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October 29, 2009
What’s It All About, Alfie?

What’s it all about, Alfie?
Is it just for the moment we live?
What’s it all about when you sort it out, Alfie?
Are we meant to take more than we give
Or are we meant to be kind?
And if only fools are kind, Alfie,
Then I guess it’s wise to be cruel.
And if life belongs only to the strong, Alfie,
What will you lend on an old golden rule?

Well, if Alfie is the name of your mortgage banker, the answer may be NADA, ZIP, ZERO, NOTHING! As if tighter lending standards haven’t already done enough to suppress demand, stay tuned. More tightening is around the corner, even for FHA borrowers. The rumor on the street is that lenders are looking to increase the minimum FICO for FHA deals to 660 in the very near future. Mortgage insurance companies have already raised the bar to 680 for any type of conventional coverage on LTVs over 80%. Good luck getting your self-employed borrower qualified now. Forget loans for investment properties. Did I mention Jumbo loans? The pendulum always swings to extremes, mon ami.

“It’s really too soon to call this a turning point.”
– Professor Robert Shiller, the Yale economist who helped create the Case Shiller index
Wall Street Journal 8/25/09

Sales may have picked up briefly over the summer, but prices are nowhere near the bottom. It’s the classic dead cat bounce we’re seeing, supported by a seasonal pickup in demand, artificially low interest rates and the first-time homebuyer’s tax credit. Did you know that delinquency rates have increased to 13.16% of outstanding mortgages and the cure rate is down to 6.6% even on prime mortgages? This creates a huge overhang (or shadow inventory) that could be with us for the next 12-18 months. Beware of sellers caught up in a false sense of euphoria who are reluctant to price correctly!

“(We) estimate this “shadow inventory” at around 7 million housing units, or 135% of a full year of existing home sales… We are concerned that, in light of this housing overhang, the stabilization we have seen in home prices the last few months is temporary.”
– Laurie Goodman, Senior Managing Director – Amherst Securities
Housing Wire 9/24/09

Were you aware that the Fed has been keeping mortgage rates artificially low for the past 9 months by purchasing mortgage-backed securities. On September 23, 2009, the FOMC announced that the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and gradually slow the pace of these purchases, anticipating they will be executed by the end of the first quarter of 2010.

What does this mean? Three guesses and the first two don’t count. Mortgage rates have dropped more than 2% since October 2009, just prior to when the $1.25 trillion FED MBS purchase program was announced in early January. Could rates go 2% higher from here between now and the end of Q1 2010? Absolutely! Will this have a DRAMATIC impact on demand for housing? ABSOLUTELY!

A 1% increase in interest rates will cause a 10% decrease in aggregate purchasing power (read: DEMAND). A 2% increase will cause a nearly 20% loss in purchasing power, ACROSS THE BOARD. Shrinking the demand side of the equation by this much could have another devastating effect on prices everywhere. Did I mention a sick economy and an unemployment rate of almost 10%?

“A new report from Deutsche Bank makes some pretty bearish estimates in forecasting that almost half—some 48%—of mortgage holders could find themselves owing more than their homes are worth by the first quarter of 2011.”
Wall Street Journal 8/7/09

Ever heard of “Strategic Foreclosures”? A July 2009 study by Northwestern University Kellogg School of Management, the University of Chicago Booth School of Business and the European University Institute found that 25% of mortgage loan defaults today are “strategic.” Even borrowers with high credit scores have come to the realization that they are better off walking away rather than trying to make their mortgage payments, even though they have the capacity to keep their mortgage current. They feel time will heal their credit score much sooner than their home value will recover.

So what can Kinder Reese do for you? Get with your coach now and be sure you’ve got the key Kinder Reese tools and strategies in place. We can bullet-proof your business and prepare you to clean up from the wave of short sales that will be hitting the market and arm you with the critical tools for getting listings that will sell in the coming market.

If you don’t have a coach, give us a call at 972-668-5090 and tap into the tips, tricks and strategies that have helped our clients increase their business 50, 100…even 150% over the last 12 months. We’ve got complete, turnkey systems to help you, including owning the expired business in your market, making short sales a regular pillar of success in your business, increasing your conversion rate no matter what the market environment, systematizing your business for maximum profits and a whole lot more!

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