Emerging Markets

1
Emerging Markets Emerging Initiatives

• Andrew Loubert, First Horizon Home Loans
• Martin McGuinn, Kirby McGuinn a P.C.
• Geoffrey Cooper, MGIC
• Tom Matthews, Fiserv Lending Solutions
• Dionisia Coffman, Freddie Mac

2
Emerging Markets Emerging Initiatives

• Andrew Loubert

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Challenges for Banks

• The changing demographics in key banking markets
  presents a challenge for institutions seeking to
  increase market share or expand into those
  markets. The following are three examples of
  those challenges
• Hiring and retaining a diverse workforce
• Managing emerging markets relationships from
  point of initial outreach through loan payoff
• Developing resources at the market level to
  reduce delinquency and reduce time REO stays on
  books

4
Recruiting

• Hiring an employee workforce reflecting market
  changes means that
• Recruiting strategies should include outreach to
  potential employees that speak multiple languages
• There is a diverse pool of employees representing
  all of a market
• When hiring for national and regional call
  centers it is important that those employees are
  able to serve all languages spoken in the markets
  they are charged with serving
• If trying to reach a niche market it is important
  to aggressively recruit from within that market
  and continue to do so to build bench strength and
  have trained staff in place as the market grows
• It is important that the management team is as
  diverse as the workforce

5
Recruiting

• Suggestions for strategically hiring a workforce
  that reflects changing markets
• Actively recruit at local colleges and
  universities through their affinity organizations
  and campus clubs
• Develop mentoring relationships and internships
  that create an environment of success for newer,
  inexperienced employees
• Provide an incentive program motivating new
  employee referrals from existing employees
• Pay for language training and compensate for
  proficiency when appropriate
• Use recruiters knowledgeable about the
  marketplace
• Educate hiring managers about cultural, language,
  and demographic changes in their local markets

6
Servicing

• An effective servicing strategy will support
  successful homeownership within all market
  segments. Ways to do that include
• Having bilingual language teams for key markets
  that speak languages other than English
• Monitor higher risk portfolios for early default
  providing quick response
• Develop a network of local nonprofit
  homeownership centers to provide early default
  counseling
• Flag files where borrowers speak another
  language, ensuring notices are provided in common
  languages

7
Partnering with the Community

• Examples of private-public initiatives to reduce
  foreclosure rates include
• Neighborhood Housing Services of Chicago
• Working with largest lenders to provide early
  default counseling
• Loss mitigation hotline established with lenders
• REO properties offered for sale to NHS Chicago
  clients
• Minnesota foreclosure prevention fund
• Provide pre-foreclosure and early default
  counseling
• Maintain a loan fund offering second or third
  mortgage to make up past payments
• Participant organizations offer REO properties to
  their clients

8
Best Practices for Partnerships

• Provide a hotline for local housing counselors
• Make list of REO properties available to local
  homebuyer education programs
• Create a team within loss mitigation to work with
  borrowers in receipt of counseling services
• Work with local Housing Finance Agencies to
  establish loan redemption capital
• Support community education efforts such as
  financial fitness programs

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Emerging Markets and Emerging Initiatives

• Thank you for your questions and participation!!!
• Andrew Loubert
• Vice President
• Emerging Markets Manager, SW Region

10
Emerging Markets Emerging Initiatives

• Martin McGuinn,
• Kirby McGuinn a P.C.

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Mortgage Options

• Understanding the basics of Reverse Mortgages and
  Interest Only Mortgages
• Assisting otherwise underserved segments of the
  population in different stages of their lives
• Loan Products provide specific benefits for
  certain borrowers

12
Customer Education

• Customer Education before and after loan
  documents are signed regarding features of the
  lending program are critical to successful
  servicing
• ? Servicing employees must be trained on
  differences between these loan products and
  traditional loan products

13
Interest Only Payment Loans

• Interest Only Loans
• Name is a misnomer. The product allows the
  borrower to make interest only payments
• Originally designed for sophisticated high end
  borrowers who used the additional cash flow for
  investments

