Buying in Today’s Market
How To, Where To and Why – 2 Tips & A Case
Study on Refinancing
1

Agenda
• Market Overview
• Two Buying Tips – to make closing easier
• C Study h
Case S d – why you need to j
d just “d your j b”
“do job”
2

Part 1: The Market
1. $700B approved – derivatives first
2. $300B (McCain’s desire to target homeowners) – it
will come
3. $1.3-1.4T – Option ARMs “non-performing”
$1.3 1.4T non performing
4. Subprime / Alt A / Prime d li
4 S b i Alt-A P i delinquencies (
i (non O ti
Option
ARM’s) - undetermined
3

It’s Bad
• G7 – 1st ever “bailout coordination” cutting rates
4

It’s Bad – again
• Dow – 9,000 exactly 10 ½ years ago
5

It’s Bad – some more
• Unemployment up 40% ( g 07-Aug 08) and
p y p % (Aug g )
insurance … where is it?!
6

And it’ll Get Worse …
• Consumption drives roughly 70% of Gross Domestic
p g y %
Product (GDP)
• Consumption is driven by cash available to the
common person
• And “Mortgage Equity Withdrawal” (MEW) – the
money taken out of homes through refi’s – has been
a virtual ATM
• Next Chart – note the drop
• But then also note that MEW only accounted for 10%
of peoples’ disposable income
7

And it’ll Get Worse …
8

Where Would You Rather Be?
9

So What Does It All Mean?
The Wall St. Note Selling Machine is Clogged Up
• Wall St holding off on note sales
• One large firm – no trading for past 3 months, $1.7B
in performing and non-performing notes
• They have only 1 pool out there right now - $9 2
$9.2M
But Banks (Portfolio) Are Still Selling
• The usual pools are circulating (monthly)
• Saprina / Janet lesson: monthly cycles for banks that
“own” their loans, goes on … every month
10

Examples
Warehouse lender
• Mortgage lender saw repo’s soar
• Warehouse lender asked for $1.5M “haircut” on a
$6.8M pool
• Warehouse lender now needs to sell those loans (16
notes)
Bank
• Monthly pool of $40M (550 loans on average)
• Same cycle … no change
11

More Examples
Bankruptcies
• They will increase (lenders & borrowers)
• Go after them
• Partner up if you have deals but no money – referral
fees
Build Yourself a “Niche”
Niche
• Probates (people always die) / Title Issues
• Bankrupt borrowers
• Downtown Philly or Cleveland or Detroit
• Option-ARM’s
Option ARM s
12