A Strategic Approach to Residential Mortgage Lending

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A Strategic Approach to

Residential Mortgage Lending

Presented by

Tracy Jean Ashfield

Strategic Mortgage Solutions

The Consulting and Training Division of

Prime Alliance Solutions, Inc.

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Learning Objectives

• Overview of mortgage lending

• Develop your loan policies

• Create a business plan

• Learn about the secondary mortgage

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It’s not a Challenge,

it’s an Opportunity!

The time is now

“Consumers” are flying to safety

Our balance sheet capacity is gold

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Real Estate Borrowers Designate Credit Unions Their Primary Financial

Institution 73% 43% 58% 0% 20% 40% 60% 80%

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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

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Why Are Mortgages So

Important?

Builds relationships

Increases the products per household

Exemplifies the trusted advisor role

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Offering Mortgages to Your

Membership

Refer members to another entity

CUSO

Mortgage company

Bank

Do some of the mortgage functions and

outsource the rest

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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?

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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

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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

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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

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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

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Giving Up Control

Technology helps – if you use it!

Learn the process – outsourcing

doesn’t relieve you or all risks

Develop relationships with your partner

– due diligence is crucial

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How do you get started?

Consider your resources Look at business partners

Consider ALM needs

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Consider your resources

Staff expertise

Technology capability

Comfort with compliance requirements

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Business Partners

Focus on your members and your

credit union

Determine your specific needs

Look for a match to YOUR needs

Due diligence is crucial

Keep your longer-term goals in mind

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ALM Considerations

What’s your appetite for loans

Loan to share

Real estate concentration

Risk tolerance

Interest rate risk

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Matching the Policy to the

Business Plan

The more you do in-house

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Loan Policies

Types of loans offered

Trade area

ALM allocations

Loan underwriting highlights

Loan approval guidelines

Appraisal requirements

Pricing guidelines

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Residential Lending Markets

Primary Market

The entire residential lending market revolves around home buyers. Borrowers wanting to buy a home come to a lender to obtain a mortgage.

Secondary Market

Lenders then sell the mortgages to the secondary market for cash, thus replenishing their supply of funds for additional lending.

Capital Market

The 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.

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Who are the players?

Fannie Mae

Freddie Mac

HUD/FHA

VA

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Advantages

1. Provides liquidity 2. Expands volume 3. Increases variety 4. Improves earnings 5. Reduces risk

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Accessing the Secondary

Market

How close to “direct” do you want to get?

Broker

Correspondent

Seller

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Once again, consider

Staff experience

Technology capability

Compliance expertise

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Recourse

Full Recourse

Standard Recourse

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Underwriting Engines

Portfolio-proprietary guidelines

Desktop Underwriter (DU)

Loan Prospector (LP)

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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%

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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

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Types of Commitments

Selling loans –

you have options

Mandatory – Better rate/more risk

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Let’s Consider Servicing

Service In-House

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Issues that will

Influence Decision

Number of Loans Serviced

Types of Loans Serviced

Regulatory Environment

Technology or Lack Thereof

Business Strategies

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Private Mortgage Insurance

PMI helps your credit union against the costs and potential losses

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PMI Rates are based on:

LTV / Loan Quality

State

Product Type

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Payment Options

Annual

Monthly

Single Premium

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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

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The Best Never Rest

Constantly evaluate where you are

Communicate regularly with your

business partners

Survey your members

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Resources and Training

www.cuna.coop

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Questions?

Tracy Ashfield

tashfield@consultsms.com 608-231-9767

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