14
First Time Buyers

• Today the product is being marketed to first time
  homebuyers in an effort to reduce the initial
  monthly payment and qualify for a larger loan
  balance in higher cost areas of the country

15
Interest Only Payments

• Length of Interest Only payment option is
  limited
• Borrower will pay slightly more interest over the
  life of the loan once the amortizing of principal
  begins
• Monthly payments once amortization period begins
  will be higher than a fixed rate since the period
  of amortization will be compressed and additional
  amounts of principal will need to be made to make
  up for reduced payments during the interest only
  payment period

16
More Affordable Loans

• Greater risk to the borrower because of the
  inability to afford higher payments or interest
  rate increases when amortized payments are
  required
• Loans are more affordable because interest rates
  are much lower at beginning of loan period to
  qualify

17
ARM v. Interest Only

• In times of rising market appreciation the
  difference in payments between a 200,000 loan
  with a 4.75 ARM vs. a 4.75 Interest Only
  payment is about 252.00 month (1,043.00 vs.
  791.00)

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Amortization

• However when loan payments must start being
  amortized the loan payment rises substantially
• For example, using our 200,000 principal balance
  if the ARM adjusts to a 7 rate in 5 years, the
  monthly payment is 1,291.00 per month but the
  payments on the interest only loan product would
  be 1,413.00 per month. However, the increase in
  monthly payment on the interest only payment
  option is 622.00 per month

19
HUD Reverse Mortgage

• Reverse Mortgages serve the senior population
• Age Requirements
• HUD and FNMA Versions
• Combination of Lump Sum and/or Monthly Payments
  are made to the borrower

20
HUD Reverse Mortgage

• Loan is all due and payable upon the death of all
  borrowers or if all borrowers cease to occupy the
  residence as their principal residence for a
  period of one year
• HUD version requires MIP insurance within 8
  months of the date loan documents are executed or
  the loan can be accelerated
• HUD version may allow subordinate financing

21
Tax Deferrals

• Borrower may not participate in real estate tax
  deferral program unless the deferred real estate
  taxes are subordinate to the loan
• No deficiency judgment allowed against the
  borrower or his estate upon default
• Interest Rate based upon One Year Treasury Rate
  plus a margin. Life of loan increase up to 10
  cap over life of loan

22
FNMA Reverse Mortgage

• Allows for Higher Amounts to be borrowed by
  Homeowner than HUD program
• 3 Types of Payment Options
• Traditional Equal Monthly Payments to Borrower
  based upon age at time of loan origination

23
Line Of Credit

• Line of Credit Product with Borrower having the
  ability to repay Line of Credit and borrow the
  funds again
• Modified Tenure Product
• Borrower sets a portion of Principal Limit for a
  Line of Credit which can be borrowed against and
  repaid and the remainder is paid out in equal
  monthly payments

24
Servicing Issues

• Explaining how loan payments are calculated
• Increased need for counseling services when
  borrowers get sticker shock
• Increased need for protecting borrowers
  financial privacy because of family member
  involvement

25
Customer Service

• Need for sensitivity in communications with
  elderly borrowers who are not accustomed to
  waiting for service and who may have social and
  physical impairments to understanding the loan
  transaction
• ? Creating a specialized group of employees to
  handle these loan products or developing
  scripting to enable customer service employees to
  transfer call to supervisor or management

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QUESTIONS ARE WELCOME AT THIS TIME!
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Emerging Markets Emerging Initiatives

• Geoffrey Cooper,
• MGIC

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Products

• Reaching immigrant and unbanked families
  MGICs Building a Life in America

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Program Purpose

• Acknowledge growing US immigrant population
• Reach the unbanked with A pricing
• Provide homeownership opportunities to families
  with housing needs
• Recognize cultural differences while balancing
  satisfactory proof of ability to repay the
  loanEstablish the right way to create a
  sustainable market for loans to immigrants and
  the unbanked

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Basic Product Information

• Maximum 95 LTV
• 1-2 unit primary residence
• 5/1 ARM or higher, or fixed-rate mortgage
• Purchase or Rate Term refi
• Agency loan limits
• A priced MI

31
Basic Product Information (contd)

• Equity ? minimum 5
• Borrowers equity
• Lesser of 500 or 1
• Must be in bank at application or pass cash on
  hand test
• Cash to Close ? balance of funds may be
  unverified
• Reserves ? none required
• DTI ? 41

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Program Considerations

• Flight
• Fraud
• Alternative credit
• Disparate treatment

• Deportation
• Source of funds
• Patriot Act
• Collateral

• It all boils down to credit risk and the quality
  of the underwrite!

