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            Mortgage Monitor                             
     A Newsletter Sponsored by Nebraska Mortgage Association                                            Feb., 2006

        2005-2006                           Builders Applaud Action By Bank
         Officers                          Regulators To Expand Housing Data
President, Marlin Hupka
                                          The National Association of Home Builders (NAHB) today applauded a decision
TierOne Bank., Lincoln                    by federal regulators that will require banks to provide more detailed data on resi-
402/473-6143 Fax 402/473-6218             dential and commercial construction lending when reporting on their quarterly
Vice President, Jan Meister
Bank of the West, Omaha                        “This action will allow federal banking regulatory agencies to differentiate
402/827-2592 Fax 402/827-2594             the disparate risks posed by residential versus commercial lending activities,”
Treasurer, Mark Johnson                                                                                  Continued Page -3-
CBSHome Mortgage, Omaha
402/964-4612 Fax 402/964-4677
Secretary, Gina Jerauld
                                              Breaking Down the Broker-Lender
Bank of the West, Omaha
800/824-2860 Fax 402/918-8859                           Partnership
Board of Directors                          Getting to the bottom of a successful wholesale/broker
George Akers       Tony Johnson
Jack Hobbie        David Horak              relationship.
Jacalyn Ayoub      Sherri O’Callaghan       Without lenders, brokers are race drivers without a ride. Without brokers,
Robert Rutan       E. Dean Neidan           lenders are rich guys ready to play, but no one to join them in the game. Put
Cindy Muhlbach     Susan Grieger            the two together and now you’ve got something. A trillion dollar something,
Education Committee Chair,                  give or take a billion. But does that make a partnership or merely a mutually
Shelley Reimers                             beneficial symbiosis? The word “partnership” is much bandied about these
HomeServices Lending, Lincoln               days, thanks to the Internet. Concepts of mutual advantage that made no sense
402/436-3145 Fax 402/436-3191
                                            a decade ago make a lot of sense now, since one Internet-based provider can’t
Lobbyist, John Boehm                        do it all. Reaching a lot of potential customers in a hurry made partnering in
Butler, Galter & O’Brien Law Firm,          vehicles, clothing, fast food, and technology all at the same time feasible.
Lincoln                                     How else do we end up with iPod and Bluetooth connectivity in our cars?
402/475-0811 Fax 402/475-6416
Editor, Mary Byrnes                                                                                     Continued Page -3-
First State Bank, Omaha
402/597-0500 Fax 402/596-9485

Also in this issue…
                                                Builders Support Sensible Flood
 New FHA Resource Center (Page 2)                     Insurance Reforms
 FHA Increases Max Limits (Page 3)
 President’s Corner (Page 3)
                                          The National Association of Home Builders (NAHB) told Congress today it sup-
 MBA Weekly Mortgage Application
                                          ports efforts to reform the National Flood Insurance Program (NFIP) to ensure
 Survey (Page 6)                          that program’s long•term financial stability, but cautioned that any legislative pro-
 Standardized Procedures for Balance      posals should not be an overreaction to unusual circumstances stemming from
 Due Requests … (Page 7)                  last year’s devastating hurricane season.
 Long-Term Mortgage Rates Rise (Page 8)        Testifying before the Senate Banking Committee, NAHB President David
 Success Tips from Sharks (Page 10)       Pressly, a home builder from Statesville, N.C., said the “NFIP is not simply about
 Myths & Realities of “ARM Migration”     flood insurance premiums and payouts, but is rather a comprehensive program
 (Page 12)                                that guides future development and mitigates against future loss. While a finan-
 Return of the 30-Year Treasury Bond      cially stable NFIP is in all of our interests, the steps that Congress takes to
 (Page 20)                                achieve this aim have the potential to greatly impact housing affordability and the
 Check Us Out On The Web (Page 17)
                                                                                                             Continued Page -2-
                                                                                      Feb., 2006              Page 2

Builders Support Sensible Flood Insurance Reforms… from Page -1-
ability of local communities to exer-         Pressly said that NAHB would          of such compulsory coverage out-
cise control over their growth and       oppose any effort to statutorily           weigh the costs.
