Talk to the Experts Questions for 11/16/06



Good morning, my name is Jim Sahnger. I am with Palm Beach Financial Network, and I am here today to share with you where you need to be the next six months if you want to find the “hidden value” in today’s real estate market.

Be aware, this is not your normal loan officer presentation. I won’t waste your time by talking about how my rates are great, my service is exemplary and blah, blah, blah. No, quite the contrary. Today, when I leave here, you will be faced with a choice. You will be faced with a decision that, if you are up to the task, and the majority of you will not be, you will have the opportunity to make a ton of money before the end of the year. So that question is, will you make the right decision?

Before we get started, I would like to do a few things. The first is thanking your broker for allowing me to come in this morning to share my thoughts with you.

Slide 2

For those of you that do not know me, I would like introduce myself to you. My name is Jim Sahnger. For 16 years, I have been in the business of serving those in the community that want to finance residential real estate. During these 16 years, I have both originated mortgages and worked in management. Unlike many of my counterparts, I focus on providing choices to people that not only help them in choosing the right mortgage program but make you look good in the process.

The majority of clients I work with – those deciding which mortgage program works best for them - come to me through referrals from people like you, are past clients, or are referred to me from my past clients.

Slide 3

I work with Palm Beach Financial Network. We are a small but dedicated team of mortgage professionals with an average of 17 years in the mortgage business. Working as a mortgage broker, we offer your clients a broad array of mortgage investors to choose from, ensuring that the package we can offer will not only put the person in the house they want, but will provide them with a competitive rate and costs as well. Bottom line: we know that in order for us to best serve you, we have to make you look good in the process. We recognize that we are on your team and, as a referral partner, we will always seek to exceed the service level expectations you set for yourself and for your team.

Slide 4

The mortgage business, like the land of real estate, has evolved over time. As little as six years ago, the typical business model for mortgage lending could be summed up in this cartoon. Sell like crazy, rake in the dough, and then go out and buy a lot of really cool stuff. Sure, I’ll take that Hummer, Escalade, boat and Jet Ski, too. Oh, and I’ll be back in three weeks because I’m heading off to Costa Rica for a ride on the zip line through spiders the size of small cattle!

Slide 5

Our business had evolved to one where it seemed everyone either knew someone or knew someone who knew someone that was a loan officer. While not quite as common as what we see here, it did almost seem that you could find a loan officer on every street corner. It seemed loan officers were as prevalent as gas stations. The result was a commoditization of the mortgage business with everyone seemingly getting into the game.

Slide 6

I’m not quite sure how many of you cook here, but as someone who does spend a fair amount of time in the kitchen, it became very easy for me to recognize that this was a recipe for disaster. Just take a look at the ingredients here: for anyone wanting to originate loans, all you had to do was raise your hand, maybe take a simplistic test, find phenomenally low interest rates as a product and get busy.

Looking back at our industry from six years ago, it seems so simple to see now the error of our ways. However, at the time, there was a feeling of “get busy, every person you miss out on talking to is one fewer loan you could originate – and one less check you might cash.”

The end result was simple. Head on over to the mortgage website, ML- and you will find what the final result of the recipe we just discussed. 345 major lenders have imploded. Disappeared off the face of the earth. Starting with the likes of sub-prime mortgage companies that offered scratch-and-dent loans to anyone who could fog a mirror and ending with what now looks like an honor roll of outstanding A-paper lenders.

The implode list takes no prisoners. It only knows one thing: If you funded a lot of loans that have now gone bad, you are likely to suffer the same fate as a homeowner that now cannot make their mortgage payment.

Slide 7

All of this has lead to a fork in the road. And we are faced with the decision of which path to take in our business. It has been said that our lives are not determined by what happens to us but by how we react to what life brings us.

As we all are affected in one way or another by Wall Street & Washington and their impact on the housing landscape, it is important to recognize just what has happened across the country and locally. This is what is happening to us.

