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How Lenders Can Improve Position & Profitability -One Market at a Time

Take Advantage of Tough Times:

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Mortgage Market Déjà vu?

Markets are always changing.

Shareholders are always demanding more.

Organizations are pressured to grow profits, even as costs grow and markets slow and shrink.

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I. Mortgage Lending Outlook: “The Squeeze Is On”

II. How To Survive and Thrive – In Any Market

III. Where to Start: Quantifying Opportunity is Critical

IV. Finding (and Capturing) Missed Opportunities

V. Right-sizing is the Key to Reducing Costs

VI. Expanding into New Markets

Webinar Agenda

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Mortgage Lending 2019: The Squeeze is On

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Lender Challenges: Your SqueezeIncluding Q3: Average of all lenders in this peer group study, regardless of type: just under 19 bps $475 net profit per loan.

Expenses: $8,256 for all lender types

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Lender Challenges: Keeping Sales Expenses Down

How do you reduce front-end loan acquisition costs?

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Lender Challenges: Boosting Sales Productivity

How do you increase sales productivity both individually and collectively in today’s market?

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Sustainable Success, No Matter What

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Find Missed OpportunitiesCapturing More OpportunitiesExpand to New Markets

Right-size Mortgage MarketsOptimize Sales ResourcesReduce Sales Turnover

Mor

e Re

venu

e Lower Expenses

Sustainable Success

Greater Market Share

Increased Profitability

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Case Study: 2019 Planning for ABC Mortgage

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Scenario – ABC Mortgage, a retail purchase-driven, mid-size IMB - grew from $2.09 B in purchase in 2016 to $2.18 B in 2017, and has originated $2.06 B in purchase through end of October of 2018. The executive team is estimating originations to end up at ~ $2.203 B. ABCM has a revenue goal of $3 B for 2019.

2018 Year-End Estimate of $2.203 B

2017-2018 Growth ABCM= .84%

ABCM Branches and Markets

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What is the

in ABCM’s market?

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Back to the basics:

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Opportunity in Current Markets

Both the market and ABCM growth slowed down from 2017-2018

ABCM lost share because the market’s growth outpaced it.

What about 2019? In their footprint, purchase dollars are expected to grow by 6.55% - how can ABCM increase revenue enough to make up for the share lost between 2017-2018 AND the expected growth?

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2019 Planning

ABCM Target

ABCM Baseline

ABCM Growth Plan

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Market Right-Sizing is Critical: Provides realistic parameters for revenue goals

Helps lenders set share goals

Results in right-sizing resources

Lowers front-end loan acquisition costs

Improves collective productivity

Reduces attrition costs

Done correctly, it increases profit (even without increasing revenue)

Enables lenders to find gaps in coverage

Makes expansion less risky (for the same reason as above)

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How much and where is ABCM

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Missed Opportunity = Lost Share

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Finding Strong/Weak Markets

Highlights where to improve performance – possibly invest MORE Discovers weak markets where ABCM should pull back – OR possibly exit completely?

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Right-Sizing the Market Mix

ABCM is consistently under-indexed across footprint in government lending. The VA % of total purchase is decreasing, but VA revenue is still increasing slightly. Jumbo % of purchase market is increasing the most quickly – but ABCM is matching the market’s mix. Data like this reveals possible product/marketing shifts for capturing missed opportunity.

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The Mix: Market by Market

Dallas is one of the strongest FHA/VA markets in this list – between FHA and VA it presents almost $8B in opportunity. Dallas also has a strong Jumbo market - and from the previous slide, we know that ABCM does well in jumbo. This

information may underscore the importance of Dallas in terms of getting more from its current markets. Quantifying the product and borrower mix in each market helps lenders find ways to grow revenue/share.

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Is ABCM capturing

as

as possible?18

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Right-Sizing Markets = Right-Sizing Resources

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How Can ABCM

Into New Markets?

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Establish Strategic Goals for GrowthPotential Expansion Markets

Let’s assume that ABCM has already determined that it wants to expand to the Northwest, Southwest, Midwest, and/or Southeast.

The 110 MSAs in those regions will be used in the Market Comparison process.

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Compare, Rank and Prioritize Your Markets

First, ABCM will need to set parameters for various scenarios that allow it to compare its potential markets. Some examples of the type of information to consider are:

• The market opportunity size in loans or dollars for any segment

• The market or borrower mix (penetration %) of any market (jumbo as a percentage of total purchase, Asian borrowers as a percentage of total borrowers, etc…)

• Key market demographics (median home values, number of millennial borrowers, etc…)

• Competitive landscape metrics (concentration rate, loan-to-lender ratio, etc…)

• Market speed, market density, purchase mortgage generation rate

• Cost-per-loan and other key indicators of interest

The variables ABCM selects should match its strategic goals as an organization and for this expansion. For example, if ABCM wants to do more agency lending, its comparison should consider the percentage of government loans in each market.

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Compare, Rank, and Prioritize Your MarketsAfter selecting parameters that tie into ABCM’s preferred lending strategy, the lender looks at multiple scenarios that weight the variables differently, resulting in a unique priority score and rank.

