A Strategic Approach to Residential Mortgage Lending
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Transcript of A Strategic Approach to Residential Mortgage Lending
A Strategic Approach to Residential Mortgage
LendingPresented by
Tracy Jean AshfieldStrategic Mortgage Solutions
The Consulting and Training Division of
Prime Alliance Solutions, Inc.
June 14, 2010
Learning Objectives
• Overview of mortgage lending
• Develop your loan policies
• Create a business plan
• Learn about the secondary mortgage market
Credit Union Market Share
0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00%
1998199920002001200220032004200520062007200820092010
1.93%
2.03%1.81%
2.08%2.18%
2.32%2.06%
2.00%2.00%
2.61%4.66%
4.52%
3.66%Thru March
It’s not a Challenge, it’s an Opportunity!
• The time is now• “Consumers” are flying to safety• Our balance sheet capacity is gold
Nationally 7% of members choose their credit union for their first mortgage needs.
Real Estate Borrowers Designate Credit Unions Their Primary
Financial Institution73%
43%
58%
0%
20%
40%
60%
80%
Mortgage at CU Mortgage Elsewhere No Mortgage
Real Estate Borrowers Use More Services
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Total Fixed Rate Mtg Var Rate Mtg Equity Loan Equity Line
2.07
4.08 3.99 3.95 4.12
Why Are Mortgages So Important?
• Builds relationships
• Increases the products per household
• Exemplifies the trusted advisor role
• Income
Credit Union Mortgage Volume
0.0
20.0
40.0
60.0
80.0
100.0
Granted 20.6 46.6 62.3 88.2 57.2 60.4 54.4 60.3 70.3 95.0 14.4
Sold 5.9 16.4 25.0 37.5 20.1 20.6 16.5 16.2 19.5 51.4 7.9
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Thru March
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
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?
Building a Strategy
Numerous
optionsBasic
Referral
Wholesale Mortgage
Correspondent Delivery
Direct Seller and Servicer
The Creation of a Mortgage
Origination
Creating New Loans
Appraisal
Determining the Value of
the Real Estate
ProcessingGathering Loan Documents and
Verifications
UnderwritingApproving or Denying the
Loan
The Creation of a Mortgage
Closing
Culminating the Mortgage
Transaction
DeliveryTransferring Loan Files to the Investor
Secondary Marketing
Selling Existing Loan Product
Loan AdministrationCollecting & Remitting
Loan Payments
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
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
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
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
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!
Giving Up Control
• Technology helps
• Learn the process
• Develop relationships with your partner
How do you get started?
Consider your resources
Look at business partners
Consider ALM needs
Develop your real estate loan policy
Develop a business plan
Consider your resources
• Staff expertise
• Technology support
• Marketing support
ALM Considerations
• What’s your appetite for loans– Loan to share– Real estate concentration
• Risk tolerance– Interest rate risk– Credit risk
Matching the Policy to the Business Plan
The more you do in-house
the more you will need to document
internal policies and procedures.
Loan Policies
• Types of loans offered
• Trade area
• ALM allocations
• Loan underwriting highlights
• Loan approval guidelines
• Appraisal requirements
• Pricing guidelines
• Quality control and audit
The Secondary Market
Is it for you?
Residential Lending Markets
Primary MarketThe entire residential lending market revolves around home buyers. Borrowers wanting to buy a home come to a lender to obtain a mortgage.
Secondary MarketLenders then sell the mortgages to the secondary market for cash, thus replenishing their supply of funds for additional lending.
Capital MarketThe 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.
Home Buyer
Credit Union
Investor
$
$$
$
$ $
Who are the players?
• Fannie Mae
• Freddie Mac
• HUD
• FHA
• VA
Which are investors?
Advantages
1. Provides liquidity
2. Expands volume
3. Increases variety
4. Improves earnings
5. Reduces risk
More Options for the Member!
Accessing the Secondary Market
How close to “direct” do you want to get?
• Broker
• Correspondent
• Seller
• Seller-Servicer
Recourse
• Full Recourse
• Standard Recourse
• No Recourse
Let’s Consider Underwriting
• Portfolio-proprietary guidelines
• Desktop Underwriter (DU)
• Loan Prospector (LP)
• Total Scorecard (FHA)
Let’s Consider Servicing
Service In-House
Outsource Servicing
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
Let’s Look at Pricing
10 Day
30 Day
60 Day
90 Day
30 Year Fixed Rate
6.67%
6.75%
6.875%
7.00%
15 Year Fixed Rate
6.59%
6.67%
6.75%
6.875%
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
Types of Commitments
• Mandatory – Better rate/more risk
• Best Efforts – Higher rate/lower risk
Private Mortgage Insurance
PMI helps your credit union against the costs and potential losses associated with foreclosure.
PMI Rates are based on:
LTV / Loan Quality
State
Product Type
Payment Options
Payment Options
Annual
Monthly
Single Premium
Financed Premium
What Happens if an Insured Loan Defaults?
Sales Price $75,000 $75,000 LTV 95% 80% Rate 6.75% 6.75% Term 30 Year 30 Year Default Costs $8,000 $7,200 Mortgage Balance $71,250 $60,000 Total Outstanding $79,250 $67,200 Insurance 30% 0% Claim Payment $23,775 -0- Net Potential Loss $55,475 $67,200
Mortgage Lending
Offering first mortgage loans is a key to helping your members realize their homeownership dreams…
The Best Never Rest
• Constantly evaluate where you are
• Communicate regularly with your business partners
• Survey your members
• Stay current on developments
Resources and Training
www.cuna.coop
www.freddiemac.com
www.fanniemae.com
www.consultsms.com