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eLearning 2008 series
Upcoming eLearning series
Year-End Planning
September 42:00 p.m. ET
Rx for Real Estate
Renee Carnes-RookVice President,
Real Estate, Cartus
Kevin RussellSenior Vice President, Sales
& Account Management Cartus Home Loans
eLearning Rx for Real Estate2008 series
Agenda
• What’s changed since March? A look at forces impacting the market
• How are we doing?
• “Point in Time” policies
• Selling Homes Faster: Strategies that are working
• What to Expect
• Preparing for the future: the Short Sale Train
eLearning Rx for Real Estate2008 series
What’s Changed Since March 2008?Economic Conditions Continue to Decline
• Leading the way…further deterioration of residential real estate and mortgage markets
• Softer job market• Increase in gas prices… up 30% Feb to May ‘08• Higher energy, food and consumer goods prices• Consumer confidence fell sharply since Fall ’07• Decrease in housing prices• Oversupply of new construction• Economic stimulus checks• Temporary mortgage solutions• Changes in business climate:
– Escalation in raw material costs– Weaker domestic demand– Weaker dollar overseas
MSNBC reports:
Support needed for mortgage giants (Fannie Mae and
Freddie Mac)
Government says the number of
single family homes starts has fallen to a
17-year low.
eLearning Rx for Real Estate2008 series
2008 Mortgage Industry Update
Annual Average Interest Rate (Percent)
0
2
4
6
8
10
12
14
16
18
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
0
2
4
6
8
10
12
14
16
1830-Year Fixed
Mortgage Rate
10-Year Treasury
7.38%
17.00%
8.32%
5.83%
Source: American Council of Life Insurers (ACLI), Freddie Mac (PMMSSM), Federal Reserve
eLearning Rx for Real Estate2008 series
Home Sales & Price Activity
June 2008 versus June 2007
Current Rates
Closed Sales Units Avg. Sales Price
National -16.4% -7.9%
Regional:Northeast
-19.9% -3.0%
South -18.2% -4.5%
Midwest -18.2% -4.8%
West -10.1% -17.2%
Source: RealTrends
eLearning Rx for Real Estate2008 series
2008 Real Estate Industry Update-S&P/Case-Shiller Index
– Like OFHEO, S&P/Case-Shiller is a repeat sales index.– Data is from 20 MSA’s, Phoenix, Los Angeles, San Diego, San Francisco,
Denver, Washington, Miami, Tampa, Atlanta, Chicago, Boston, Detroit, Minneapolis, Charlotte, Las Vegas, New York, Cleveland, Portland, Dallas, and Seattle.
– More property and loan types than OFHEO, but less geographical variety.
0
50
100
150
200
250
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
10 City Index
20 City Index
eLearning Rx for Real Estate2008 series
OFHEO Home Price Index - 2007
MT 6.9%
ID4.6%
WY8.3%
NV-5.9%
UT9.3%
CO1.4%
AZ-2.4%
NM 5.4%
WI1.9%
IN1.5%
OH-0.4%
NY0.7%
KY3.5%
TN 4.1%
AL4.5%
NC 4.9%
AK6.0%
WA5.4%
OR3.9%
HI2.0%
AR3.6%
VT2.4%
RI -2.6%CT
0.8%
MA-2.2%
ME1.9%
ND7.9%
SD4.8%
NE2.5%
KS2.5%
MN-1.2%
IA2.7%
MO2.5%
TX5.2% LA
4.1%
OK 5.1%
CA-6.7%
NJ-0.3%
PA2.8%
WV 3.0%
SC3.8%
GA2.6%
MD0.8%
DC1.9%VA
0.8%
MI-4.3%
IL2.0%
MS4.1%
DE1.9%
FL-4.7%
NH-0.6%
Source: Office of Federal Housing Enterprise Oversight
