2009 Financial Advisor Presentation, this presentation is meant to help financial advisors. Helping Clients Navigate Today's Housing & Mortgage Market.

1. YOUR LOGO GOES
HERE!!
Helping Clients Navigate Today’s
Housing & Mortgage Markets

2. Achilles Heel

3. Understand the Plot of the
Movie!
• Turbulent Markets
– Financial Market
– Mortgage Market
– Housing Market
– Government Intervention
• Evil Villains
– Fear and Greed
– Too Much (conflicting) Info
• Courageous Heroes
– Your Mission, should you
choose to accept it…

4. Understanding the US
Mortgage Market
$Consumer
$Mortgage Broker/Banker
$Wall Street Securitizer
(CMO, CDO, CDS, CDO²)
$Mortgage Servicer
$Secondary Market Investor

5. The Current Crisis: Leverage, Speculation
& Risk Protection
• 3% increase doubles
your investment!
• 3% decrease wipes
out your equity!
• Mark-to-market
accounting
– Rapidly inflates
and deflates asset
values
• Maintain minimum
capital requirements

6. Government Interventions

7. How Does this Impact Home
Owners and Buyers?
• Distressed Situations
– Loan Modifications
– Short Sales
• Buying a New Home
– FTHB Tax Credit
– Conventional / FHA
– Jumbo Mortgages &
Stated-Income Loans
– Interest Rate Fluctuations
• Fixed / Adjustable Rates

8. Part 1 - Distressed
Situations
Loan Modifications and Short Sales

9. Loan Modifications
• July 2008 Housing Bill (HERA)
– Owner occupied
– Default “reasonably foreseeable”
– NPV of loan mod greater than foreclosure
• May 2009 Housing Bill - S. 896
– Same 3 criteria as above
– Servicers must consider work-out plans
endorsed by the US Treasury Secretary:
http://makinghomeaffordable.gov/

10. Short Sales
• What is the lowest offer the lender
will accept…vs. …What is the
highest price I can get for the home
• Hardship package
• “Sell” the lender on low value
– Market analysis, stats on length of time
required to sell home on their own, less
recovery through foreclosure
• Promissory note for difference
• Recourse vs. Non-Recourse
• Release and Full Satisfaction

11. Short Sale is More Difficult
When…
• Seller has not experienced hardship or junior
lien holder will not recover anything
• Seller is upside down, but current on loan with
no plans of missing payments
• Original loan was cash-out or recently closed
• Seller is less than 30-60 days from foreclosure
• Clouded title with outstanding liens and
judgments
– Exception – IRS may allow because their
liens won’t go away , they’ll have the
borrower sign a document transferring the
lien
– IRS tax lien relief -
http://www.irs.gov/newsroom/article/0,,id=201343,00.html

12. Short Sale Hardship
Package
• Describe reason for hardship:
– Medical crisis, bills, etc.
– Job loss of borrower, spouse or
others who help with household
expenses
– Business change, loss, etc.
– Marital status such as divorce,
separation, etc.
– Family situation involving
dependents (health issues,
increased expenses, etc.)

13. Short Sale Hardship
Package
• Tell the client’s story as to why they are unable
to make payments. Use specific dates, dollar
amounts and supporting documentation if
possible
– How much money you lost and when, how
much income you used to make vs. what you
make now, etc.
• Goal is to illustrate how borrower is insolvent,
close to insolvent, or why they are otherwise
unable to make payments
– Expenses greater than income
– Liabilities greater than assets

14. Short Sales and Credit
Scoring
• No Uniform Reporting
Rules!!!!!
– Negotiation Point Between
Seller and Lender
• “Settled Account”
• Mortgage Late Payments?

15. Short Sales:
Working with Buyers
• Nearly 1/3 of all short sale listings are not closeable
– Homeowners – too many assets and unwilling to
contribute cash to the deal
– Many second lien holders in this market want
something (10%?)
• Three questions to ask the listing agent:
– What is the status of your short sale file?
• Hardship package etc.
– Do you have more than two liens on the property?
• HOA, tax liens, etc.
– What is your plan to satisfy the lien holders?

