The mortgage market is experiencing a meltdown due to a perfect storm of factors including subprime and Alt-A lending with loose underwriting standards, which has led to high delinquency rates on mortgage-backed securities. As a result, underwriting guidelines are tightening, the number of potential home buyers is decreasing, and foreclosures are increasing. Borrowers with non-conforming, stated income, no-doc, and Alt-A loans are most impacted. Real estate professionals need to partner closely with lenders, educate sellers on realistic pricing, and ensure buyers are well qualified and prepared.

1. Mortgage Market Meltdown What it Means to You PHILIP GLOVER PROSPERITY MORTGAGE CO. 410-499-3456

2. Perfect Storm

3. 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…

4. 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

5. 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

6. What’s Next For Real Estate Fewer potential buyers Increasing inventory Increasing foreclosures Increased pricing pressure

7. 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

8. Critical Question What would your life be like if you closed 50% fewer deals in the next twelve months?

9. It Doesn’t Have to Be This Way There are opportunities Sellers Buyers & Investors

10. 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

11. 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

12. 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

13. 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

14. 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

15. Future Possibilities Subprime was 12.75% of all 2006 loans There is still massive opportunity here! Keep your head up

16. 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

17. 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