development.”                            change the current 100•year flood-              Citing significantly higher
     To improve the solvency of the      plain standard to a 500-year               construction costs and their accom-
program and its attractiveness to po-    floodplain standard as a way to re-        panying impact on housing
tential policyholders, NAHB              quire more home owners to                  affordability, NAHB opposes ex-
supports the following reforms to al-    participate in the NFIP and buttress       panding residential design
low the Federal Emergency                the program against greater losses.        standards beyond current law. “For
Management Agency (FEMA) and                  “Before considering any proposal      example, on the Gulf Coast, elevat-
the NFIP to better adapt to changes      to expand the 100-year floodplain          ing new structures could add, on
in the marketplace:                      standard, NAHB believes that FEMA          average, $30,000 to the cost of a
     • Providing FEMA the authority      should conduct a study of the feasibil-    new home,” said Pressly.
to allow for slightly higher annual      ity and implications of such a change           Flood insurance claims for the
premium increases to allow the           in the NFIP’s mandatory purchase re-       2005 hurricane season are expected
agency to reduce its indebtedness to     quirements prior to enacting any           to top $23 billion as a result of the
the federal Treasury.                    modifications,” said Pressly, who          unprecedented damages caused last
     • Increasing coverage limits to     noted that a shift to a 500-year flood-    year by Hurricanes Katrina, Rita
better reflect today’s home values.      plain standard would greatly expand        and Wilma, far exceeding the total
     • Creating more insurance op-       the program’s reach by forcing mil-        amount paid out over the NFIP’s
tions to allow policyholders greater     lions of additional property owners to     37-year existence.
flexibility and provide additional       purchase flood insurance.                       Congress approved legislation
home owner benefits while aiding              “What would this mean?” he            last November to raise the borrow-
program solvency.                        asked. “Would this impose burden-          ing authority of FEMA to $18.5
     • Raising the minimum deduct-       some requirements on areas unlikely        billion annually from the Treasury,
ible for paid claims in order to         to suffer floods? Would it unnecessar-     and the NFIP will need at least $5
provide a strong incentive for own-      ily harm home buyers and increase          billion more to meet its obligation
ers to protect their homes, and          the cost of homeownership? Would it        to claim holders.
thereby reduce potential future          harm home values? And how would                 Established in 1968, the NFIP
losses to the NFIP.                      such a change impact every coastal         offers affordable flood insurance to
     • Updating and modernizing the      community – and many inland areas –        home owners and businesses in
Flood Insurance Rate maps to elimi-      in the U.S.?”                              flood plains and other low-lying ar-
nate large discrepancies between              Likewise, Pressly told lawmakers      eas that otherwise might not be
what was mapped as the 100-year          that before Congress considers man-        able to obtain such coverage.
floodplain decades ago and what the      dating flood insurance for home                 More than 20,000 communi-
100•year floodplain is today. The        owners who reside behind flood con-        ties nationwide participate in the
term “100-year floodplain” refers to     trol structures such as dams or levees,    NFIP and the program currently
an area that has a one percent chance    FEMA must produce adequate docu-           covers approximately 4.8 million
of suffering a catastrophic flood in a   mentation indicating that the benefits     policyholders.
given year.

                                         The New FHA Resource Center:
                           FHA has created a national consumer contact center for FHA related issues. The FHA Re-
                           source Center was initiated on February 1 and is responsible for taking consumer contacts on
                           FHA issues. Consumers may contact the Resource Center on 800-CALLFHA (800-225-5342).
                               The Resource Center does NOT take the place of the FHA National Servicing Center
                           (888-297-8685) or the MIP Refund Center (888-697-6967) both of which are still operational.
                           The initiation of the FHA Resource Center has caused a restructuring of the four
Homeownership Center toll-free numbers and the HOCs are no longer accessible by their prior toll-free numbers. Mem-
bers of the housing industry may contact the four Homeownership Centers by using the 800-CALLFHA number and
selecting Option 2.
