A Strategic Approach to Residential Mortgage Lending

1. A Strategic Approach to Residential Mortgage Lending Presented by Tracy Jean Ashfield Strategic Mortgage Solutions The Consulting and Training Division of Prime Alliance Solutions, Inc. June 14, 2010

2. Learning Objectives • Overview of mortgage lending • Develop your loan policies • Create a business plan • Learn about the secondary mortgage market

3. Credit Union Market Share Thru March

4. It’s not a Challenge, it’s an Opportunity! Nationally 7% of members choose their credit union for their first mortgage needs. • The time is now • “Consumers” are flying to safety • Our balance sheet capacity is gold

5. Real Estate Borrowers Designate Credit Unions Their Primary Financial Institution

6. Real Estate Borrowers Use More Services 4.12 4.08 3.99 3.95 2.07

7. Why Are Mortgages So Important? • Builds relationships • Increases the products per household • Exemplifies the trusted advisor role • Income

8. Credit Union Mortgage Volume Thru March

9. Offering Mortgages to Your Membership • Refer members to another entity • CUSO • Mortgage company • Bank • Do some of the mortgage functions and outsource the rest • Do everything in-house

10. Mini Needs Analysis • Why do we want to offer mortgages – the motivation? • What’s our vision of the member experience? • Which delivery channels are important to us? • Should we have mortgage lending in branches? • Mortgage loan officers? • All sales staff trained to take mortgages? • What products do we want to provide our members? • What states do we want to do business in? • How will we measure success? • How is technology going to help achieve our goals?

11. Building a Strategy Numerous options Basic Referral Wholesale Mortgage Correspondent Delivery Direct Seller and Servicer

12. Origination Processing Gathering Loan Documents and Verifications Creating New Loans Appraisal Underwriting Determining the Value of the Real Estate Approving or Denying the Loan The Creation of a Mortgage

13. Closing Secondary Marketing Culminating the Mortgage Transaction Selling Existing Loan Product Delivery Loan Administration Transferring Loan Files to the Investor Collecting & Remitting Loan Payments The Creation of a Mortgage

14. Basic Referral - Key Features • Toll-free mortgage number assigned to CU • Web site • Direct to partner’s site or • Fully customized Credit Union site • Product selection • Portfolio growth: CU retains the right to fund any loan originated

15. Wholesale - Key Features • CU responsible for member contact • Taking application, quoting rates, disclosures • Submitting application to lender partner • Collecting the necessary documents (pay stubs, appraisal, etc.) • Wholesale partner responsible for closing loan • Final processing • Underwriting, document preparation, loan closing • Technology • Training • Product selection: broad range of products • Portfolio growth • CU funds loan and either keeps in Portfolio or assigns to partner for sale into the secondary market

16. Correspondent - Key Features • CU responsible for originating, processing, underwriting, closing and funding loan • CU on its own for technology • Mortgage conduit responsible for • Underwriting loans that will be sold to ensure they are secondary market eligible • Servicing loans for those sold; sub servicing for loans credit union retains in its portfolio • Product selection • Substantial effort required to add products • Portfolio growth • CU funds loan and either keeps in Portfolio or assigns to partner for sale into the secondary market

17. Finding the fit that’s right for you AND your member • You don’t have to do it all • Focus on what you’re good at • Compliance needs to be considered • Meet your members’ needs • Most of all do your due diligence

18. Business Partners • Determine your specific needs • Focus on your members and your credit union • Look for a match to YOUR needs • Keep focus on your priorities • Keep your longer-term goals in mind • Get good counsel!

19. Giving Up Control • Technology helps • Learn the process • Develop relationships with your partner

20. How do you get started? Consider your resources Look at business partners Consider ALM needs Develop a business plan Develop your real estate loan policy

21. Consider your resources • Staff expertise • Technology support • Marketing support

22. ALM Considerations • What’s your appetite for loans • Loan to share • Real estate concentration • Risk tolerance • Interest rate risk • Credit risk

23. Matching the Policy to the Business Plan The more you do in-house the more you will need to document internal policies and procedures.

24. Loan Policies • Types of loans offered • Trade area • ALM allocations • Loan underwriting highlights • Loan approval guidelines • Appraisal requirements • Pricing guidelines • Quality control and audit

25. The Secondary Market Is it for you?

26. Home Buyer $ $ Primary Market The entire residential lending market revolves around home buyers. Borrowers wanting to buy a home come to a lender to obtain a mortgage. $ Secondary Market Lenders then sell the mortgages to the secondary market for cash, thus replenishing their supply of funds for additional lending. Capital Market The secondary market uses some of the mortgages purchased from lenders to create securities. It then sells those securities to capital market investors, thus replenishing its funds to buy more mortgages from lenders. $ Investor Credit Union $ $ Residential Lending Markets

27. Who are the players? • Fannie Mae • Freddie Mac • HUD • FHA • VA Which are investors?

28. Advantages • Provides liquidity • Expands volume • Increases variety • Improves earnings • Reduces risk More Options for the Member!

29. Accessing the Secondary Market How close to “direct” do you want to get? • Broker • Correspondent • Seller • Seller-Servicer

30. Recourse • Full Recourse • Standard Recourse • No Recourse

31. Let’s Consider Underwriting • Portfolio-proprietary guidelines • Desktop Underwriter (DU) • Loan Prospector (LP) • Total Scorecard (FHA)

32. Let’s Consider Servicing Service In-House Outsource Servicing

33. Issues that will Influence Decision • Number of Loans Serviced • Types of Loans Serviced • Regulatory Environment • Technology or Lack Thereof • Business Strategies • Professional Preferences of Management

34. Let’s Look at Pricing

35. Loan Level Price Adjustments • Rates and/or fees are higher for: • High LTVs • Low credit scores • Cash-out refinances • Non-owner occupied • Quoting an accurate rate means having all the variables established: • Credit • Property value • Debt and income

36. Types of Commitments • Mandatory – Better rate/more risk • Best Efforts – Higher rate/lower risk

37. Private Mortgage Insurance PMI helps your credit union against the costs and potential losses associated with foreclosure.

38. PMI Rates are based on: LTV / Loan Quality State Product Type Payment Options

39. Payment Options Annual Monthly Single Premium Financed Premium

40. What Happens if an Insured Loan Defaults?

41. Mortgage Lending Offering first mortgage loans is a key to helping your members realize their homeownership dreams…

42. The Best Never Rest • Constantly evaluate where you are • Communicate regularly with your business partners • Survey your members • Stay current on developments

43. Resources and Training www.cuna.coop www.freddiemac.com www.fanniemae.com www.consultsms.com

44. Questions? Tracy Ashfield tashfield@consultsms.com 608-231-9767 www.consultsms.com