Clint Hammond

The market closed early yesterday and isn't open on Monday, in observation of Labor Day, so I haven't given a usual market update to close out the week like I normally do. Instead we'll look more at a couple of general tips and best practices for anyone that is, or potentially could be, affected by the overall state of the mortgage industry. There is no doubt that we're in "weird" times in this business, but the bottom line is the media can't and never does get it right. But that's where everyone's opinion comes from. Perception is realty if everyone is under the impression that "all ARMs are bad and all rates are high, all property value is declining, and we're out of milk and the sky is falling" and on and on and on. So if that is the case then we just have to be better at sales because isn't a HUGE part of sales teaching? If you are selling a good product, the product isn't the issue right? Obviously not because the product sells itself. What sales is about is making sure that all the facts about that product are on display. But in no way does it stop there, in fact it's nowhere close to being over at this point. You will still lose over half your sales is this where you stop. So here is when I will pick up my sales tip week, getting the rest of your job done.

What are we selling? Sticks and dirt right? (Well, I'm financing it but we're on the same page hopefully.) Sticks and dirt is a great product. My grandfather always said land was the best thing to own because they aren't making any more of it. So what's the problem? If all you're selling is sticks and dirt you lose, game over. You are 1st selling yourself. If you haven't sold yourself, then you could be giving away anything and people wouldn't take it. If you are trusted and respected and your in position to have a level of credibility then you're that much closer. Not because that "credibility and respect" will make them believe you about the product, but because it will help you overcome the real sales end of the Real Estate business. Your credibility has to carry over to when those clients are no longer physically with you. That's right, because it's the husband and wife sitting silently at dinner that night that each is working through your proposal in their own mind and then the doubts creep in. Not doubts about your product, we know it's good, we've already established. The doubts are about "can we still pay for Mary's college if we purchase this house" or "aren't house prices in that area falling like a rock?" or "will we ever be able to make it financially sensible considering we haven't sold this house" or "what about the drive to work from over there and of course back that night" and so on and so forth until it's been beaten into the ground. Not once has your products quality been called into question, we've already established ITS A GREAT PRODUCT but it's all those other puzzle pieces laid out bare on the floor between that couple not talking to each other and getting things so tense that neither one of them can stand it anymore! So their conversation begins after all these doubts, each with their own and each just a bit different than the other ones. Enough different that when the conversation starts, that's when the headlines from yesterday's paper and the others fears begin to feed the fears of both YOUR clients. So I ask you simply, does your credibility pass this test?

It's a difficult task, making a sale (or finishing one for that matter) when you're not even around. You've given them pictures, you given them websites, they've seen the place in person, twice even, so that should do it.....WRONG, you know why? BECAUSE YOUR PRODUCT IS GOOD, WE'VE ALREADY ESTABLISHED THAT. So, of all things that you have given them, have you given them the rest of your teams contact info? Hope so, because that's where you seal the deal here and where you add just enough substance to your whole routine that it's strong enough when fear creeps in later and you're not there in person to confront it. Teams are a beautiful thing, you have a group of people keeping watch over the flock as opposed to just one shepard. It's the mortgage paperwork that kills a lot of the fear because math is so wonderful at not showing any bias. Either the numbers are there and they are in harmony with your clients overall game plan, or the numbers aren't, it's that simple and it's that black and white. Call any of your major lenders at 9:30pm at night, post back who answers. Call me at 9:30pm and see if I don't either answer or at least call back that evening (provided you leave a message, I am not in the habit of just hitting send on missed calls!!) It's that 9:30pm phone call that I am normally stirred to put out those flames because that's when the kids are in the bed and that's when the grown up money/mortgage talk starts and things really get going. 99% of the time, fears addressed right then and there are quelled or confirmed. Quelled, we're putting that offer in at 8:30am the next day. Confirmed, we're no longer wasting time and acting like a taxicab. I think everyone would agree that either of those situations would be just fine compared to the alternative. (Obviously we want the sale but isn't it also productive to move the ones draining your schedule looking at houses that they will never buy? Doesn't that allow you to move on to the next qualified client? Or redirect your efforts with this client and therefore expedite their purchase of the home that they would've ended up buying anyway?)

So sell smart and don't sell alone. Use your mortgage referral as a tremendous part of your sales pitch and routine. 50% to really, because you sell houses, not money. And money is most likely where the fear is because we've already determined, the issue is not with your product, it's with fear.

Give me a buzz, we'll kill fears and sell houses.

Modest gains in the Mortgage Backed world, picked up 12 bp today with the Fannie Mae 6% 30 yr note closing at about $100.81. Oil bounced back a little on fears that Gustav could turn into a heavy hitter in the Gulf and threaten oil platforms by the weekend. New home sales were 2.4% in July but were below the estimate of 523,000. (Actual was 515,000.)

One bright spot in the housing industry though was a reduction in inventory. 10.7 months supply in June and today's figure for July came in at 10.1.

Consumer confidence ticked up today, a big part no doubt paid on anticpated drops in energy cost, coming in 56.9 compared to July's level of 51.9.