                                                                                    Feb., 2006               Page 3

Builders Applaud Action by Bank Regulators… from Page -1-                         Breaking Down … from Page -1-
 said NAHB President David Pressly, a home builder from Statesville, N.C.         Linking Starbucks with Honda with
 “Providing data on one-to-four family residential construction is an impor-      Apple with Sirius with AOL creates
 tant step in developing a secondary market for single-family housing             an intricately woven network of ad-
 production.”                                                                     vantageous marketing relationships
      As a result of the regulatory changes, large banks and banks with a high    that smack of partnership. But aren’t
 volume of residential production loans on their books will be required to        lenders and brokers more like suppli-
 break out their one-to-four family housing production data in their quarterly    ers and distributors, as in any
 Bank Call Report effective on March 31, 2007. All other banks will begin re-     wholesale/retail situation, one meet-
 porting the breakdown of their construction loans as of March 31, 2008.          ing the public and the other building
      “The bottom line is that more residential-specific data will be reported    the widget?
 on loan volume and loan performance, which will invite market analysts and       A True Partnership?
 investors to treat housing production loans more favorably.º This information          Yes—and no. It is a wholesale/re-
 will help build a secondary market for construction financing,” said Pressly.    tail situation, but it also a partnership
                                                                                  of sorts. As a symbiotic relationship,
                                                                                  brokers need lenders and vice versa,
      FHA Increases Maximum Loan                                                  except the vice and the versa are also
                                                                                  trying for the business through other
           Limits in Nebraska                                                     channels. Think GM selling some
                                                                                  nameplates through their dealer net-
   One Unit:       $200,160                                                       work while providing the same car
   Two Unit:       $256,248                                                       with a different nameplate to a com-
   Three Unit:     $309,744                                                       pany-owned dealership across the
   Four Unit:      $384,936                                                       street. That’s a fact of life and brokers
                                                                                  have learned to deal with it. As Ownit
   DOUGLAS         200,160       256,248        309,744       384,936             Mortgage Solutions CEO Bill Dallas
                                                                                  said to a broker audience at a recent
                                                                                  industry meeting, “Everyone wants a
                                                                                  piece of your pie.” That doesn’t sound
                   President’s Corner                                             much like a partnership in the true
                                                                                  sense of the word, but it’s the best the
     Update:                                                                      industry can offer for the foreseeable
     Your officers and directors are working on the main goals we set for 2006    future. Even though lenders are big-
at our meeting in October.                                                        ger, richer, and have far more
     In working towards our goal of being the voice of the industry, we have      resources at hand, they are reluctant
acquired contact information for the news media outlets for the entire state of   to try to replace their broker “part-
Nebraska. We will use this information to send out press releases from the Ne-    ners,” and for a very good reason: the
braska Mortgage Association and also advise the news media how to gain            brokers own the point of sale thanks
information on mortgage lending issues.                                           to decades of high-touch experience.
     This has already worked in that members of the association have been in-     This is a huge advantage that isn’t lost
terviewed for articles in two newspapers. If you see an article in your local     on lenders.
paper we would appreciate a copy for our files.                                         So “partners” it is, though it is an
     Our membership renewal drive has drawn to a close and membership ap-         inherently challenging partnership.
pears to be stable. Our membership committee is putting together a new            The challenge is due to diverging in-
membership drive for the balance of the year.                                     terests of risk and new loan creation,
     Our lobbyist John Boehm has attended hearings with the legislature and       balanced with converging interests in
changes to the mortgage lending regulations proposed by the banking depart-       volume sales. Lenders want and need
ment. John reported back to the board that our recommendations were               loans to make money, but they also
followed.                                                                         have to contend with risk. High delin-
     The education committee is busy putting together several seminars as         quencies mean lower profits, so
well as the fall convention to be held in October in Lincoln.                     lenders have to say no sometimes, of-
     Please feel free to contact your officers and board members with any         ten at the expense of their
ideas or comments you have.                                                       relationships with brokers. Brokers
                                                  Marlin Hupka, NMA President                           Continued Page -4-
                                                                                       Feb., 2006              Page 4

Breaking Down… from Page -3-
get paid when new loans are made, so      tionship builders, particularly if they         “Great service” is the other main
they are motivated to make them as        are deployed properly. “Lenders and        differentiator lenders attempt to culti-
often as possible. This can lead to       brokers need to understand that ease       vate to cement broker relationships.
