mortgage market meltdown what it means to you presented to you by: billy campbell mortgage...

Mortgage Market Meltdown

What it Means to You

Presented to you by: Billy Campbell

Mortgage Planner/PresidentAlpine Equity Group

Sponsored by


Perfect Storm


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

BorrowerMortgage Professional

Lender

Borrowed moneys from investors


Rating Agency

Lender

Bought by investors

Mortgage Backed Securities


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


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


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…


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


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


BorrowerMortgage Professional

Lender

Borrowed moneys from investors


What’s Next For Real Estate

Fewer potential buyers

Increasing inventory

Increasing foreclosures

Increased pricing pressure


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


What would your life be like if you closed 50% fewer deals in

the next twelve months?


It Doesn’t Have to Be This Way

There are opportunities

Sellers

Buyers & Investors


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


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


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



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

http://www.annualcreditreport.com/



“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.



“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.


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


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


Future Possibilities

Subprime was 12.75% of all 2006 loans

There is still massive opportunity here!

Keep your head up


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



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



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!


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

mortgage market meltdown what it means to you presented to you by: billy campbell mortgage...

Documents

mortgage loans

investors mortgage

primary mortgage market

mortgage market meltdown

mortgage market meltdown

role of mortgage

securities slide

fha loans slide