16. Gifts from Friends & Relatives
• Understanding the Gift Tax
– No Tax to Gift Recipient
– No Relationship Required
– $13k Annual Exclusion (Replenishes)
– $1mm One-Time Only Lifetime Exclusion
• Example: Funds Gifted by Mom and Dad for Principal Reduction
and/or mortgage help
– $13k From Mom to Daughter
– $13k From Mom to Son-in-Law
– $13k From Dad to Daughter
– $13k From Dad to Son-in-Law
– Any gift above $52,000 would be deducted from either mom or
dad’s $1mm lifetime exclusion

17. Life After Distress
• Rent-to-own
– Go house shopping
– Investor buys home
– Tenant signs (1) lease; and, (2) option agreement
• Sale / Lease-back
– Investor buys home from home owner and leases it back to
them
– Tenant signs (1) lease; and, (2) option agreement
• Cautions:
– Foreclosure & Eviction Laws Vary From State to State
– Carry Costs if Tenant Walks Away
– Risk to Tenant if Investor Defaults on Mortgage

18. Part 2 - Buying a
New Home
Is this a good time?????

19. First-time Home Buyer Tax
Credit - 2008
• Not owned a home in the last three years
– Single - $75k / $95k
– Married - $150k / $170k
• April 9, 2008 – December 31, 2008
– $7,500
– Repaid over 15 yrs ($500/year) beginning in 2nd
year after credit

20. First-time Home Buyer Tax
Credit - 2009
• Not owned a home in the last three years
– Single - $75k / $95k
– Married - $150k / $170k
• January 1, 2009 – November 30, 2009
– $8,000
– Repaid only if you sell the home within 3 years

21. FTHB Tax Credit:
More Rules…
• Married couples - both must be first-time buyers
• No purchases from related parties
– Spouse, Ancestors, Lineal descendants
• Unmarried FTHB can split credit “in any reasonable
manner” - generally based on ownership % and/or $$
contributions to the purchase price; total credit cannot
exceed $7,500 (2008) or $8,000 (2009)
– Of the buyers, only the ones who are qualified FTHB
can claim the credit (income, whether owned a
home, etc.)
• http://www.irs.gov/newsroom/article/0,,id=187935,00.html
• http://www.irs.gov/pub/irs-drop/n-09-12.pdf

22. Mortgage Market:
Good, Bad and Ugly
• Bad and Ugly:
– Stated Income Loans
– Investment Property
– Jumbo Mortgages
• Good:
– Long Term Rates
• Fed Buying of Mortgage Backed Securities
• Inflation Fears
– Short Term Rates
• Fed Funds Rate
• LIBOR & Treasury-indexed ARMs

23. Story of LIBSOtoRry of LIBOR

24. Understanding LIBOR

25. What About INFLATION??!!
• Only two ways for inflation
to occur:
– #1 - Losing purchasing power
in the US economy
– #2 - Losing value vs. other
currencies

26. Will Government Intervention Cause
Inflation?
• Purchasing power in our own economy
– Fed  Treasury Banks Reserves
• Value vs. other currencies
– Euro
• New, untested in times of crisis
• Lack of one European government
• Downturn in European housing and economy
– Will US “full faith and credit” be better or worse
off?
– Are economies in other countries better than US?
• Britain, Japan, Europe, China

27. Government Intervention: Is the US
Too Far in Debt?
• Debt Ratio - current worst case scenario:
– 85.6% ($12.15 trillion / $14.2 trillion)
• Debt Ratio – optimistic scenario:
– 49.3% ($7 trillion / $14.2 trillion)
• Debt Ratio vs. other Countries
– Germany …...64%
– France……….65%
– Italy…………..104%!!
– Japan…………171%!!
• Equivalent to US GPD of $24.3 trillion!!

28. Is the US Too Far in Debt?
• US LTV Ratio - current worst case scenario:
– 16.8% ($12.15 trillion debt / $72.2 trillion net
worth)
• US LTV Ratio – optimistic scenario:
– 9.7% ($7 trillion debt / $72.2 trillion net worth)
• Total US Equity Position:
– 83.2% - 90.3%

29. HHiissttoorryy ooff UUSS IInntteerreesstt
RRaatteess

30. Unemployment: How Bad
Are Things Really??

31. Inflation: How Bad Are
Things Really??

32. “Misery Index” =
Inflation + Unemployment

33. Recession Babies
• Southwest Airlines - 1971
• FedEx – 1971
– 1973 - launched “super-hub” concept to save
on fuel costs
• Microsoft
• Genentech – 1976
– Founded the biotech industry
• Apple – 1976
• SAS – 1976
– World’s largest privately held software
company
• Oracle - 1977

34. What about buying a home?
Is this a good time?
• Warren Buffet:
– “I buy on the assumption that they could close the
market the next day and not reopen it for five years.”
– “The dumbest reason in the world to buy a stock is
because it’s going up.” [buy value]
• Imagine going shopping a department store, and getting
all emotional and buying all you can when prices are
rising. Then, when prices are falling because of a blow-out
sale, you stay away from the store, or worse, you go
back to the store and sell everything at rummage sale
prices that you bought before at a high price. That is
what people do every day in the real estate market.

