Hey Everyone from Steve Basso at VirtualBank- I want to shed some light on this Mortgage Armageddon, since I have been fielding calls and emails all week from many of you regarding "What is going on with mortgages", as well as interviewing Mortgage Loan officers who have been let go from their previous banking institution, plus making sure all of my loans fund (for many of you), so needless to say this week has been a little hectic.

The headlines and articles in the paper screaming Sub Prime, Exotic Loans and Mortgage Meltdown are useless... They are fear mongering and they are not helping you understand the WHY behind all of this. So before you go sell a kidney to cope with your adjustment, bear with me take this out to the pool and read on... I'll try to be humorous when ever possible.

The number one question I am asked daily, "STEVE,WHAT IS HAPPENING WITH THE MORTGAGE RATES". The one term that appears in almost every article this week and probably next week as well is " Liquidity Issues" for these large lenders that are going out of business. It has nothing to do with a Lake in the hot summer desert... however, both have to do with "drying up" and neither are a sign of the End of the world, so cheer up, you're living textbook material history right now - up hill both ways.

The first thing that we have to understand is that Almost ALL Mortgage Loans are Sold. They are sold to someone as an investment, that's why you pay interest, and that someone is our secondary market to be packaged up, aggregated and then sold off as Mortgage backed securities on Wall Street. Familiar purchasers are Fannie Mae, Ginnie Mae, Freddie Mac and the right now the Evil Non-Conforming Market (investors with an appetite for RISK)

The Second item to understand is that Non-Conforming market is NOT JUST SUBPRIME loans it also includes large jumbo loans, Option-Payment Loans and limited or no documentation loans. That is why you are seeing ALL Lenders being affected by defaults. Plus this "Group" fueled by slowing real estate sales, is producing historic data or statistics that are predicting increased risk to investors. Which means the # of delinquencies or foreclosures is more likely in this category.

Lastly, once that risk is determined, investors will no longer purchase these loans from the mortgage lender at the prices they originally deemed reasonable for the risk. The lender than must decide to either Sell the loan at a loss or hold the loan to be serviced and accept payments until it can be sold later...

The problem with holding on to the loan is that limits the number of loans they can fund or in more familiar terms, close... So they usually choose take the loss, sell some assets ( real estate, bonds, the CEO's BMW etc) to cover the loss... If they can't sell the assets, they can't cover the loss creating a " liquidity" issue.

Here is an example:

Previously an investor would pay $101,000 for a $100,000 mortgage that was closed at 6.5%. That is until that investor hears that there is a 1 in 100 chance that that loan may now default. The investor now wants 8%...

Here is the pickle. Does the Mortgage Company go back to you the consumer and tell you your rate has increased, even though you've already closed and are hanging pictures on the wall? OR, If you haven't closed yet, raise your rate at the closing table? No. they can't do that... Sorry litigation friends...

They make up for it by selling that same loan to the investor for $95,000. The lower out of pocket expense gives the investor the return they want and the mortgage company $95,000 to lend again...

Unfortunately it leaves the mortgage company holding $5,000 plus loosing the $1,000 they normally make in profit. (They now sell Real Estate, a BMW and some stocks to cover the loss and make payroll)

Now, multiply $6,000 times 100 Million per day in losses, Seriously.

Large lenders like American Home, ABC and many others made a business decision and looked out 30 and 60 days to see how many loans they were scheduled to fund and decided to close their doors, or just plain ol' ran out of money (or BMW's).

What should we do?! This is serious, and I am not sugar coating it.

#1. Be Aware that VirtualBank, is in perfectly good financial situation and are not subject to having to purchase back loans, or investors not purchasing our products. We are too "boutique" as some like to call it,with average loans from 1 million to over 20 million dollars daily and we are the preferred vendor to Microsoft and Dell employees for a reason-amazing rates and service. Finally, a one up for the personalized-medium sized Mortgage Lender! Plus, I have invested a lot of time earning my Master's Degree and becoming CMPS Certified Mortgage Planners to better serve YOU-our clients, friend and referral partners and really understand these market conditions and write reeeallllly long emails on Friday afternoons.

#2. Realtors - Smile. You have a tremendous opportunity to capitalize on investment properties and it's time educate sellers to get "real" on pricing or drop their listings and pick up realistic clients, you need that lock box. This is not a time to hand out 3 lenders cards, odds are 2 of the 3 aren't in business anymore anyway. Set up an "action" meeting with myself a CMPS certified mortgage planner and your clients.

#3. Financial Advisors - Get your customers on credit monitoring and our mortgage fitness check up. If they have credit issues, get them nipped in the bud immediately. If things turn badly it is likely they will start sucking their investment accounts dry to make their payments or sell their homes at a loss. This is not a good thing for you or them.

#4 Re-finance clients - Get out your paperwork. Tax returns, income docs, bank statements everything! You need to get approved and close as fast as possible, no tire kicking, rate shopping or fee poking. Nobody has time for that, the big guy on TV doesn't care and your program and credit score may not qualify tomorrow. Please trust me-the proverbial iron is hot-time to strike now!!!!

#5 Buyers - Now is definitely the time to get qualified, approved and to buy! This may not be the Bottom but if you're not buying cash when the bottom gets here, you won't be able to buy... Catch the wave now before you get it on the upswing and complain about not getting in on time, again.

I know this was a long email - and probably too much info, but I have spent hours this week explaining it so I felt it was pertinent.

The bottom line is, Awesome Markets are followed by BAD markets and Vice versa.

I am working on putting together a presentation for Real Estate offices, for those of us who learn and understand better on Power Point! I specialize in re-fi's from 1 million to over 25 million dollars daily, you are in competent hands!!!

Have a great weekend, spend some time with friends and family, check out pre-season football on Saturday and don't freak out too much, a little bit is ok, but not too much!

To your success,

Steve Basso

Albert Einstein once remarked, "Time has no independent existence apart from the order of events by which we measure it."

Stephen C. Basso, CMPS

VirtualBank

#772-501-0701 Call ANYTIME!!!!

VP/Mortgage Banker- Certified Mortgage Specialist