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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:
     –   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
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
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
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
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
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
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
   Loan Products provide specific benefits for certain borrowers
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
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
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
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
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
ARM v. Interest Only

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

                                      7.5% Interest
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
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
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
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
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
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
Servicing Issues

   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
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
 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)

   Equity  minimum 5%
   Borrower’s 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%
Program Considerations

   Flight                                  Deportation
   Fraud                                   Source of funds
   Alternative credit                      Patriot Act
   Disparate treatment                     Collateral


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

 Identity:                            Income:
Is the borrower who             Is the income they are
they say they are?              claiming truly their own?
              ITIN              IRS

             Borrower Burden of Proof

                      Credit:
       Is the established credit truly their
       own & is the credit picture complete?
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.)
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       ITIN IDs aren’t issued by SSA
                                    SSN number is invalid

 SSN was issued to individual in   Residency history of borrower
                                      may conflict with issuance
  (state) between (dates)
                                      time frame of SSN

 SSN was issued ot individual      Borrower’s DOB range doesn’t
                                      match DOB range of SSN
  with a DOB range of (x)
                                      issuance

 SSN was issued to individual      Individual to whom SSN was
  who is now deceased                 issued is now deceased
The Credit Underwrite:
Scenario A

       Wage-Earning ID                              Selected Identity
           SSN #1                                        ITIN:
     Roberto Garcia-Lopez                            Roberto Lopez




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




                        Full Tradeline Underwrite
The Credit Underwrite:
Scenario B

      Wage-Earning ID           Wage-Earning ID        Selected Identity
          SSN #2:                  SSN #1:                  ITIN:
    Roberto Garcia-Lopez         Juan Garcia            Roberto Lopez



          Credit                    Credit                 Credit
          Report:                   Report:                Report:

          6 timely                  3timely                  NA
           trades                   trades

             0                        3
         derogatory               derogatory




                           Full Tradeline Underwrite
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?
 Emerging Markets
        &
Emerging Initiatives

         Tom Matthews,
Emerging Markets & Products
Remember When?

   Subsidized Mortgages
   Buydown Loans
   PMI Insured Conventionals
   Adjustable Rate Mortgages
   Mortgage-Backed Securities
   Revolving Credit Mortgages
                                 Pandora’s
                                   Box
Lessons Learned

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


                                      Pandora’s
                                        Box
You get paid to . . .

Avoid
 Increased
   Servicing
     Costs !
                        Pandora’s
                          Box
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
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

   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.
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 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

     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

   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
Preservation of Wealth
Freddie Mac‟s 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.
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.
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.
Questions

								
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