Mortgage Market Meltdown Redux

transcript

2007 Mortgage 2007 Mortgage Market MeltdownMarket Meltdown

What it Means to You as a Steamboat Springs RealtorWhat it Means to You as a Steamboat Springs Realtor

Chad W. James, Mortgage Broker970-846-2451

chad@steamboathomeloans.com

Perfect StormPerfect Storm

Steamboat Springs

Key Determining FactorsKey Determining Factors

Subprime and Alt-A LendingSubprime and Alt-A Lending

Alt-A consists of reduced and no-docAlt-A consists of reduced and no-doc

Accounted for 40%-70% of loans in 2005-06 Accounted for 40%-70% of loans in 2005-06 70-90% in Steamboat Springs!!!!!70-90% in Steamboat Springs!!!!!

Investor appetite brings loose underwritingInvestor appetite brings loose underwriting Everybody gets a loanEverybody gets a loan

Liquidity crisis hits subprime December ’06Liquidity crisis hits subprime December ’06 Maybe everybody can’t pay it back…Maybe everybody can’t pay it back…

The Role of Mortgage-Backed SecuritiesThe Role of Mortgage-Backed Securities

Most loans are sold as securitiesMost loans are sold as securities

Investors accept risk with rewardInvestors accept risk with reward

Delinquencies mount; risk outweighs rewardDelinquencies mount; risk outweighs reward Keep your loans – we don’t want them!Keep your loans – we don’t want them! If I take them – I’ll pay you less!If I take them – I’ll pay you less! American Home & others can’t cover lossesAmerican Home & others can’t cover losses

ResultsResults

Underwriting guidelines based on historical data, Underwriting guidelines based on historical data, including rising pricesincluding rising prices

Consumer maxed-out and unable to repayConsumer maxed-out and unable to repay

No more equity to support spending habitsNo more equity to support spending habits

““Officer and a Gentleman” loansOfficer and a Gentleman” loans

What’s Next For Real EstateWhat’s Next For Real Estate

Fewer potential buyersFewer potential buyers

Increasing inventoryIncreasing inventory

Increasing foreclosuresIncreasing foreclosures

Increased pricing pressureIncreased pricing pressure

Borrowers Who Are ImpactedBorrowers Who Are Impacted

Caught in contagion: Non-ConformingCaught in contagion: Non-Conforming Stated income/asset borrowers Alt-AStated income/asset borrowers Alt-A No-doc LoansNo-doc Loans

Still free to roam: Conforming and Gov’tStill free to roam: Conforming and Gov’t Vanilla Fannie Mae: Full-doc typeVanilla Fannie Mae: Full-doc type Some stated deals still existSome stated deals still exist FHA & VAFHA & VA Don’t get too comfortableDon’t get too comfortable

Critical QuestionCritical QuestionWhat would your life be like if you closed 50% fewer deals in the next twelve months?

It Doesn’t Have to Be This WayIt Doesn’t Have to Be This Way

There are opportunitiesThere are opportunities

SellersSellers

Buyers & InvestorsBuyers & Investors

Action Steps for SellersAction Steps for Sellers

Get real about priceGet real about price

Consider seller-held secondsConsider seller-held seconds

Beware of the non pre-approved buyerBeware of the non pre-approved buyer

Get your financial house in orderGet your financial house in order

Action Steps for BuyersAction Steps for Buyers

100% financing programs have seen severe 100% financing programs have seen severe cutbacks cutbacks

PMI: not so bad & possibly deductiblePMI: not so bad & possibly deductible

Get your credit in orderGet your credit in order

Get your docs in orderGet your docs in order Tax returns, bank statements, pay stubsTax returns, bank statements, pay stubs

FICO Scores Rule the LandFICO Scores Rule the Land

720, 680, and 620 scores.720, 680, and 620 scores.That means exceptions (and Elvis)That means exceptions (and Elvis)have left the buildinghave left the building

Credit repair is paramountCredit repair is paramount

Routine credit monitoring – annual reviewRoutine credit monitoring – annual review Start credit review process 3-6 months in advanceStart credit review process 3-6 months in advance

Full Doc is Back With a VengeanceFull Doc is Back With a Vengeance

Many lenders have killed Stated/No DocMany lenders have killed Stated/No Doc

Where available, it’s more expensiveWhere available, it’s more expensive

Provable income, assets, and good creditProvable income, assets, and good credit

Partnerships Are CriticalPartnerships Are Critical

Not the time to refer three lenders!Not the time to refer three lenders!

You need one “go-to” lenderYou need one “go-to” lender Wide array of available productWide array of available product Expert in underwritingExpert in underwriting ““Credit analysis and repair” partnershipsCredit analysis and repair” partnerships Local and accountableLocal and accountable

Future PossibilitiesFuture Possibilities

Subprime was (only) 12.75% of all 2006 loansSubprime was (only) 12.75% of all 2006 loans

There is still massive opportunity here!There is still massive opportunity here!

Light and Tend your Campfire!Light and Tend your Campfire!

Profit Looms for the PreparedProfit Looms for the Prepared SellersSellers

Educate sellers for realistic pricesEducate sellers for realistic prices Due diligence for buyersDue diligence for buyers Decrease marketing timesDecrease marketing times Prepare sellers to be buyers: Pre-approve themPrepare sellers to be buyers: Pre-approve them

BuyersBuyers Due diligenceDue diligence Don’t be a cab driverDon’t be a cab driver Real Estate investors: Cultivate relationshipsReal Estate investors: Cultivate relationships

Next StepsNext Steps

Seller Action MeetingsSeller Action Meetings InformInform Risk analysis meeting involving lenderRisk analysis meeting involving lender Assess willingness to navigate watersAssess willingness to navigate waters Promote aggressively to buyers agentsPromote aggressively to buyers agents

Buyer Action MeetingsBuyer Action Meetings InformInform Pre-approve with mortgage lenderPre-approve with mortgage lender Direct towards realistic sellersDirect towards realistic sellers Continually communicate with other listing agentsContinually communicate with other listing agents

GOOD LUCK, LET ME HELP!GOOD LUCK, LET ME HELP!www.steamboathomeloans.comwww.steamboathomeloans.com

If you need some help with a client or a scenario, please If you need some help with a client or a scenario, please give me a call at 970-846-2451, or email me at give me a call at 970-846-2451, or email me at

chad@steamboathomeloans.comchad@steamboathomeloans.com

Mortgage Market Meltdown Redux

Economy & Finance