2007 National Appreciation = 0.8%
Price Appreciation
>15%
10% - 15%
5% - 10%
0% - 5%
Negative
eLearning Rx for Real Estate2008 series
MT 4.9%
ID2.6%
WY6.3%
NV-10.3%
UT5.6%
CO2.3%
AZ-5.5%
NM 3.4%
WI1.8%
IN2.2%
OH0.6%
NY0.2%
KY2.8%
TN 3.9%
AL4.5%
NC 4.0%
AK1.3%
WA2.9%
OR2.2%
HI-0.3%
AR2.1%
VT1.8%
RI -3.0%CT
-0.5%
MA-1.8%
ME2.3%
ND4.2%
SD4.2%
NE2.0%
KS2.7%
MN-1.0%
IA2.8%
MO1.7%
TX4.7% LA
3.3%
OK 4.0%
CA-10.06%
NJ-1.2%
PA2.4%
WV 2.5%
SC3.8%
GA2.2%
MD-1.3%
DC-1.5%VA
-0.1%
MI-3.1%
IL0.7%
MS3.1%
DE1.0%
FL-8.2%
NH-0.9%
OFHEO Home Price Index - 1st Q 20082008 1st Quarter National Appreciation = -0.03%
Price Appreciation
>15%
10% - 15%
5% - 10%
0% - 5%
Negative Source: Office of Federal Housing Enterprise Oversight
eLearning Rx for Real Estate2008 series
2008 Real Estate Industry Update - Defaults
0%
5%
10%
15%
20%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
VA
FHAFHA
Prime
Subprime
FHA Swap
Sources: Dept. Housing and Urban Development, MBAA.org
eLearning Rx for Real Estate2008 series
2008 Real Estate Industry Update-Negative Equity
-Projected
0%
5%
10%
15%
20%
25%
30%
Q12006
Q22006
Q32006
Q42006
Q12007
Q22007
Q32007
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
West
U.S.Midwest
Northeast
South
Current Projected
Sources: Bureau of Census, Fiserv Case-Shiller, Moody’s
eLearning Rx for Real Estate2008 series
Short Sale
• When the lender will accept less than the full amount due on a mortgage when a property is sold • Usually the lender will accept to avoid the time and
expense of a foreclosure• Lender can still demand some kind of payment or share
the loss• Items a lender will consider before allowing a short sale
• Income documentation• Hardship letter• Asset statements
• Tax implications & credit history• If the lender absorbs the loss, the IRS might treat that
as taxable income• Reported “Paid in Full-Less than full amount” – Not as
bad as a foreclosure (Loss of 80-100 Points)• Mortgage Forgiveness Debt Relief Act of 2007
eLearning Rx for Real Estate2008 series
MA
ForeclosuresForeclosures up 53% from June 07 National forecast: 1 in every 501 households
States with foreclosure rates among the nations highest
MT
ID
WY
NV+85%
UT +140 %
CO-14.5%
AZ+127% NM
WI
IN18%
OH+11%
NY
KY
TN
AL
NC
AK
WA
OR
HI
AR
VT
RICT
MA
ME
ND
SD
NE
KS
MN
IA
MO
TX LA
OK
CA+77%
NJPA
WV
SCGA
+21%
MD
DCVA
MI+19%
IL
MS
DE
FL+92%
NH
eLearning Rx for Real Estate2008 series
Foreclosure Data
Source: RealtyTrac.com, June 2008
eLearning Rx for Real Estate2008 series
US Foreclosure Data Activity
eLearning Rx for Real Estate2008 series
2008 Economic Stimulus Developments
• IRS stimulus checks issued to more than 130 million households
• Conforming loan limits temporarily increased to 125% of HUD Median House price based on MSA
• Mortgage Forgiveness Debt Relief Act of 2007
• Congress considering extension of stimulus tool
eLearning Rx for Real Estate2008 series
Current Developments
• Credit losses for investors…Fannie Mae, Freddie Mac, Subprime lenders and MI insurance companies are continuing to increase.