35. Median Housing Prices

36. Is Housing a Good
Investment? – Part 1
• $200,000 House
• 20% Down Payment = $40,000 Investment
• 3% Annual Appreciation Over 20 Years:
– $361,222 Home Value
– $161,222 Gain
– 8.41% Annual Rate of Return
• 1.5% Annual Appreciation Over 20 Years:
– $269,371 Home Value
– $69,371 Gain
– 5.16% Annual Rate of Return

37. Is Housing a Good
Investment? – Part 2
• $200,000 House
• 20% Down Payment = $40,000 Investment
• 3% Annual Appreciation Over 20 Years:
– $361,222 Home Value
– $161,222 Gain
– $76,291 Additional Equity Through Principal Reduction
– 10.17% Annual Rate of Return
• 1.5% Annual Appreciation Over 20 Years:
– $269,371 Home Value
– $69,371 Gain
– $76,291 Additional Equity Through Principal Reduction
– 7.98% Annual Rate of Return

38. Long Term Housing Needs
Demand for Homes
• 3 million more people
each year
– 1.27% avg. annual
population growth since
the year 1900
• 1.3 to 1.5 million
household formation
per year
• 1.4 million per year was
the 30-year average
Supply of Homes
• 300,000 homes
demolished per year
• 1.6 – 1.8 million new
units needed to keep up
with population and
replace demolished
homes

39. Housing Starts
Year Housing Starts
2000 1.6 million
2001 1.7 million
2002 1.7 million
2003 1.9 million
2004 2.0 million
2005 2.1 million
2006 1.8 million
2007 1.3 million
2008 < 1.0 million
2009 forecast < 1.0 million
10-year Sum 16.1 million
Could lead to housing shortage?

40. Danger = Opportunity
• Distressed Homeowners
– Loan modifications, short sales
– Sale/leasebacks & rent-to-own opportunities
• Home Buyers
– First Time Home Buyer Tax Credit
– Reverse mortgages on purchase transactions
• 2009 suspension of RMDs on qualified plans
– Gifts and personal loans from family and friends
• $13k annual limit + $1mm lifetime exclusion
• Attach a lien on the property
• Investors
– Sale/leasebacks, rent-to-own opportunities,
personal loans

41. Your Mission, Should You
Choose to Accept it…
• “Un-confuse me” and make
sense of all this chaos!
– 60% of Americans expect an
economic depression to occur
within the next 2 years
– 50%-60% of all mortgage
originators have left the
industry
– 81% of investors want advice
from their financial planners
on more than just investments

42. CMPS® Professionals: Committed
Qualified & Equipped to Focus on Life
Issues in the Client’s World
• College Funding - Four years, including room and board;
PER CHILD
– $84k = public
– $148k = private
– $196k = Ivy League
• Retirement Planning
– Average LE = 79
• Elder-Care Issues
– 4.9 million Americans with Alzheimer’s disease
– 27% of adult Americans care financially for elderly
friends or relatives
– 49% of Americans in their 60s have at least one living
parent compared to only 7% in 1900
Bottom Line: Life Motivates People!!

43. Biggest Financial Crisis and
Opportunity in a Generation
Teddy Roosevelt:
• It is not the critic who counts, not the man who
points out how the strong man stumbles, or where
the doer of deeds could have done them better. The
credit belongs to the man in the arena, whose face is
marred by dust and sweat and blood, who strives
valiantly...who knows the great enthusiasms, the
great devotions, who spends himself in a worthy
cause, who at the best knows in the end the triumph
of high achievement, and who at the worst, if he fails,
at least fails while daring greatly, so that his place
shall never be with those cold and timid souls who
have never known neither victory nor defeat.

44. This Movie CAN Have a Happy
Ending!!
You have been
chosen as the hero!

45. Next Steps: I’d like to be the mortgage
planning arm of your advisory practice!
• Strategic Planning Session
• I’d like to find out more about you and your
practice
• We could then determine the best way in which
to work together to add value to your business