ACUMA FALL LEADERSHIP CONFERENCE

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ACUMA FALL LEADERSHIP CONFERENCE

• ROUNDTABLE SOLUTIONS RESULTS AND CONCLUSIONS

October 8, 2004 Caesars Palace Las Vegas, Nevada
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CUSO MORTGAGE LENDING

• ADVANTAGES
• Serving Nonmembers
• CUSO as an indirect lender
• More product lines
• Compensation
• Staff and Executives
• Staffing Flexibility
• Enable more CUs to offer mortgage products

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CUSO MORTGAGE LENDING

• ADVANTAGES (cont)
• Approaching CUs not in the business
• Reverse Participation (A new term invented by
  this group) (Def - Obtaining a commitment for the
  participation of loans on a forward basis)

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CUSO MORTGAGE LENDING

• CUSO Organizations designed for Real Estate
  Lending
• 13 CUs purchased an existing operation
• 6 CUs formed a single CUSO
• 1 formed a wholly-owned CUSO
• Purchasing an existing mortgage business

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CUSO MORTGAGE LENDING

• CUSO Organizations designed for Real Estate
  Lending
• Transfer CU employees to a CUSO to begin
  operations
• 2 Large CUs forming a single CUSO for economies
  of scale
• Develop a Construction Lending CUSO to focus on a
  single loan product

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CUSO MORTGAGE LENDING

• Best Practices approaching correspondent CUs
• Gets the CU in the mortgage business
• Lead with Loan Servicing
• Offer marketing support/advice
• Cross selling their products at loan closing
• Keep members from competition

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CUSO MORTGAGE LENDING

• Objections from CUs joining a CUSO
• They just dont get it!
• CEOs and volunteer
• CEO not willing to take responsibility for
  expanding products for their members
• Existing relationships

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CUSO MORTGAGE LENDING

• Objections from CUs joining a CUSO (cont)
• Staff and management conflict
• Job security (CU employees concerned about
  outsourcing)
• CUSO will not provide the same level of service
  as the correspondent CU

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CUSO MORTGAGE LENDING

• Ancillary products and services that may be
  offered by a CUSO
• Real Estate Brokerage
• Title Insurance and Settlement Services
• Consumer loans
• P/C Property Casualty Insurance (Be careful)
• Home warranties

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CUSO MORTGAGE LENDING

• Ancillary products and services that may be
  offered by a CUSO
• Life Insurance
• Financial Services (Securities cross sell)
• Reverse Mortgages
• Fee Services (training, outsourced processing etc)

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EMERGING MARKETS

• WHAT TO LOOK FOR BEST PRACTICES
• CUs as out of the box thinkers
• Financial Partners and their billboards in
  Spanish. Take advantage of ethnic diversity
• Aging members and reverse mortgages
• Land trust activities in CO.

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EMERGING MARKETS

• WHAT TO LOOK FOR BEST PRACTICES
• Affordable lending in Texas diverse markets
  (customizing GSE programs)
• Nonconforming loans criteria in Nevada to
  conforming loans

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EMERGING MARKETS

• WHAT TO LOOK FOR BEST PRACTICES
• Teaching auditors and examiners to understand
  nonconforming loans
• Partnering with Realtors
• Look to the CUs roots of CU service mentality
• Get the word out CUs make mortgage loans

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EMERGING MARKETS

• WHAT TO LOOK FOR BEST PRACTICES
• Dont reinvent the wheel
• Talk with suppliers
• Address unique member recordkeeping
  (documentation) and work to help them
• Investigate how to help and educate members
  improve their loan quality

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EMERGING MARKETS

• WHAT TO LOOK FOR BEST PRACTICES
• Check out www.Payrentbuildcredit.com
• Learn what others (the competition) is doing

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CROSS-SELLING STRATEGIES

• The 1003 has a great deal of information Use
  it!
• Staff needs to know the full scope of CUs
  products
• Look to sell relationships
• Training is needed and necessary
• Develop strategies for cross selling specific
  products

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CROSS-SELLING STRATEGIES

• Monitor results from all activities
• Dont make the process harder than it has to be.
  Use of a single app?
• Listen to what the members want. Improve
  listening skills
• Evaluate audit skills. (Noted in incentive
  programs)
• Incentives are helpful to achieve cross selling
  objectives
• How effective is the tracking?

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CROSS-SELLING STRATEGIES

• Specific department chartered to take the 1003
  and begin the cross-selling process
• Look for opportunities and efficiencies in
  approving credit
• Make sure policies and strategies are in sync

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ALM ISSUES

• Is this the time to retain or sell loans?
• Make sure you clearly assess the opportunities
  versus your objectives
• Make sure your board policies and ALM polices are
  in sync
• Securitization strategies? When they are helpful
  and why?
• Hedging strategies Pipeline management

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ALM ISSUES

• Investigate alternatives for hedging with other
  investors including secondary marketing entities
  and CUs through loan participations
• What do you do with the funds you receive from
  loan sales?
• Need more communication on lending and hedging
  strategies.

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ALM ISSUES

• CU culture is still a bit of a disadvantage both
  inside CU industry and the market in general.
• Is mortgage lending CORE to the CUs business
  model?
• If not, why not?
• Priority level of mortgage lending needs to be
  raised in the CU community.

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ALM ISSUES

• Should the mortgage lending executive sit on the
  ALCO committee (75 - Yes) (Slight bias noted)

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COMPENSATION STRATEGIES FOR RESULTS

• Most popular group. Highest level of interest.
• Comp is all over the map
• Base Only
• Pro Job security for CU employees
• NEG Lack of motivation

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COMPENSATION STRATEGIES FOR RESULTS

• Base plus commission Small base with commission
  per units in excess of achieved goal
• PRO Additional incentive
• CON Only select people can earn incentives vs
  others
• Sales people can make more money that senior CU
  staff

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COMPENSATION STRATEGIES FOR RESULTS

• All Commission
• PRO Motivation driven
• CON Works well in good markets not so well in
  soft markets
• Cross sales and incentives
• Most were paying for cross sales using the 1003

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COMPENSATION STRATEGIES FOR RESULTS

• Cross sell other CU financial products
• Cross sell incentive on insurance products were
  about 50
• Originators pay processors to increase
  productivity

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COMPENSATION STRATEGIES FOR RESULTS

• Paying overages
• PRO - Paying an originator on excess yield
• NEG Taking advantage of members perhaps instead
  of giving them a lower rate
• Increasing source of business
• Advertising, communication, and direct mail

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COMPENSATION STRATEGIES FOR RESULTS

• Product Profitability The mortgage is one of
  the most profitable products the CU offers
• Employee retention
• Career path for staff to work their way into
  higher paying positions

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COMPENSATION STRATEGIES FOR RESULTS

• Use the better working conditions at the CU to
  attract qualified staff.
• Are you aggressive enough on compensation
  strategies?