Mortgage Market Meltdown Redux


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  • Mortgage Market Meltdown Redux

    1. 1. 2007 Mortgage Market Meltdown What it Means to You as a Steamboat Springs Realtor
    2. 2. Perfect Storm Steamboat Springs
    3. 3. Key Determining Factors <ul><li>Subprime and Alt-A Lending </li></ul><ul><li>Alt-A consists of reduced and no-doc </li></ul><ul><li>Accounted for 40%-70% of loans in 2005-06 </li></ul><ul><li>70-90% in Steamboat Springs!!!!! </li></ul><ul><li>Investor appetite brings loose underwriting </li></ul><ul><ul><li>Everybody gets a loan </li></ul></ul><ul><li>Liquidity crisis hits subprime December ’06 </li></ul><ul><ul><li>Maybe everybody can’t pay it back… </li></ul></ul>
    4. 4. The Role of Mortgage-Backed Securities <ul><li>Most loans are sold as securities </li></ul><ul><li>Investors accept risk with reward </li></ul><ul><li>Delinquencies mount; risk outweighs reward </li></ul><ul><ul><li>Keep your loans – we don’t want them! </li></ul></ul><ul><ul><li>If I take them – I’ll pay you less! </li></ul></ul><ul><ul><li>American Home & others can’t cover losses </li></ul></ul>
    5. 5. Results <ul><li>Underwriting guidelines based on historical data, including rising prices </li></ul><ul><li>Consumer maxed-out and unable to repay </li></ul><ul><li>No more equity to support spending habits </li></ul><ul><li>“Officer and a Gentleman” loans </li></ul>
    6. 6. What’s Next For Real Estate <ul><li>Fewer potential buyers </li></ul><ul><li>Increasing inventory </li></ul><ul><li>Increasing foreclosures </li></ul><ul><li>Increased pricing pressure </li></ul>
    7. 7. Borrowers Who Are Impacted <ul><li>Caught in contagion: Non-Conforming </li></ul><ul><ul><li>Stated income/asset borrowers Alt-A </li></ul></ul><ul><ul><li>No-doc Loans </li></ul></ul><ul><li>Still free to roam: Conforming and Gov’t </li></ul><ul><ul><li>Vanilla Fannie Mae: Full-doc type </li></ul></ul><ul><ul><li>Some stated deals still exist </li></ul></ul><ul><ul><li>FHA & VA </li></ul></ul><ul><ul><li>Don’t get too comfortable </li></ul></ul>
    8. 8. Critical Question What would your life be like if you closed 50% fewer deals in the next twelve months?
    9. 9. It Doesn’t Have to Be This Way <ul><li>There are opportunities </li></ul><ul><li>Sellers </li></ul><ul><li>Buyers & Investors </li></ul>
    10. 10. Action Steps for Sellers <ul><li>Get real about price </li></ul><ul><li>Consider seller-held seconds </li></ul><ul><li>Beware of the non pre-approved buyer </li></ul><ul><li>Get your financial house in order </li></ul>
    11. 11. Action Steps for Buyers <ul><li>100% financing programs have seen severe cutbacks </li></ul><ul><li>PMI: not so bad & possibly deductible </li></ul><ul><li>Get your credit in order </li></ul><ul><li>Get your docs in order </li></ul><ul><ul><li>Tax returns, bank statements, pay stubs </li></ul></ul>
    12. 12. FICO Scores Rule the Land <ul><li>720, 680, and 620 scores. That means exceptions (and Elvis) have left the building </li></ul><ul><li>Credit repair is paramount </li></ul><ul><li>Routine credit monitoring – annual review </li></ul><ul><ul><li>Start credit review process 3-6 months in advance </li></ul></ul>
    13. 13. Full Doc is Back With a Vengeance <ul><li>Many lenders have killed Stated/No Doc </li></ul><ul><li>Where available, it’s more expensive </li></ul><ul><li>Provable income, assets, and good credit </li></ul>
    14. 14. Partnerships Are Critical <ul><li>Not the time to refer three lenders! </li></ul><ul><li>You need one “go-to” lender </li></ul><ul><ul><li>Wide array of available product </li></ul></ul><ul><ul><li>Expert in underwriting </li></ul></ul><ul><ul><li>“Credit analysis and repair” partnerships </li></ul></ul><ul><ul><li>Local and accountable </li></ul></ul>
    15. 15. Future Possibilities <ul><li>Subprime was (only) 12.75% of all 2006 loans </li></ul><ul><li>There is still massive opportunity here! </li></ul><ul><li>Light and Tend your Campfire! </li></ul>
    16. 16. Profit Looms for the Prepared <ul><li>Sellers </li></ul><ul><ul><li>Educate sellers for realistic prices </li></ul></ul><ul><ul><li>Due diligence for buyers </li></ul></ul><ul><ul><li>Decrease marketing times </li></ul></ul><ul><ul><li>Prepare sellers to be buyers: Pre-approve them </li></ul></ul><ul><li>Buyers </li></ul><ul><ul><li>Due diligence </li></ul></ul><ul><ul><li>Don’t be a cab driver </li></ul></ul><ul><ul><li>Real Estate investors: Cultivate relationships </li></ul></ul>
    17. 17. Next Steps <ul><li>Seller Action Meetings </li></ul><ul><ul><li>Inform </li></ul></ul><ul><ul><li>Risk analysis meeting involving lender </li></ul></ul><ul><ul><li>Assess willingness to navigate waters </li></ul></ul><ul><ul><li>Promote aggressively to buyers agents </li></ul></ul><ul><li>Buyer Action Meetings </li></ul><ul><ul><li>Inform </li></ul></ul><ul><ul><li>Pre-approve with mortgage lender </li></ul></ul><ul><ul><li>Direct towards realistic sellers </li></ul></ul><ul><ul><li>Continually communicate with other listing agents </li></ul></ul>
    18. 18. GOOD LUCK, LET ME HELP! If you need some help with a client or a scenario, please give me a call at 970-846-2451, or email me at