Mortgage Market Meltdown
What it Means to You
Perfect Storm
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
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 Critical Question months? 50% fewer deals in the next twelve
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
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
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
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