Bridging the Gap to Real Estate Success (vol 8/issue 4)

Ron Reed, The Mortgage Doc /Writer & Publisher
Bridging the Gap to Real Estate Success
© 2007 All Rights Reserved

Reprinted:

Mortgage Meltdown 2007

Last week, I concluded saying that I would cover the subject "The 10 Commandments of Selling" in this weeks feature article. However, in light of the current mortgage debacle and the calls I've received from realtors and past clients, I decided at the last moment to switch gears.

No doubt you are concerned about the current mortgage meltdown. Since December of 2006 to date, some 114 mortgage lenders have shut their doors- ceased doing business, with job losses nearing 70,000. In the past week alone, over 2 Trillion has been lost in global markets, and the 'experts' say that we are anywhere near the worst of it.

You may be wondering, "What happened and who's to blame?" The media, Wall Street and congress are pointing fingers everywhere. However, the causes of the current mortgage implosion are manifold.

First of all, we have what is known as a sub prime lending. The factors mandating the necessity of a sub prime loan could be little or no down payment, inability to validate tax returns, inability to source down-payment funds, low credit score, previous credit issues- including bankruptcy or foreclosure.

Next, we have what is known as Alt-A lending which is similar to sub prime except the borrower generally has a better credit and asset portfolio.

In the past few years, sub prime and Alt-A loans accounted for anywhere between 40-70% of US mortgage production. These loans yielded much higher returns than standard conforming loans. Couple that with unprecedented housing appreciation in many areas as well as investors clamoring for higher profits; this led to loosened underwriting guidelines and the creation of some pretty wild albeit risky loan products.

Consumers started showing problems in the third quarter of last year. Mortgage delinquencies began to mount and bond investors started pulling back; companies started to falter. It was beginning to look like a perfect storm.

What happened next is we saw the slowdown in the real estate market. Home prices in some areas actually falling. Many had maxed out the equity in their homes and along with stagnate or depreciating values, they were unable to sell or refinance their loan. Then came severe hits from the auto manufacturers in Michigan, Ohio and Indiana.

What's next for real estate? With changes to credit tightening, a huge number of buyers will be unable to purchase a home. Some 15% or 900,000 US home buyers have been taken off the market. Consequentially, many people still need to sell their homes. In some areas inventories have risen to 12, 18 and even 24 months. Accompanying this will be more foreclosures.

In the next 12-18 months, over 2 million homeowners will be faced with their Adjustable Rate Mortgages (ARMs) resetting. Many will see payment increases anywhere from 30-100%. And yes, you guessed it, even more foreclosures.

Over the next 12 months. folks will be exiting the real estate industry en mass. If you decide to stick it out you could actually experience a 50% drop in your productivity over the next year. However, it doesn't have to be that way. Opportunities abound. I've spoken with several realtors who have revisited their business plan for 2007. You must be proactive, decisive, have a clear vision and a solid plan. Don't become overly discouraged by what you hear; get tough, busy, serious about your business.

Partnerships will be critical to your future success. Cultivating key referral sources are vital. Align yourself with a mortgage lender who knows the mortgage industry, the real estate market, and who is genuinely interested in helping you grow your business (not merely in closing the business you send them). Get with someone who knows their "stuff" and a solid company that will be around for years to come.  

Depending on your attitude, these could prove to be the "best of times" rather than the worst of times. "When you see blood on the streets, then is the time to buy" was the saying during the great depression. So don't jump- hold on tight! The Mortgage Meltdown of 2007 is gonna be one freakish ride but when it's over you will be certain to prevail as the winner that you already are.