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3 Keys to Homeownership
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What is an ITIN?

• Individual Tax Identification Number
• 9xx-7x-xxxx
• 9xx-8x-xxxx
• IRS taxpayer ID for borrowers who are not
  eligible for SSN
• ITINs may not be used for wage-earning ID (i.e.,
  W-2, paystubs, etc.)

35
Obtaining an ITIN

• IRS letter
• Apply only when filing taxes
• 2 Proofs of identity required - photo ID 1
  additional ID

36
The Importance of W-2s and Tax Returns
37
Common Fraud Alerts
ALERTS
REASON

• ITIN IDs arent issued by SSA
• SSN number is invalid

• SSN was never issued by SSA

• SSN was issued to individual in (state) between
  (dates)

• Residency history of borrower may conflict with
  issuance time frame of SSN

• SSN was issued ot individual with a DOB range of
  (x)

• Borrowers DOB range doesnt match DOB range of
  SSN issuance

• SSN was issued to individual who is now deceased

• Individual to whom SSN was issued is now deceased

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The Credit Underwrite Scenario A
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The Credit UnderwriteScenario B
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Servicing Considerations

• Language
• Personnel
• Monthly statements and other correspondences
• High-touch, low-tech customer
• Auto-debit (Advance notice of withdrawal)
• Fees range from 30 to 50 bps
• Servicing released?

41
Emerging Markets Emerging Initiatives

• Tom Matthews,

42
Emerging Markets Products Remember When?

• Subsidized Mortgages
• Buydown Loans
• PMI Insured Conventionals
• Adjustable Rate Mortgages
• Mortgage-Backed Securities
• Revolving Credit Mortgages

Pandoras Box
43
Lessons Learned

• Communication between Originations, Capital
  Markets Servicing staffs
• Operational impact to Servicing needs to be
  understood
• Available technology

Pandoras Box
44
You get paid to . . .

• Avoid
• Increased
• Servicing
• Costs !

Pandoras Box
45
Embrace Technology

• Exploit your Self Service Channels
• Skill based routing out of IVR
• Interactive Web site
• Workflow Tools
• Skill-based Work-Queuing
• Servicer-defined Single and Multi-Step Tasks
  Execution
• Conditional Task Execution
• Event Triggered Task Execution

46
Acceptable Return on Your Technology Investment
Servicing Costs
Cost Controlled
47
Emerging Markets Emerging Initiatives

• Dionisia Coffman,
• Freddie Mac

48
WMINWomens Mortgage Industry Network

• The Womens Homeownership Initiative provides an
  opportunity for single mothers to make home
  possible.

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Opportunity

• The need for suitable housing for single mothers
  is overwhelming. Research shows the percentage of
  homeownership for single mothers is 20 points
  lower than for single men with children.
• Single women, head of households with children
  are potentially one of the biggest underserved
  markets.
• Single women with children cut across income,
  ethnic and racial demographics.