What’s more important, however, is recognizing what we can still do to rise above these circumstances and profit from it. In essence, this could be considered a State of the Union moment.

Slide 8

This is a map of the United States just in case anyone didn’t catch that episode of “Are You Smarter than a Fifth Grader?” First American Core Logic releases a study each month called the Home Price Index. It represents the strength or weakness of the housing market based on sales of previously sold properties on a state-by-state and national basis.

On the national level, we are told that housing has declined 12% in the past twelve months and nearly 23% since the “peak” in July 2006. Obviously we know, in some communities, this isn’t quite right. After all, all real estate is local, right?

Well, as the national media continues to state how awful housing is, you can see from the map, that roughly 25% of the states have declined more than 10%, which is represented in red. Now let that sink in a second. If overall property values have declined 12% in the last 12 months and 25% of the states have declined over 10%, the pain obviously is being felt more in those states than others.

What we don’t hear is that nearly 50% of the homes are either nearly unchanged or have improved in value during the same timeframe. Isn’t it interesting how we don’t often hear that?

Slide 9

Instead, what we hear is doom and gloom. Foreclosures, bail outs, homes for sale up and down the street – it’s fear mongering at its best. Let’s face it, folks, fear sells. And no one knows this better than the media. Good news does not help ratings, increase readership, or drive ad revenues. Whatever is hot, titillating, or causes someone’s ears to perk up, that’s what the media is interested in.

As true professionals in our industry, we are charged with changing the perception of the people we intend to serve. If it is buyers, we need to be realistic and also demonstrate the opportunities that exist. In order to do that though, we have to be educated about our industry. We must be able to recognize what is both hot and cold and what impacts us on a day-to-day basis.

Slide 10

What I’m talking about here, from a lender’s or investor’s perspective, is what’s hot and what’s not.

What’s hot today in mortgages relates to stability and confidence in the housing market from both consumers and those folks that invest in mortgages.

What can be defined as hot is all that relates to full disclosure. Full disclosure brings confidence to investors who provide the money needed for financing homes. So, to that end, we are looking at Government enterprises, fixed-rate and non-changing payments, Private Mortgage Insurance, and getting all income, asset, and credit documents in order to make a qualified decision to lend money today.

What’s not hot can be seen as anything that could have contributed to the decline of housing: Jumbo loans, ARMs, second liens, including HELOCs or Home Equity Lines of Credit, and anything relating to sub-prime products.

Slide 11

What we see here is what happens when you have a bubble in real estate values. Home affordability as a function of median home prices, available interest rates, and median family income has been on a rollercoaster since 1988. Over the course of 20 years, we can see that home prices have become both less and more affordable.

However, dating all the way back to when the Housing Affordability index was first created, home affordability has never been higher!

In fact, on a national level, affordability has increased over 35% since 2006 alone. Think about that a second. Home affordability has increased over 35% for people seeking to buy a home today at the median selling price.

However, as home affordability has increased, the ability for many people to obtain financing has decreased. We discussed earlier what is not hot in lending. As a result of that, the desire for people to buy homes at affordable interest rates has not necessarily gone away.

Slide 12

There is a white knight, a savior if you will, who can help us. What I am talking about here are the Government Agencies: HUD, and within HUD, the Federal Housing Authority or the FHA. In essence, we are talking about government intervention to provide financing for home buyers with low down payments and no risk-based pricing as we see with Fannie Mae and Freddie Mac.

(And in markets where USDA is prevalent, there are also zero down loans remaining and USDA benefits)

Slide 13

We have laid out the landscape. Now we have to dive into the opportunity. The greatest opportunity that now lies before us in today’s market is found in first-time home buyers. Why first-time homebuyers? It’s simple. Because, as a single group, they are the dominant force that is driving home sales today.

As property values escalated from 2000 to 2006, it was the entry-level person that was left on the sidelines as buying a home simply became out of reach to many. And for those who bought anyway, well, many of them are now the distressed sellers whoshould have waited.

