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2. The Lending Environment
Then and Now
3. Relocation In The News
4. Housing Market Forecast
5. 2008 Housing Market Update
6. Yesterday…… Strong appetite for investors to buy mortgage backed securities
Low down payments
Low credit score options
Limited documentation; even on high balance loans
Speculators: Lenders and consumers jumped into the real estate market
7. What was “new” over the past several years? Mortgage Products that helped fuel mortgage and home ownership growth
Subprime/Alt-A – products designed for consumers with marginal credit and/or with income that is challenging to document
Exotic Mortgage Products – Negative Amortization loans
Blended Mortgages – 80-10-10, etc.
“No-money down” mortgage financing
8. Pitfalls – The Unintended Consequences Pitfalls of Subprime/Alt-A
Speculators jumped into the market – both lenders and home owners
Increases in delinquencies and foreclosures
Prepayment penalties
Consumer confused over product chosen – rate and payment adjustments lead to trouble
Pitfalls of Exotic Mortgages – Negative Amortization
Consumers principal balance increase over time – consumer not paying any principal
ARM rate adjustments push already stretched consumers over the edge
9. Today…… Private securities still not selling; investors continue to consider. This makes conventional jumbo loans difficult to originate.
Significantly tightened underwriting standards.
Transactions more complex for lenders and consumers.
Government business consists of 26% (2008) vs. 3% (2007) of originations in overall mortgage market.
10. Today…… New FHA guidelines as well as Freddie & Fannie Conforming loan limits.
Mortgage companies and brokers continue to exit the market.
Lenders working with consumers to avoid foreclosure.
Increased loss on sale; reluctance to move
Great market for first time home buyers.
11. What is “new”…again? Fixed Rate Products
30, 20, 15 Year Fixed offer security and predictability
Consumer impacted by sudden payment increases
Consumer’s reluctance to move making a longer term mortgage instrument attractive
FHA Financing – increased loan limits
Fannie Mae/Freddie Mac – conforming loan limit increases
VA Financing
Private Mortgage Insurance (PMI)
12. Qualifications Changes General Tightening of Underwriting Guidelines
Increased minimum FICO Score
Increased down payment requirements
Property location
Property type
Credit profile
Increased documentation requirements
Enhanced Appraisal Review
13. What is a Short Sale? A Short Sale is a work out program based on a verified hardship situation that allows the Homeowner to sell the home at fair market value and pay off the loan for less than the total amount owed. When a short sale is completed, it is reflected as “paid in full for less than full balance” on the customers credit report.
Homeowners in “upside down” situations who are having difficulty making their mortgage payments, may find a short sale to be the solution to their financial challenges.
Can help homeowners avoid further collection activity
Avoid stress of foreclosure sale.
Honorable exit to difficult financial situation
14. Short Sale
15. Creative Solutions
For Recruiters
16. What should relocation managers be aware of? Increased loss on sale tied to Negative Amortization products
Increased negative equity tied to Negative Amortization products
Increased requests for companies to reimburse for Prepayment Penalties tied to non-prime and some prime loans
Reluctance to move as a result of equity position in old home
Longer settling-in period for transferees as they look for their new market to “normalize”
17. What does transferee utilization of “new again” products mean to relocation and relocation managers? Documentation requirement may require more collaboration between lenders, borrower and relo firms – FHA/VA and new FNMA/FHLMC increased conforming loan limits
Policy decisions will need to be made around the VA Funding Fee – reimbursable – yes or no?
Review reimbursement of PMI’s upfront costs – historically, not reimbursable under most company policies
Long term benefits as customers are placed in product that meet their long term needs
18. Managing Inventory in Turbulent Times
19. Challenges Competition from Distressed Properties
Local Economy & Media
Lack of Visual Contact
20. Distressed Properties Huge impact in some markets
Fastest growing county in GA /1600 foreclosures in December
East Contra Costa County/Riverside County
Easier to Identify
Overgrown/dead yards
Paint
Trashed interior
Priced to sell
21. Economy & Media Local Economy
Plant closings
Large scale layoffs
Media Frenzy
Good News travels slowly
Doom & Gloom Predictions
Lowball Offers
22. Lack of Visuals Inventory Managers only see properties through photos or the web
Market data supplied is the key to pricing
Understand the impact of location
23. Lack of Visuals
24. Strategies Condition of Property
Pricing
Thinking Outside the Box
25. Condition of Property Relo homes need to be in pristine shape
Curb appeal/yard condition
Lights working/bulbs replaced
Paint/wallpaper
Flooring
26. Condition of Property
27. Pricing Keep updating client on how market is changing
# of For Sale signs in neighborhood
Keep on top of absorption rate
(# of comp homes divided by comps sold per month)
Evaluate carrying costs vs. discounting
Aggressive, pro-active pricing to stay in front of competition
Use odd prices
28. Thinking Outside the Box Staging
Large homes
Awkward floor plans
Soft staging
Buyer Incentives
Paying taxes, HOA dues, Parking fees, Warranties
Closing costs, Buy-downs
Appliances, gift cards for home improvements
29. Results Agents / Relo Directors
Data Reporting
Responsiveness
30. Agents / Relo Directors Inventory is not for sissies!
This is not “asset management”!
Look at properties as buyers
Do the REQUIRED paperwork
Agents are our eyes & ears
Training, Training, Training
31. Data Reporting Reporting is imperative for inventory management
Garbage in / garbage out
Concise, meaningful data
Reporting format often dictated by client
More is better than less…if organized!
32. Responsiveness Difficult decisions can take time
Follow-up is a two-way street
Discuss process at company meetings
Re-assure buyers agents and buyers
33. …but where are we going? Are we at the bottom and heading up or are we continuing to slide…here is a look at what the future may bring…
34. What is the Reality…some facts… In December, 2008, 50% of all resale transactions were REOs; in December, 2007 it was 14% and in November, 2008 it was 46.8% per DQnews
New Construction Inventory is dropping because most builders have stopped building and also dropped their prices substantially
A few zip codes have actually stayed flat or gained value in 2008—in San Francisco, Berkeley and Menlo Park per Zillow.com.
The average sales price is down 50.4% from the peak of June/July 2007
35. A Quick Look at the Bay Area The areas that were the last to lose value and will likely be the first to recover will be those closest to San Francisco and where the amount of new construction is limited or have the best public schools
The rental market has strengthened as former homeowners have become renters
Prices have fallen in some areas so far that conforming loans can now be obtained
36. How are home sellers reacting? Sellers are reducing their list prices or coming on the market at more realistic prices or if they do not have to sell they are not putting their houses on the market
They are offering to pay closing costs or carry financing
Properties are coming on the market in better condition than in the last few years
Sellers are negotiating on both price/terms and commissions
Developers are reducing prices
Developers are offering unprecedented incentives to agents
Some homes are now going to auction
37. Short Term—What Will Happen Prices will continue to moderate where new construction competes with resale
Investors are jumping into the market as they can get a positive cash flow with 25% down payments—this is strengthening the low end which will provide a trickle-up effect
Those who do not have to move will not—especially those who have little or no equity
Short sales will continue to hit the market
The Economic Stimulus Programs—hard to say how they will affect us—certainly differently from lower priced parts of the country
38. Long Term—What Will Happen? Builders have slowed down production so that demand can catch up—this will continue
Homes that are located close to major employment centers and near to public transportation will sell quicker
Prices will increase in areas of high demand and minimal supply
The bottom line…as has been the case for at least the last 30 years—homes in good condition, in good locations, and priced competitively will sell