Industry and Regulatory Landscape September 2013

1. Industry and Regulatory LandscapeSeptember 2013 Pete Mills – SVP Residential Policy MBA Mike Fratantoni – MISMO President, VP Single Family Research MBA Moderator - Rick Hill – AVP Industry Technology MBA Presented by David H. Stevens President, Mortgage Bankers Association

2. Outlook for 2013 and 2014 Source: MBA August 2013 Forecast

3. Rate Forecast Source: MBA August 2013 Forecast

4. Estimated Originations 1990 to 2014: SF Market Source: MBA – August 2013 Mortgage Finance Forecast

5. Net Production Income (basis points) Orig Vol ($M) Source: MBA’s Quarterly Mortgage Bankers Performance Report

6. 2013: The Year of Implementation • Final DFA Mortgage Rules Issued in 2014: • Ability to Repay/Qualified Mortgage • HOEPA/High Cost Mortgage Loans • Loan Officer Compensation Rule • National Servicing Standards (2 Rules: RESPA & TILA) • Escrow Rule • ECOA Appraisal Disclosure Rule • Appraisals for High Risk Mortgages Rule • 4250 + Pages of FINAL Rules… • plus proposed rules, small entity compliance guides, • Official and unofficial guidance, • …but still many uncertainties

7. …and there is more to come • Risk Retention/QRM • Just re-proposed (505 pages) • RESPA-TILA Integrated Disclosures • Expected late 2013, with implementation by ??? • HMDA Amendments • Expected late 2013…significant expansion, implementation by ??? • Anti-Steering Rules • Ongoing GSE Strategic Alignment and FHA Program Changes • State laws (e.g., CAHBOR) • And more? • CFPB has authority to issue rules to address “risks to consumers” it identifies without waiting for Congress to act.

8. Implementation Challenges • The systems, programming and training challenges are unprecedented… • …and so are the risks of getting it wrong – legal, regulatory and reputational • Implementation time frame remains incredibly compressed • Will lenders, servicers and vendors be ready? • CFPB says supervision and enforcement will be “measured”… • But what about the AGs? The plaintiffs bar?

9. Impact: the Known and the Unknown • Biggest Known Impacts • QM/QRM: Define the Credit Box in near-term, possibly the long-term • Fed Data: 20% + of purchase mortgages > 43% DTI • Fees and Points Cap: Small Loan impact • Implications for LMI, Minority Borrowers • National Servicing Standards: • Sharply higher costs of servicing, esp. for small servicers • Reconsolidation of Market • LO Comp Rule: • Combined with QM: Further Impairs on Broker Channel? Rise of Mini Corr • Uncertainty: Industry remains cautious, risk taking remains constrained • Fed 2012 HMDA Report on current credit conditions: “…almost no risk-taking in the [conventional] mortgage market in the aftermath of the financial crisis.” • Biggest Unknowns • QM: Availability and Cost of Non-Safe Harbor Lending, Non QMs • Implementation: Can we do it? • Enforcement? CFPB, AGs and Plaintiffs Bar

10. Cumulative Impact of Regulation

11. Cumulative Impact on Industry/Consumer • Community Based Lenders • Community banks, Independent Mortgage Banks (IMBs): Too small to survive? • Will Costs become prohibitive? (especially on a per unit basis) • Re-aggregation of Market? (especially with respect to servicing) • Implications for competitiveness, ability of market to expand/contract… • Large Lenders • Higher costs: impact on relative returns on mortgage vs. other business lines • Reputational risks of mortgage lending and servicing? • Consumers • Uncertainty = Tightened “Credit Box” in Near Term • Reduced Competition if lenders leave or reduce their mortgage lending • Constrained Product Innovation • Fewer Choices • Cost of Credit will rise, but by how much?

12. Contact Information & MBA Resources Rick Hill Associate Vice President, Industry Technology rhill@mba.org (202) 557-2718 MBA Homepage: www.mba.org MBA Research Page: www.mba.org/research Research Institute for Housing America: http://www.housingamerica.org MISMO: www.mismo.org

13. Thank You to our 2013 Fall Summit Event Sponsor