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Emerging Markets _ Emerging Initiatives

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					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

Emerging Markets & Emerging Initiatives
Andrew Loubert

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:
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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

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Recruiting


Hiring an employee workforce reflecting market changes means that:
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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

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Recruiting


Suggestions for strategically hiring a workforce that reflects changing markets:
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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

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Servicing


An effective servicing strategy will support successful homeownership within all market segments. Ways to do that include:
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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

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Partnering with the Community
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Examples of private-public initiatives to reduce foreclosure rates include:
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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 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

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Minnesota foreclosure prevention fund
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Best Practices for Partnerships
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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

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Support community education efforts such as financial fitness programs

Emerging Markets and Emerging Initiatives

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

Emerging Markets & Emerging Initiatives
Martin McGuinn, Kirby & McGuinn a P.C.

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

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Loan Products provide specific benefits for certain borrowers

Customer Education
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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

Interest Only Payment Loans
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“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

First Time Buyers
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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

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

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More Affordable Loans
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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

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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)

$200,000 Loan
$1,043.00 $791.00 ARM Interest Only

7.5% Interest

Amortization
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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

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HUD Reverse Mortgage
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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

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HUD Reverse Mortgage
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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

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Tax Deferrals
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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

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FNMA Reverse Mortgage
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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

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Line Of Credit
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Line of Credit Product with Borrower having the ability to repay Line of Credit and borrow the funds again Modified Tenure Product
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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

Servicing Issues
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Explaining how loan payments are calculated Increased need for counseling services when borrowers get “sticker shock” Increased need for protecting borrower‟s financial privacy because of family member involvement

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Customer Service
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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

Emerging Markets & Emerging Initiatives
Geoffrey Cooper, MGIC

Products


Reaching immigrant and unbanked families – MGIC‟s Building a Life in America™

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 loan Establish the “right way” to create a sustainable market for loans to immigrants and the unbanked

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

Basic Product Information (cont‟d)
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Equity  minimum 5% Borrower’s equity:
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Lesser of $500 or 1%
Must be in bank at application or pass „cash on hand‟ test

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Cash to Close  balance of funds may be unverified Reserves  none required

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DTI  41%

Program Considerations
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Flight Fraud Alternative credit Disparate treatment

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Deportation Source of funds Patriot Act Collateral

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

3 Keys to Homeownership

Identity:
Is the borrower who they say they are? ITIN IRS

Income:
Is the income they are claiming truly their own?

Borrower Burden of Proof

Credit:
Is the established credit truly their own & is the credit picture complete?

What is an ITIN?
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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.)

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Obtaining an ITIN
 IRS letter

 Apply only when filing taxes
 2 Proofs of identity required - photo ID & 1 additional ID

The Importance of W-2s and Tax Returns

W-2s

1040

Wage Earning Identities

Tax-Paying ID (“Selected”)

SSN #1

SSN #2

ITIN

IRS Income Credit Credit ID Docs Verification Credit

Common Fraud Alerts
ALERTS
REASON

 SSN was never issued by SSA  SSN was issued to individual in
(state) between (dates)

ITIN IDs aren’t issued by SSA SSN number is invalid Residency history of borrower
may conflict with issuance time frame of SSN

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

Borrower’s DOB range doesn’t
match DOB range of SSN issuance

 SSN was issued to individual
who is now deceased

Individual to whom SSN was
issued is now deceased

The Credit Underwrite: Scenario A
Wage-Earning ID SSN #1 Roberto Garcia-Lopez Selected Identity ITIN: Roberto Lopez

Credit Report:
6 timely trades 1 derogatory trade Credit Report: NA

Full Tradeline Underwrite

The Credit Underwrite: Scenario B
Wage-Earning ID SSN #2: Roberto Garcia-Lopez Wage-Earning ID SSN #1: Juan Garcia Selected Identity ITIN: Roberto Lopez

Credit Report: 6 timely trades 0 derogatory

Credit Report:
3timely trades 3 derogatory

Credit Report: NA

Full Tradeline Underwrite

Servicing Considerations
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Language
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Personnel Monthly statements and other correspondences

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High-touch, low-tech customer Auto-debit (Advance notice of withdrawal) Fees range from 30 to 50 bps Servicing released?

Emerging Markets & Emerging Initiatives
Tom Matthews,

Emerging Markets & Products Remember When?
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Subsidized Mortgages Buydown Loans

PMI Insured Conventionals
Adjustable Rate Mortgages Mortgage-Backed Securities Revolving Credit Mortgages

Pandora’s Box

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

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Pandora’s Box

You get paid to . . .
Avoid Increased Servicing Costs !
Pandora’s Box

Embrace Technology
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Exploit your Self Service Channels
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Skill based routing out of IVR

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Interactive Web site Workflow Tools
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Skill-based Work-Queuing Servicer-defined Single and Multi-Step Tasks Execution
Conditional Task Execution Event Triggered Task Execution

Acceptable Return on Your Technology Investment

Emerging Markets & Emerging Initiatives
Dionisia Coffman, Freddie Mac

WMIN Women’s Mortgage Industry Network
The Women’s Homeownership Initiative provides an opportunity for single mothers to make home possible.

Opportunity
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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.
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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.

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Despite Advancements, Only Half the Women Who Head Their Households Are Homeowners
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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 men‟s 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 women‟s income decreases 24% vs. the average decrease in men‟s 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: 1. Census 2000, Summary File 1 (100% Data). 2. The State of the Nation‟s Housing, 2004. Joint Center for Housing Studies of Harvard University. 3. Census Bureau – Population Projections.

Social and Economic Trends Have Given Women a More Powerful Presence in the Housing Markets
Women-headed households make up a rowing segment of today’s housing market
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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 Nation‟s Housing, 2004. Joint Center for Housing Studies of Harvard University.

Homeownership Initiative Framework
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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

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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

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Preservation of Wealth – through:
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Post-Purchase Counseling Early Delinquency Intervention Default Counseling

Preservation of Wealth Freddie Mac‟s Affordable Servicing - Pilot
Affordable Servicing Pilot (select partners).
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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
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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
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Keep borrowers in their Homes
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Studies show over 5 years only 47 percent of low income minority borrowers remain homeowners compared with 77 percent of highincome homeowners.

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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


				
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