltdown History/ Major developments  Huge surge in growth in the secondary market after WWII  Great demand for VA loans  Larger demand for long term investments by pension funds and life insurance companies  1970 congress creates Federal Home Loan Mortgage Corporation  Stems development of PMI and MGIC

Mortgage Market Meltdown Key Determining Factors  Subprime and Alt-A Lending  Alt-A consists of reduced and no-doc  Accounted for 40%-70% of loans in  Investor appetite brings loose underwriting  Everybody gets a loan  Liquidity crisis hits subprime December ’06  Maybe everybody can’t pay it back…

Mortgage Market Meltdown The Role of Mortgage-Backed Securities  Most loans are sold as securities  Investors accept risk with reward  Delinquencies mount; risk outweighs reward  Keep your loans – we don’t want them!  If I take them – I’ll pay you less!  American Home & others can’t cover losses

Mortgage Market Meltdown Results  Slow Down in Real Estate Market  Underwriting guidelines based on historical data, including rising prices  Consumer maxed-out and unable to repay  No more equity to support spending habits  “Officer and a Gentleman” loans

The Straw and the Camel Rating Agency Lender Bought by investors Mortgage Backed Securities

How the Mortgage Market works Borrower Mortgage Professional Lender Borrowed moneys from investors

Mortgage Market Meltdown What’s Next For Real Estate  Fewer potential buyers  Increasing inventory  Increasing foreclosures  Increased pricing pressure

Mortgage Market Meltdown Borrowers Who Are Impacted  Caught in contagion: Non-Conforming  Stated income/asset borrowers Alt-A  No-doc Loans  Still free to roam: Conforming and Gov’t  Vanilla Fannie Mae: Full-doc type  Some stated deals still exist  FHA & VA  Don’t get too comfortable

Mortgage Market Meltdown What would your life be like if you closed 50% fewer deals in the next twelve months?

Mortgage Market Meltdown It Doesn’t Have to Be This Way  There are opportunities  Sellers  Buyers & Investors

Mortgage Market Meltdown Action Steps for Sellers  Get real about price  Consider seller-held seconds  Beware of the non pre-approved buyer  Get your financial house in order

Mortgage Market Meltdown Action Steps for Buyers  100% financing programs have seen severe cutbacks  PMI: not so bad & possibly deductible  Get your credit in order  Get your docs in order  Tax returns, bank statements, pay stubs

Mortgage Market Meltdown FICO Scores Rule the Land  720, 680, and 620 scores. That means exceptions (and Elvis) have left the building  Credit repair is paramount  Routine credit monitoring – annual review  Start credit review process 3-6 months in advance

Mortgage Market Meltdown FICO Scores Rule the Land  How To Monitor Your Credit For Free   Stagger your request and effectively monitor your credit 3 times per year for free!  Or prior to receiving financing look at all 3 bureaus to get a more accurate picture

Mortgage Market Meltdown FICO Scores Rule the Land

Mortgage Market Meltdown FICO Scores Rule the Land  “ Recency ” of Events  Often the “ recency ” of an event is weighed much more heavily than the amount of money involved  Example: a $40 dollar balance on an account that is currently 60 days late will be much more detrimental to your credit than a $4000 dollar collection that appeared on your credit report 4 years ago.

Mortgage Market Meltdown FICO Scores Rule the Land  “ Reporting Dates  Common Misconception: Paying off your credit card in full every month guarantees a “ top-notch ” score.  Example: A small business owner pays for everything on his AMEX for his cash back rewards. He has a 10,000 dollar limit and typically puts about 9,000 dollars on his card by the end of the month. He pays it off IN FULL, on the 28 th before his due date of the 1 st. AMEX reports his card to the CRA ’ s on the 24 th showing him at a max credit limit, therefore penalizing him in terms of his credit score even though he handles his debt very responsibly.

Mortgage Market Meltdown Full Doc is Back With a Vengeance  Many lenders have killed Stated/No Doc  Where available, it’s more expensive  Provable income, assets, and good credit

Mortgage Market Meltdown Partnerships Are Critical  Title company that values continuing education.  Not the time to refer three lenders!  You need one “go-to” lender.  Wide array of available product  Expert in underwriting  “Credit analysis and repair” partnerships  Local and accountable

Mortgage Market Meltdown Future Possibilities  Subprime was 12.75% of all 2006 loans  There is still massive opportunity here!  Keep your head up

Mortgage Market Meltdown Profit Looms for the Prepared  Sellers  Educate sellers for realistic prices  Due diligence for buyers  Decrease marketing times  Prepare sellers to be buyers: Pre-approve them  Buyers  Due diligence  Don’t be a cab driver  Real Estate investors: Cultivate relationships

Mortgage Market Meltdown Profit Looms for the Prepared  Sellers  Make your sellers wear a buyers hat prior to setting the price with them  Use Valuecheck from LandAmerica to show them  Stage the home to highlight it’s unique selling properties  Instead of conceding on price, work with your mortgage planner to create finance options that will sell the home faster  Paying for first 6 months mortgage payments  Or pay the discount points to offer a strategic 2-1 buy down option for potential buyers

Mortgage Market Meltdown Profit Looms for the Prepared  Buyers  For high LTV loans consider FHA with down- payment assistance programs or seller gift  CHAC  Genesis Foundation  My Community vs. Home Possible  Credit Education  Lock and Shop!

Mortgage Market Meltdown Next Steps  Seller Action Meetings  Inform  Risk analysis meeting involving lender  Assess willingness to navigate waters  Promote aggressively to buyers agents  Buyer Action Meetings  Inform  Pre-approve with mortgage lender  Direct towards realistic sellers  Continually communicate with other listing agents