• Mortgage investor appetite remains low although some recent signs of improvement.
eLearning Rx for Real Estate2008 series
Current Developments…
• Private Mortgage Insurance
– Discontinuation of >97% LTV’s
– Most providers will no longer insure above 90% in declining markets
– We anticipate further tightening by all MI companies.
eLearning Rx for Real Estate2008 series
Current Developments…
• Jumbo Prime Products
– Reduction in availability of Jumbo investors due to financial risk
– Decrease in ability for lenders to offer competitive Jumbo products
– 96% of the first quarter’s mortgage backed security production for the industry was conforming – Fannie, Freddie, FHA/VA vs. 49% last year
eLearning Rx for Real Estate2008 series
Current Solutions….. FHA
• FHA the most viable financing option for:– Credit limitations– Limited income– Minimum assets
• Increase in FHA mortgage applications: – 7.5% in 2007– 30% and growing in 2008
• Next steps:– Education and training– Expectation setting
eLearning Rx for Real Estate2008 series
Current Situation• Housing pricing back to levels before subprime mortgage
boom
• Housing price drops have decreased household wealth by $2 trillion
• Consumer spending to decline due to real estate and mortgage losses
• Stimulus checks used more to pay down consumer debt than to increase consumer spending
• Depreciation expected to continue in many markets in 2009
• Bad news has dampened home sales, but housing demand still exists and will continue to exist
• Homeownership still remains the American Dream!
eLearning Rx for Real Estate2008 series
Breaking NewsJuly 23, 2008: House passes “Housing and Economic Recovery Act of 2008”- Senate vote expected August 1
GSE Reform:• Grants temporary authority for Treasury to invest in and
extend credit to Fannie Mae and Freddie Mac (GSE’s)• Creation of FHFA (Federal Housing Finance Agency)• Adjust conforming loan limits according to annual housing
price index
Mortgage Foreclosure prevention:• “HOPE for Homeowners Act of 2008” – discounted FHA
loans to assist at-risk borrowers in refinancing their homes• Foreclosure protection for service members• Assistance for the purchase of foreclosed properties
eLearning Rx for Real Estate2008 series
How are we doing?
• Amended rates• 2007 69.1% YTD 2008: 66.4% June 73.3%
• Inventory • Avg Days 2007 138 days YTD 2008: 139 days• TDE 2007 19.3% YTD 2008: 21.5%
• Inventory visits• 872 homes inspected in 36 states:
579 sold (66%)• City promotions
– Atlanta 4/5: 49% sold– Detroit 4/27: 76% sold– Phoenix 4/27: 31% sold– Houston 5/18: 36% sold– Baltimore 6/22: 24% sold– Omaha 6/22: 66% sold– St. Louis 6/29: 16% sold– Chicago 6/29: 45 % sold
eLearning Rx for Real Estate2008 series
What are “Point in Time” Policy Enhancements?
Short term policy changes as a result of economic factors– Critical to managing expenses– Beneficial to the employee and the company
Considerations– Corporate culture– Employee impact– Financial impact
eLearning Rx for Real Estate2008 series
“Point in time” Policy Enhancements
Use Relocation Specialists• Cartus Broker Network
– Average savings of $3,963/home (inventory homes)– Average 22 fewer days in inventory
• “On-list” appraisers: variance is on avg. 5% more accurate= $15,000
Institute Marketing Guidelines• Mandatory minimum marketing times- 60 days• Institute list price parameters - bring closer to BMA
• Now recommend: 103% - 105%• Encourage listing below guaranteed offer• Mandatory reductions after 30 days• Offer incentive early
• Buyer • Seller• Fix up allowances
• BVO only• Determine expiration of benefits- recommend 150 days
Shifting markets require specialized expertise
eLearning Rx for Real Estate2008 series
“Point in time” Policy Enhancements
Appraisals
• “On-list” appraisers: variance is 5% more accurate= $15,000• ERC’s standard guidelines / Top 3 appraisers• Appraisals –”Reasonable” vs. “Normal” -“120 days” maximum• Allow for forecasting and market change adjustments
• Foreclosures are valid comparables• Review “out of variance” guidelines
Guaranteed offer
• Manage appeals• Manage offer extensions
Want to be more aggressive?• Make guaranteed offer 95% of AV• 30-day offer period• Link benefits to selling the home i.e. loss on sale
eLearning Rx for Real Estate2008 series
“Point in time” Policy Enhancements
Third-Party Sales
• Negotiate all offers • Accept offers below AV
Other considerations
• Review your loss on sale policy• Ask about short sales early on in the hiring/relocation process
eLearning Rx for Real Estate2008 series
Selling homes faster: Strategies that are working
Controlling Controllable Factors
1. Location 2. Price 3. Condition
Clients that address Price and Condition…get more activity, sell more quickly, and see lower costs.