Slide 14

In order to target a certain demographic for business opportunity, we have to know this demographic. So, who is the typical first-time home buyer today? Over the last several years, this person has changed from what we thought was typical. They are younger and making more money than they were in the past few years.

This individual is someone who has just entered his or her 30’s, has a household income of just over $60,000, typically has funds for a down payment of roughly 4% and is ready to buy.

More importantly, they represent over 50% of all home buyers today both in recent sales -- and are projected to buy throughout the rest of the year. In fact, first-time home buyers represent over 53% of all people expecting to purchase a home in the second half of this year.

Slide 15

Where can you uncover these nuggets of gold? Well, you do have to go searching and, just like fishing, you might want to put out some bait. First-time home buyer seminars are a great way to fill a room of interested people.

For many of you who have a database, you want to start marketing yourself as someone who is reaching out to the community to help people buy their first home. You can do this in conjunction with all your other marketing. Not only, do you want to reach out to the namesin your database, but you also want to reach out to renters. This can include apartment communities as well as tenants of investors you may currently have as clients. But before you do that, I would check with your clients to see if they’re interested in selling their property.

Finally, one great place to establish yourself as a resource to potential first-time buyers is in the workplace. Providing lunchtime seminars for employees at a location, such as a hospital or any other large local employer, can be very beneficial.

Slide 16

Now that we have identified what the market is, where there is opportunity, and how we can generate leads, we need to be aware of the landscape. This is not the free and easy lending landscape of just a few years ago. So what should we be wary of?

Slide 17

Today, there are four issues.

Gone are the free-and-easy days of stated income and the no-doc loans. No, today it is a full-doc world. While this may seem like a novel idea, banks actually want to know that they are going to get their loans repaid. So, before you start showing people houses, make sure that they know that they must be prepared to provide all of the necessary documentation.

Another issue is the Home Valuation Code of Conduct (HVCC). This code’s new rules have changed the way that appraisals will be ordered for anyone whose loan is sold to Fannie Mae or Freddie Mac. While I will not go into all of the specifics just now, be aware that, because of these rules, some appraisals may take much longer to receive and that I will not have the opportunity to discuss the appraisal with the appraiser.

While this may seem like a simple statement, do not - I repeat - DO NOT spend a lot of time with someone who has not been pre-approved. Today, so many things can change the outlook of a lender on a mortgage application that can have a dramatic impact to both someone’s interest rate and the prospect of being approved.

Finally, just as we saw in the last week of May, interest rates, or shall I say low interest rates, are tenuous at best. While the Federal Reserve will continue to do its best to keep interest rates low, volatility can be extreme and interest rate increases can be dramatic. In just five days in May, someone could have been forced to pay 3 ½ points to get the same rate that was in effect at 0 points just a few days earlier.

Slide 18

It’s important to understand that we are not alone in our quest to serve the first time home buyer. Realizing the importance of helping people get into homes, Washington has stepped up and offered an incentive to anyone seeking to purchase their first home. In conjunction with the available $8,000 tax credit and flexible qualifying from the FHA, first time home buyers are being offered even more bonuses. HUD announced on May 29th that the tax credit for qualified buyers can now be used as additional down payment (above and beyond the requirement of the 3.5% down payment), or to cover closing costs and pre-paids. Based on the way it is written, however, we will still have to see how these new incentives work out - and I will keep you posted.

Slide 19

I know everybody wants to take advantage of getting the best possible deal available. However, many people are waiting to try to capture real estate at the bottom of the market. This is something you need to share with all of your prospective buyers. Obviously there are many factors that go into how much a house costs. Certainly price is a factor, but what’s more important to many potential buyers is the monthly payment.

What I’ve demonstrated for you here is the difference in monthly payment between buying a home now for $225,000 and waiting for another 10% decrease in home prices. However what I’ve also demonstrated is the impact on the payment if, while the price of that home declines, interest rates increase one percentage point – which is what happened recently in May.