Stock market trading vaolume was the lowest of the year with the Dow rising 26 points to close at 11,412. The NASDAQ closed at 2,361 losing 3 points and the broader S&P 500 closed with 4 additional points at 1,271.

Still a lot more on tap for the remainder of the week so lets see how we close out August and make sure that we're prepared to finish 2008 with big upward momentum into 2009. Houses are still being bought and sold so stay positive and just make sure you have a lender on your team not because of what products are or are not offered but because he or she is on top of the ever shifting market. Staying one step ahead has never been more important because as someone said to me today, "the menu is always changing" so don't get to cozy with one product as the crutch you lean on to get deals to the table. You need ONE centralized contact where you can go to get it done somehow, someway, regardless of what changes come down the pipe and let the details sort themselves out. If you can sell the house, not the mortgage, you'll be fine. Let me worry about the money!

As a "shade tree economist", I notice things at times that I find interesting if nothing else. Today I came into the office for a little 'clean up work' on Sunday afternoon so I could work smoothly starting tomorrow. I live 2 miles, almost exactly, from my office. In that two miles, I pass by 4 gas stations. The price per gallon was $3.42/gal on the low end and $3.57/gal on the high end. That's a .15/gal swing! I understand supply and demand, I understand proximity to interestates, etc., all that go into the pricing of individual gas stations. However, all 4 of these gas stations are the same as far as demographics, location markets, etc., and there is no reason that there should've been that big of a swing.

Perhaps even the gas companies can't put a dollar value on their product considering the volatile nature of the oil market and how it's been swinging almost $10/day up and down recently.

Who knows, just thought it was odd if nothing else.

MBS Volatility was in full effect today. Trading as low as 28bp down on the day and ending around 9bp below the open to close at $100.31. Fed Chairman Ben Bernanke spoke today on the topic of financial stability at the Fed's retreat and the financial markets liked what they heard. Primarily when he said inflation should trend lower over the rest of this year and next. They are clearly favoring econominc growth over fighting inflation by keeping the Fed Funds at 2% despite the inflation fears from the boom in commodity prices. The idea that rates may remain lower sparked a huge rally in the stock market and of course, that pulls money out of bonds. Stronger US Dollar news helped bonds out a little and most likely minimized the impact that the flood into stocks could've had on mortgage backed securities. Crude ended about $7/barrel. The Dow picked up 197 points closing at 11,628. The NASDAQ gained 34 points to close at 2,414 and the broader S&P added 14 point to close at 1,292.

Although we did see a 53bp swing today and broke through the 50dma with bonds. Rates are seeing a short term improvement for now so take advantage of it.

Observations-

Are house prices to low? Are they or were they to high? Neither or both depending how you want to look at it. Pricing is to reliant on other variables that if you don't take them into account, you're missing the boat. Credit markets for one are a huge factor that may have gone overlooked for several years.

- On the average, the house price for a 1st time home buyer should be AT THE MAX 5 times annual income. So if a buyer is making $50k per year, then under no circumstance should they be looking at anything over $250,000 and that assumes no significant outgoing debt payments. Most people aren't afforded that luxury so taking that into account, you are going to have drop that price down to $175,000 to hit a comfort range and that will assume at least a 10% down payment. I know without a doubt that 1st time buyers were buying homes well out of that range in recent years. Why? Credit was cheap and easy so that number got pushed well over "what it should be."

- On the average, a homes price tag should be around 12 times annual rent for an area when it is a "first time buyer type home" and as high as 17 times annual rent for the more mature and experienced home buyer. So for an example, lets look at a neighborhood that is most likely in every major city. This neighborhood has an average sales price of $190,000. (W/in our "first time buyer" range from above.) What would it cost you monthly to rent a home there? Lets say $1,200/month is the going rent. $1,200 x 12 months = $14,400 annual rental cost. $14,400 x 12 = $172,800. So either A) the rent is too low or B) the price of the home is too high. Which one is it? Obviously the credit market (playing on potential buyers) is one. Another would obviously be the rental demand. So either could be at work here.

- Mortgage suggestions:

* Take the higher payment to fix your money for 5 years or more. Safety is good play right now. If I'm wrong and rates drop, then you refinance and I won't charge you penny to do so. Call the higher payment an insurance premium. If I'm right and rates hit 7%-7.5%, by year end or 2nd qtr of 09', you'll call and tell me that I'm your hero and the insurance claim has been "filed." so to speak.

* The economy is in trouble, banks are in trouble, and the financial markets are in trouble. There is also a significant possibility that this will get worse before it gets better. The inability to refinance, inability to sell a home, increasing interest rates, etc., are scarier than not taking my advice and going with slightly more expensive but certainly much safer long term fixed money. Advice and planning is the order of the day, you're not going to get that w/ a "MegaMortgageLender" and I'll leave names out of it. Just call me and we'll secure things for you and make sure that the play you make is the play that avoids the big hiccup or even worse.

Signing off, more to come as always.