mortgage market meltdown what it means to you presented to you by: billy campbell mortgage...
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Mortgage Market Meltdown
What it Means to You
Presented to you by: Billy Campbell
Mortgage Planner/PresidentAlpine Equity Group
Sponsored by
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)
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 2005-06
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
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
www.annualcreditreport.com
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
“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 28th before his due date of the 1st. AMEX reports his card to the CRA’s on the 24th 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