The days of pricing and waiting to get your price are gone.• Price competitively• Accurate pricing drives sales• Be prepared to reprice every 30 days• Obtain updated BMA• Know local market conditions
eLearning Rx for Real Estate2008 series
Inventory Approval Levels
DOM Cartus Client Contact 1 Client Contact 2
0-60 85% or $40,000
80% or $50,000 75% or $65,000
61-120 80% or $60,000
75% or $70,000 70% or $85,000
121-180 75% or $90,000
70% or $100,000 65% or $115,000
181-365 65% or $115,000
60% or $125,000 55% or $140,000
SampleSelling homes faster: Strategies that are working
eLearning Rx for Real Estate2008 series
Selling homes faster: Strategies that are working
Results YTD 2008
Client 1 Client 2 Client 3 Client 4
102 104
20.55%
20
20.35%
85
Client 5
AvgDOM
104 92 117
AvgTDE
18.32% 19.96% 18.67%
# of homes
13 74 46
Company Averages
Dom 139
TDE 21.5%
eLearning Rx for Real Estate2008 series
Selling homes faster: Strategies we strongly discourageUnsold Performance
Target: 80 DOM and 10% TDE
Client 1 Client 2 Client 3 Client 4
179 393
16.89%
# of homes 3 10 15 25 53
Failing in all categories. Waiting to get a price will result in high TDE and extended DOM.
8.41%
Need to reduce more timely. DOM will drive up costs.
Client 5
Unsold Avg DOM
290 221 136
Unsold Avg TDE
11.35 7.77% 12.10%
Comments Chasing themarket.Extended DOM.
Not reducing timely. Very low TDE with extended DOM.
Need quicker reaction to market conditions. DOM will drive up costs.
eLearning Rx for Real Estate2008 series
A Cost Comparison: Three ScenariosScenario One Scenario Two$500,000 $500,000
$470,000
325
($30,000)
$86,624.66
Acquisition Costs
$2,300 $2,300 $2,300
$118,924.66
$450,000
79
($50,000)
$44,986.30
$97,286.30
Scenario ThreeAppraised Value $500,000
Sale Price $460,000
Days in Inventory
202
Resale Gain/Loss
($40,000)
Estimated Total Direct Costs
$65,805.48
Net Loss $108,105.48
eLearning Rx for Real Estate2008 series
What to Expect ...Prepare for the worst, expect the best• NO indication things are getting better.
• More foreclosure notices• Necessity – set your house apart from the competition• Buyer’s incentives• Agent bonuses coming more into play• 1% mortgage buydown
• Do not underestimate the impact of short sales. • We are just seeing the beginning of this
• Increased competition• Need for a sense of urgency• Could mean…
• Increased spending• More challenging to sell• More creative marketing• More homes in inventory, longer-term• Prepare for higher Total Direct Expenses (TDE)
eLearning Rx for Real Estate2008 series
andand
eLearning 2008 series
Upcoming eLearning series
Year-End Planning
September 42:00 p.m. ET
Thank you!
An archived link of this eLearning and a CRP form will be sent to all participants via E-mail on July 30.
For questions, comments or to request a PDF version of the presentation, please contact: [email protected]