The tables above capture the results of three different comparisons, each of which uses different data variables and/or weightings. Scenario 1 focuses on a market’s size and jumbo opportunity. Scenario 2 targets each market’s growth speed, PMGR, and density. Scenario 3 emphasizes a market’s attractiveness for FHA, VA, and conforming opportunity.

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Compare, Rank and Prioritize Your Markets

Once ABCM considers each scenario, each of which ranked its potential markets from first to last according to the assigned weights, it establish which markets are top targets for expansion. Top targets are determined by focusing solely on one scenario or by combining the results from multiple scenarios.

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The table below displays the final results of the three analyzed scenarios and quantifies each of the Top 20 markets’ expected opportunity, product mix, speed of growth, and identifies how fragmented each market is competitively. By knowing each market’s total expected opportunity, ABCM can estimate how much opportunity it might be able to capture. It could choose to be more aggressive in some markets than in others.

Finalize Expansion Plans and Goals

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Build and Execute Market Strategies

What are reasonable market share goals? What sales targets should ABCM set – by LO, by branch, by MSA? What should its product focus and mix be in the new market? Do is need new

products or pricing to compete? How many LOs does it need for adequate coverage ratios? Who are its biggest competitors? How will it compete? Should ABCM merge, acquire or build branches? WHO should its LOs be? What age, cultural background, current book of

business, product experience would best fit the new market? If/where should ABCM put a brick & mortar branch? What marketing campaigns and strategies should ABCM use for different

borrower targets? Where and with whom should ABCM’s LOs be looking to build new sources?

More Questions to Answer with Market Opportunity Insight:

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Detailed Data: Denver, CO

The tables show the size, speed, density and total opportunity for Denver through 2022.

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Competitive Landscape:

The table at left lists the top 25 purchase lenders in the MSA.

The “Cumulative Lender Share” column shows how much of the market is controlled by these groups of lenders (Top 5, Top 10, Top 15, etc.) to better understand how concentrated the competitive landscape is for all borrowers.

The Top 5 lenders in this market originated 19.6% of purchase dollars.

Detailed Data: Denver Competitive Landscape

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2019 VA Opportunity by Tract

2019 Conf. Opportunity by Tract

2019 Jumbo Opportunity by Tract

The varying degrees of red in the maps show the distribution of purchase dollars by tract – for Conforming, Jumbo and VA purchase dollars.

The chart above compares Denver by loan type with the entire US. Denver has more government lending than the US, and less jumbo.

Detailed Data: Denver Market Mix

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Diverse markets continue to grow and represent an ever-growing part of the homebuyer pool.

It is important to know the borrower composition of a market, as it helps you plan for who you need to hire as LOs and can mitigate Fair Lending risk.

Detailed Data: Diverse Borrowers in Denver

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2019 Asian Purchase Loans by Tract 2019 Hispanic Purchase Loans by Tract2019 B-AA Purchase Loans by Tract

Detailed Data: Diverse Borrowers Distribution

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Thank You for Attending!

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iEmergent is a forecasting and advisory firm for the lending industry. Since 2000, we have been focused on delivering a forward-looking approach to helping organizations navigate the industry’s changing landscape. After nearly 20 years as an executive at two national lenders, our founder leveraged his background in mathematics and predictive modeling to develop a groundbreaking method for forecasting mortgage opportunity. In addition to our forecasts, we provide strategic advisory services to lenders of all sizes and types, as well as mortgage insurance, title, and investment companies. Viewed as industry leaders, we have been featured in Mortgage Banking magazine, HousingWire, National Mortgage News, Origination News, Inman News, and the Credit Union Journal.

OUR PRODUCTS

iEmergent provides accurate, forward-looking data that quantifies what’s next in mortgage markets across the nation. As housing and lending sputter and stutter toward recovery, our forecasts drill down into states, metro areas, counties, and neighborhoods to quantify where and how mortgage opportunity will grow, slow, or stay the same.

Most clients access our data through Mortgage MarketSmart, a web application with dynamic maps. This powerful visualization tool brings HMDA and detailed forecast data to life, helping organizations easily make decisions about high-level strategic opportunities and tactical, market-level challenges:

• Expand and grow responsibly• Improve sales strategies at all levels• Optimize resources, brand, and locations• Recruit, hire, train, and retain sales resources• Minimize distribution risk and meet CRA/Fair Lending regulations

FORECAST SEGMENTS

Market Geography• State• MSA• County• Census Tract

Market Segments• Occupancy Types• Custom Loan Sizes• Conventional Loan Type• FHA,VA, FSA Loan Types• Jumbo, Conforming• Borrower Income Levels• Borrower Race/Ethnicity • First Time Homebuyer • CRA Eligible• New Construction Sales• Custom Loan Sizes• Refinance Ranges

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OUR COMPANY

For more information about Mortgage MarketSmart,our forecasts, or advisory services, please visitwww.iemergent.com or call us at 515-327-0070.

More about iEmergent and what we do.