In fact, even if someone was able to purchase a home at 10% less, the monthly payment would actually be higher if interest rates increased just one percentage point. While you can see it may not be a lot more, it is something to take into consideration, especially for renters, who don’t enjoy the tax benefits reserved for homeowners.

Slide 20

We don’t know for certain what the future holds – no one does. The only thing that we can do is act upon what we do know. And what we know today? Interest rates, regardless of potential changes, are incredibly attractive right now from a historical perspective. Home prices are the best that they’ve been in years for potential buyers. Sure, the value of homes may continue to decline or, as we have seen in many markets, could even stabilize or improve. One thing we can be certain of, however, is that we don’t know if we have seen the bottom until we have left it. Take a look at how many sales are taking place in the area that are cash. In some markets, cash sales are taking place at excessive rates. Palm Beach County is one where cash sales are in excess of 50%. When investors are stepping up en masse and paying cash, this can be one leading indicator that housing prices have reached or are near the bottom. Inform your buyers of this. Get them engaged today. Many markets are seeing multiple offers on properties again as prices have dropped.

Slide 21

Interest rates, regardless of the recent volatility, are artificially low. The pink line you see on this chart shows 30-Year fixed rates through the middle of May dating back 24 months. Prior to the Federal Reserve announcing that it was going to purchase mortgage-backed securities, the lowest point for rates was 5.75%. Immediately following the announcement, however, rates dove down to 5.00%, and when the buying kicked in, rates fell on some days to as low as 4.50%.

For anyone looking to purchase a home today, this needs to be a key point in your conversation to create a sense of urgency to buy today. In the long term, investors seek and want returns that are greater than 4% to 5%. Don’t you? Anyone that thinks that interest rates are going to remain at or around 5% or below, is simply not being realistic.

Slide 22

This is likely the most important information that you need to keep in mind. The clock is ticking on both low rates and the availability of tax credits for first-time home buyers. The first date to remember is November 30. For any first time home buyer who wants to take advantage of this incentive, he or she must close before December. As we progress, you will want to make sure you have all contracts written by no later than the middle to end of October.

The second date to remember is December 31. Unless the Fed decides to alter its current plan for buying mortgage-backed securities and bonds, it is very easy to predict that rates will rise. To what extent is unknown, of course, but it is conceivable that rates could return to the mid 6% - and even 7% would not be out of the question. As we already addressed, increasing interest rates can have more of an impact to affordability than hoping that prices will decline even further.

Slide 23

Bottom line, the time to act is NOW, NOT LATER. For all of us, today could seem like the “the good old days” as we progress into 2010 and beyond!

Slide 24

So, in summary, in order to completely unlock the value that lies before you, we need to embrace first-time home buyers with a vengeance. This market is ripe for the taking and one tremendous benefit with this segment is that all of these people have friends that are in the same position. Referral opportunities are tremendous here.

The second thing that you want to do is partner with a professional. And when I say partner with a professional, it needs to be someone who is well-versed not only in programs that appeal to the first time home buyers but also has the tools and knowledge at his or her disposal to build confidence in the client to stay the course. We miust assist with structuring loan programs that will not only get them in the home but do so at a competitive rate and costs. Finally, in terms of credit scores, does the partner have the relationships in place to assist buyers who need to improve their credit scores?

Now that we have the first two components in place, we need to get the word out to the community to make them aware that we are their resource to get it done. Seminars, proper use of ads, websites and listings all will be essential to accomplish this.

If we do all of this and act quickly, all of us will benefit from increased sales and more closings.

Slide 25

I mentioned when I started this presentation that this would work for some people and for others it will not. I am here to issue to you a challenge. And that challenge is this. Join me in working to create a better community, one home, one family at a time. I am calling this “The Million Dollar Challenge”.

Slide 26

The Million Dollar Challenge is simple, tangible, achievable and worthwhile. What I would like to do is raise $1 million and put it into the hands of the people we want to work with today. First time home buyers are our goal and the way we raise the money is through “other people’s money.” In this case, it’s the Federal Reserve and the availability of the tax credit. Now, I recognize that look in your eyes. You’re thinking, “Jim, how are we going to do this?”

