Coffee for Closers | Leads360 Sales & Marketing Blog 

A price has been put on the potential Fannie and Freddie bailout. The price tag could be as much as $25 billion. It is not a fait accompli, however. Peter R. Orszag, Director of the nonpartisan Congressional Budget Office put the odds at better than half that Fannie and Freddie will not use need any cash. Critics of the bailout maintain that homeowners should be the first to benefit from any taxpayer help. But if it is approved by congress, restoring confidence to investors in the U.S. and internationally is the bailout’s aim.  We will continue to closely watch the developments at Fannie and Freddie along with our mortgage broker and mortgage banker clients.

“Home prices in 20 major U.S. cities have dropped a record 15.3% in the past year. We are back to where we were in 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor’s.” Yesterday’s Wall Street Journal article started a firestorm of opinion and thoughts amongst my friends and colleagues and I wanted to share it with you. While home prices are at their lowest in the last five years, market saturation is at its highest; no one is buying or selling homes.

 

I started reaching out people in the industry to chat about the implications of a market where low home prices were not selling and it spawned quite a few responses. Even the guy sitting next to me on the airplane had something to say about it. This seems to be a topic on the tip of every American’s tongue. See what just a few of them had to say: (Note these are not necessarily my opinions but opinions of my peers and past clients in and out of the mortgage industry.)

 

“Home buyers are irrational – 2 years ago subprime & prime buyers bought second and third homes. Now even prime buyers are not buying in sufficient numbers. Why not? Are they crazy?! Irrational enough to buy in a market driven by a trifecta of poor lending, brokering and buying decisions but now when it makes the most sense to buy, not buying. Just crazy.”

-Anonymous Real Estate Client

“The rich get richer and the poor get poorer. In a restricted liquidity market, the middle to lower class almost always suffers. Credit costs soar for lower FICO holders, while limited purchases and lending leads to incentives for those with ‘prime’ credit. Go to any car dealership this weekend and ‘Prime’ credit holders can buy a car with no money down, $2.99 gas for two years and a $5000 rebate; got bad credit, don’t waste your time.”

-Noel Collins (Myself)

“Banks caused the problem. Bad lending practices caused ancillary markets to collapse. If banks had not lent to borrowers with lower FICO scores or offered brokers the ability to borrow money for 0% down payments we would not be in trouble. In the past, the average down payment needed for a home purchase qualification was at least 10%. Because of the lack of liquidity time shares, rental cars, hotel reservation rates, food costs, restaurants and tourist attractions are failing.”

-Passenger on flight from LA to Phoenix

“The home buyer is at fault. Even subprime buyers obtained a good loan, paid off credit cards and inserted a positive cash flow in their banks. What happened? They spent the money, got new credit cards, bought a new car or home and paid their mortgages late. If they had followed our financial advice they would be able refinance at prime rates even in today’s market.” –

Chris Stone – EDMC – California

“It is the President’s fault. If George W. Bush had lowered interest rates sooner and not hedged his bet on big oil and the Iraq war, the financial industry would not have collapsed.” —

Anonymous Human Resource Director – Mortgage Industry

“Hedge funds and overreaction compounded the problem. If people had not focused on making money during this crisis we would be better off”.

-David Staral – The Staral Group

“Inexperienced loan originators. Many loan officers – I use the word loosely were inexperienced and only learned how to take orders. One bank/broker I talked with said it was fine when lending was like “Clubbing baby seals” but in today’s market a loan originator/agent needs to b a financial EXPERT! - Period! Inexperienced loan originators looking for a quick buck didn’t point our customers in the right direction; they pointed them into their bank account. I cannot reach my agent any longer; he went back to selling cars.”

– Subprime Customer stuck in an ARM

 

“My agent went bankrupt and is now facing felony charges in Georgia.”

-Failed Mortgage Banker/Broker

 

How far will the downturn in our economy take us? Some of my more outspoken colleagues say this will only lead to more money making by the richest of the richest and that more needs to be done for the middle and lower classes. Didn’t we take the financial decision making out of the hands of the wealthy and extend it to our poorer peers? Where did that put us? Banks, buyers, Bush—whose fault is it?

Hello all. I’d like to piggyback on what Matt is saying by throwing a Wall Street spin on things. As mortgage professionals it is not only important for mortgage lenders to know who to contact and when regarding a mortgage, but once you have the ear of a potential loan client it is important to keep their interest, capture their trust and most importantly you want to be the one to close their loan instead of the other guy. By keeping abreast of market activity, economic data, and following the Ups and the Downs of our economy, you can be the expert instead of an order taker just throwing out rates.

Wholesalers will start rolling out conforming products with a much higher loan amount than the $417,000 loan amount our industry has worked over the past 2 years. This comes as part of the stimulus program recently passed by Congress and it will only apply to specific markets where jumbo loans have reigned supreme in years past. A key factor is this loan amount increase expires December 2008, so it is for a limited time only. In addition to the conforming loan increase due to the stimulus package, be aware that the Big 3 of the stock market, the Dow Jones, S&P 500, and NASDAQ indices has hovered in the same range since the first of the year. Fortunately they have not spiraled out of control nor have they gained any ground. This is due the balancing act of rising inflation, poor economic results, and poor earnings being coupled with efforts from the Federal Reserve and Capital Hill to keep our country out of recession by creating action plans, auctioning off money, working with foreclosure relief, and reducing the cost of money by cutting the federal funds rate.Realize that around the time each meeting involving a decision on the Federal Funds rate, historical data shows us that often times treasury bonds with improve which in turn will cause lower long term rates. So in a sense when the Feds do their magic the mortgage market sees a benefit. Just yesterday Ben Bernanke, the chairman of the Federal Reserve mentioned that our economy will be sluggish in 2008 not picking up until the end of the year. He and the rest of the Federal Reserve board are prepared to cut the Federal Funds rate further. With that said be on the look out for the Feds next action. As the time comes closer use the historical data to help fuel your email campaigns. When things happen like you mention in your emails, customers will be ready to listen when you begin to advise them on the right moves to make for their mortgage.

Thank you for reading and have a great weekend!

In every expensive housing market in the US there are houses that have sat unsold because sellers are unwilling to drop prices from the stratospheric highs which they had been accustomed to. It’s natural psychology but if your house was valued at $3 million two years ago and is now probably worth 2/3rds what it was worth, you might be a little hesitant to take that deal (even if you are still making a good chunk in appreciation). Yet, because of the affluence of these home owners they have not been under drastic preasure to sell and have thus kept prices high, preferring to hold the property until the market rebounds. But if the downturn lasts long enough, the current market will become psychologically normalized in the minds of sellers and more houses may be listed at market prices.

A second issue is that some affluent buyers may not be able to wait. This SeekingAlpha article about e-trade raises the specter of significant defaults for large loans (expensive houses). If people with expensive homes start defaulting the property values will continue to depreciate. The question remains: will the denial continue?