50
Despite Advancements, Only Half the Women Who
Head Their Households Are Homeowners

• Women in the U.S. suffer poverty at a higher
  rate. The poverty rate for women-headed
  households are 27. The poverty rate for
  male-headed households are 14.1
• Unmarried women struggle more than unmarried men
  of comparable ages to pay for housing because
  their earnings still lag behind mens earnings.
  There is a 24,000 median earnings gap between
  college-educated men and women age 35 to 44
  employed full-time.2
• Single mothers are at a disadvantage. One-fourth
  of single mothers in the U.S. spend more than
  half of their income on housing compared with
  single fathers spending one-tenth their income on
  housing.2
• 71 of all single mothers are employed, yet their
  homeownership rate and level of wealth is
  significantly below the population at large.3
• Although much of the effort to increase the
  homeownership opportunity has been focused on
  specific segments of the underserved community,
  very little effort has been focused on women.3
• After divorce, the average womens income
  decreases 24 vs. the average decrease in mens
  income of 6.2
• A widowed woman is four times as likely to live
  in poverty after retirement than a married
  woman.2
• A single or divorced woman is five times more
  likely to live in poverty after retirement than a
  married woman.3
• Sources
• Census 2000, Summary File 1 (100 Data).
• The State of the Nations Housing, 2004. Joint
  Center for Housing Studies of Harvard University.
• Census Bureau Population Projections.

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Social and Economic Trends Have Given Women a
More Powerful Presence in the Housing Markets

• Women-headed households make up a rowing segment
  of todays housing market
• Nationally, women-headed households have
  quadrupled since 1950. This is largely due to
  higher divorce rates, delayed marriages, lower
  remarriage rates, greater longevity, and
  increasing labor force participation.1
• By 2010, the number of women-headed households
  are projected to be 63 million close to 27 of
  all households versus single male-headed
  households (23 at 55 million).1
• Between 1980 and 2000, the number of households
  headed by unmarried women increased by almost 10
  million.2
• Collectively, women earn over 1 trillion
  annually, or influence 2.4 trillion (80) of the
  3 trillion in annual consumer sales.1
• Unmarried women accounted for 30 of the growth
  in homeowners from 1994 to 2002.2
• Despite this only half the women who head their
  households own their homes
• Sources
• 1. 2000 Census Population Projections.
• 2. The State of the Nations Housing, 2004.
  Joint Center for Housing Studies of Harvard
  University.

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Homeownership Initiative Framework

• This segment is vast, growing and cuts across all
  income, race and ethnic categories. We have a
  unique opportunity to impact this segment by
  developing, marketing and conducting outreach
  educational events. These events will focus on
• Increasing awareness among women in underserved
  areas
• Educating women on the key components of
  homeownership.
• Understanding and diagnosing where the women are
  on the path to homeownership.
• Connecting women with the appropriate
  intermediaries, lenders and other business
  partners to assist them in moving to their next
  step
• Preservation of Wealth through
• Post-Purchase Counseling
• Early Delinquency Intervention
• Default Counseling

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Preservation of WealthFreddie Macs Affordable
Servicing - Pilot

• Affordable Servicing Pilot (select partners).
• Loan boarding/ welcome package from servicer to
  include, borrower contacts if they have issues
  with their loan.
• Provide borrowers with contacts and options very
  early in the delinquency process prior to 45 days
  delinquency.
• Solicitation letters to borrowers by 50th day of
  delinquency.
• Counseling agency partner, and its members to be
  provided the solicitation list for follow up and
  tracking. Servicer is provided any updated
  borrower contact information for system update.
• Borrower contacts agency, is provided options and
  free counseling. If unable to reinstate, workout
  package is collected and forwarded to the
  Servicer to process a possible alternative to
  foreclosure.

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Benefits

• Increase Home ownership retention for affordable
  borrowers.
• Reduce foreclosures and severe delinquency.
• Stable neighborhoods.
• Expand successful program to additional servicing
  partners.
• Increase standardization and efficiency around
  servicing affordable loans, by generating
  industry best practices.
• Helps borrowers (Women) preserve their investment
  and begin to build their wealth.

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Challenges

• Keep borrowers in their Homes
• Studies show over 5 years only 47 percent of low
  income minority borrowers remain homeowners
  compared with 77 percent of high-income
  homeowners.
• Build relationships and partnerships with
  borrower, servicers and counseling agencies.
• Increase borrower contact data, current average
  contact rate 20.
• Educating Borrowers at origination and early in
  delinquency.
• Low marginal income.

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Questions