Maureen Houston

October 4, 2008

Dear Valued Business Partner and Customer:

The Chinese have a proverb: “May you live in interesting times.” And we are living through interesting times indeed.

Whatever the political posturing regarding the current rescue plan, a plan needs to be passed. Credit markets are frozen and banks are going bust every day. This is not totally because of "toxic" mortgages. This has a lot to do with FASB 157, also known as "mark to market".

Each day lenders must mark their assets to the marketplace. It's like you having to appraise your home everyday and if your neighbor was under duress because they got very ill, divorced, lost their job and was forced to sell their home quickly they may have sold it super cheap. Now, does that mean your house is worth that super cheap price? Clearly not. Why? Because you are not under duress. You have the time to sell your home and get a more normal price, which more accurately reflects true market conditions. But "mark to market" does not allow for this, which creates a vicious cycle.

Why is this so bad? Because as lenders mark down their assets, the amount that they have loaned previously becomes much riskier in relation to their assets. For example, say a bank has $1 million in assets and say they have $15 million in loans outstanding. Their ratio is an acceptable 15 to 1. But should they take a paper write down of $500 thousand due to "mark to market" requirements, their ratio suddenly changes to 30 to 1. This is because their assets are now only $500 thousand after taking the paper loss, while their loans outstanding are $15 million. And at 30 to 1 this bank is viewed as a risky investment. So the stock price starts to get hit, it becomes harder to borrow, and most importantly harder to make money. The bank is then forced to sell some of its loans to reduce its ratio...at cheap prices. And this makes the vicious cycle continue.

This is the first time in our country's history where home values have declined nationally without a

corresponding large rise in unemployment. During the Great Depression, the unemployment rate was

around 25% compared to approximately 5.5% today! Therefore, the challenges being faced today are

different than the challenges that were faced in the 1930s.

Today, states like Michigan and Ohio have high rates of unemployment, and this is causing many people in

those markets to default on their loans and go into foreclosure. Those markets will not likely rebound until the

employment situation improves. On the other hand, states like Florida, Arizona and California have stronger

employment. Home prices in those states have declined largely due to unsustainable speculation on the part

of investors who over-extended themselves by betting that housing prices would always rise. Those markets

have a large glut of investor-owned properties that are going through foreclosure. The downward pressure

on housing values due to foreclosures will likely last in most markets across the country throughout 2009,

and in some markets, perhaps even through 2010. This does not necessarily mean that home prices will

decline for another 12-24 months. This simply means that home values are not likely to recover very quickly

due to the downward pressure on home prices.

How long will the turmoil in the mortgage markets last?

The sub-prime market has virtually evaporated and lending guidelines have tightened significantly. Interest

rates on jumbo mortgages and loans for borrowers with unique situations are considerably higher than loans

for borrowers who have smaller mortgage balances, high credit scores, large down payments, and long,

steady job histories. There are two factors necessary for lending guidelines to loosen back up:

Housing market recovery - lending guidelines are likely to remain very tight until housing prices at

least find a bottom. This is because lenders, mortgage insurance companies and Wall Street investors

don't want to assume the risk that homeowners will walk away from their mortgage if the home

declines in value.

Clear rules and regulations - lenders and Wall Street investors today are very hesitant to be flexible in

their guidelines as long as the rules of the game are still undefined. There is a very large fear in the

marketplace among lenders that they will be faced with large legal liability if they extend loans to

people who may not be able to afford the payments at some point in the future. On July 14, 2008, the

Federal Reserve issued new guidelines that clarify the rules that lenders must follow when evaluating

a borrower's ability to repay. This was the first time since the credit crisis began in July 2007 that

lenders have clear guidance on the rules of the game. This should give lenders a larger comfort level

in creating new loan programs and becoming more flexible in their guidelines. Obviously, "flexible"

guidelines in the coming months will be defined differently than the reckless "flexible" of the past.

Regulators are also considering new rules for Wall Street financial institutions and investors, and

these rules should also help in jumpstarting the mortgage lending industry once again. Therefore,

lending guidelines will likely become more flexible sometime in 2009. As a participant in the CMPS

Institute, I have been very active in helping to shape some of the new rules by commenting on various

government proposals and participating in dialogue with Congress, the Fed, HUD and other

government agencies.

What exactly is going on with Fannie Mae and Freddie Mac?

What are the options if I owe more on my mortgage than the value of my home?

Is this a good time to buy a home?

This is definitely a buyer's market! Your negotiating power in this market is greater than at any point in the last several years. If you are interested in buying

a home for the long-term, this is a great time to do so. However, if you are a novice looking to speculate in the real estate markets, now is the worst time to

do so because this market is more dangerous than ever. Only the truly savvy investors will be able to navigate the market today, but they need to act

quickly. There is so much panic selling in the marketplace right now that the deals that are available today will not likely be around in the future. Of course,

there will always be deals available, but the types of deals available today are not going to last forever. Everyone talks about buying low and selling high,

but hardly anyone actually does it! Once the market stabilizes, everyone will want to jump in again and the best deals will have disappeared.

As long as your timeframe is greater than two years, now is probably the best real estate buying opportunity in over two decades.

The best thing for you to do is work with a team of professionals to help you structure your home purchase transaction in ways where you could save the

most money. Strategies for you to consider include seller-paid closing costs, maximizing acquisition indebtedness to create tax benefits, structuring the

down payment in the proper way and other useful strategies.

It is always advisable to consult with a Certified Mortgage Planning Specialist TM (CMPS®) when navigating today's turbulent mortgage and real estate marketplace. As a CMPS® professional, I am committed, qualified and equipped to help you evaluate your options!