Slide 27

It’s simple. We are going to do this through the “GOSPA” of Jim Sahnger. (Said in your best evangelistic tone) No, I did not say Gospel for those of you looking up at the ceiling! I said GOSPA as in: we have a Goal, an Objective, a Strategy and a Plan of Action.

The goal is lofty but attainable. We each need to put 125 people into homes by November 30. In doing so, at $8,000 a head, we will put $1 million back into the hands of first-time home buyers.

My plan is not something I can on my own. I need your help. I need to partner with five agents who want to embrace this opportunity; only those with the true intention of moving 25 properties between now and the deadline.

The way to get this done is through a combination of seminars, direct and email marketing, database mining.

Slide 28

Everyone wins here. When we reach our goal, we will help 125 families achieve the dream of home ownership. As a nice little bonus, since we do work for money, we will also generate potentially $1. 5 Million in commissions assuming an average sales price of $200,000 on both sides.

The community we live in benefits with increased sales helping to stabilize values, sellers benefit by moving property, and buyers become happy neighbors.

Finally, keep in mind that, if we need to, we can also negotiate for concessions on the selling price to help buyers even more. Everyone wins!

Slide 29

One thing we do need to do in order to accomplish this is to help consumers know about the importance of buying now. There is an education component here that we need to address. One thing that we all know about that a sizable portion of the general public does not, is that the $8,000 tax credit is available and how it works. We need to drive this point home. $8,000 is a lot of money, and there is one thing I think you should be aware of. If I were to ask you, of buyers who are eligible for the credit, what percentage would you say is aware of this free money?

100%?

90%?

75%?

Slide 30

No, only about 50% of all eligible buyers are aware that this credit exists! If they do not know it exists, they certainly do not know of its pending deadline. Less than 20% of the first time home buyers planning on buying a home were aware of it and planned to utilize it. Put another way, and this is what excites me about this opportunity, over 80% were not aware of the credit or planned to use it to buy a house - 80%! This is who we need to appeal to, to inform and educate and engage! And, this is where we will make our money.

Slide 31

People need a cause to get excited. We need something to focus on and feel we are a part of a greater cause. And while it’s great to be involved in a large, national cause, it is also easy to get disconnected. I think Boone Pickens is right on track with his green energy initiatives, and he had great momentum in the beginning. But once I put that little pig-tail light bulb in the socket, it’s easy to lose sight of the goal. Not with The $1 Million Challenge. NO, this is our cause and together we either make it or we don’t, but we get to see exactly where we are from now until November.

Slide 32

In working to achieve anything worthwhile, we do need to work together. And in doing so, we can accomplish great things. I would like nothing more than to see each person I partner with put another 25 deals on the books before now and Thanksgiving to give one more reason to be thankful this year.

Slide 33

While this challenge will do great things for all of us, I do not want you to think that our partnership to achieve great things should end with the expiration of the $1 Million Challenge. No, we have all seen changes in business that provide new opportunities for us. To that end, I am willing to commit 5% of the earnings I will receive from this into a pool that will be reserved for things to come. If we all work together to do that, we could accumulate over $80,000 to be reserved for generating additional business.

What I envision as options to assist us are co-branded efforts to help us all grow. We can do this for future campaigns like first time home buyers, database mining to both your past clients and farm area, and being prepared for whatever event is timely in the future. Bottom line, this is just the beginning of many great things we can do together.

Slide 34

They say the difference between a dream and a goal is a deadline. Well, we have one. It’s not self-imposed, and it is very real. November 30, 2009. The clock is ticking and it is time to move.

Slide 35

Jim Rohn, the pre-eminent life coach has said, “Right now is the time to fix the next 10 years. We cannot do anything about the past but we can act now to make sure we are on the right path!” I want to thank you for taking the time to hear me today, and would now like to open this up for some questions and, more importantly, get busy putting people in new homes!

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