churning, the very thought of which       of a transaction comes from constant       For some, this is code for “we take
sets lenders’ teeth on edge, thinking     communication, personal attention to       everything,” and that’s an example of
of early payoffs that reduce yields. So   quality service and tailored offer-        divergence between sales departments
on one hand, you have both parties in-    ings,” he says. “The concept of team       and senior management who wants
terested in making as many loans as       is also critical to ensure that everyone   high production without taking every-
possible, but on the other hand, one of   has the same sense of urgency to           thing. Nonprime lenders have to play
the parties stands to lose big if the     close loans.”                              this game with special art, typically
other gets too rambunctious with the           Top originator Greg Frost values      looking at three loans to fund one,
borrowers they control.                   relationships above most things. Re-       and constantly on the alert to avoid
A Balancing Act                           flecting the small-market values of his    being adversely selected. So eliminat-
     The balance point at which this      New Mexico turf, he says, “The most        ing the “we take everything” factor
relationship teeters and totters is the   important thing is to create a relation-   from great service creates challenges
lender’s loan production department.      ship and not allow transactional           for lenders to make themselves stand
From the executives down to the AEs,      thinking to take over. I’ve been saying    out and gain the broker confidence
they are tasked with keeping produc-      this for years: I do business with my      Frost speaks of.
tion high, broker relationships           friends and make friends of those I do          It is indeed a “squishy” compo-
productive, and risk at an acceptable     business with.” A long-time dominant       nent, difficult to identify and almost
level. As balancing acts go, this is a    force not just in his own market but as    impossible to quantify. Technology
tough one. Don Henig, president of        a renowned trainer of loan origina-        can be a factor, enabling high levels
American Brokers Conduit (ABC), a         tors, Frost’s approach to business is      of response and eliminating costly
unit of American Home Mortgage,           refreshingly simple: “I just don’t like    (for both sides) phone conversations.
has a highly unique perspective on all    doing business with anyone who I           Other factors are dedicated staff
this. Before he was a lender, he was a    wouldn’t want to be friends with.          members who specialize in broker re-
broker, and not just any broker—he        Find a lender rep you can trust and        sponse and recognition programs that
was the president of the National As-     have confidence in, and stick with         acknowledge new and existing rela-
sociation of Mortgage Brokers. He         them.”                                     tionships. CoreStar recognizes that
believes the most important way to        Making a Difference                        response and efficient process are
build a partnership with brokers is to          Ask a lender what makes them         necessary to success. “Working as a
offer value where the brokers need it.    different from everyone they compete       team has allowed us to develop a
     “We believe at our core that we      against and they’ll give you the same      streamlined process that allows bro-
must help the broker build their busi-    answer—the best products. These            kers to close loans quickly and
ness,” Henig says, citing education as    days that usually means a comprehen-       efficiently,” Kabula observes.
a key way to accomplish that goal.        sive line of prime and nonprime, as        “CoreStar has an internal support staff
“We provided about 60 free seminars       well as Alt A, stated income/asset,        dedicated to providing outstanding
to our brokers in 2005 and we expect      and other products allowing flexibil-      customer service, and we accentuate
to do 80-100 in 2006. Every broker        ity. There is a lot of sameness in         this process by sending a welcome
receives real, tangible value. We also    product offerings because they mostly      letter and premium item, such as a sil-
provide intense training to our bro-      end up in securitizations. As soon as a    ver tumbler or engraved clock, to all
kers. These are just a few examples of    security is done with unique loan          newly approved brokers,” he contin-
ways we grow relationships with our       types, others follow quickly as invest-    ues. “We feel that this personal touch
brokers in addition to streamlining       ment bankers scramble to match             establishes a foundation from which
their business through technology.”       competition. So product differentia-       our AEs can build upon with their
They also offer marketing tools for       tion is fleeting, generally. Henig cites   brokers. As a follow through,
brokers to use as their own, readily      their status as a Real Estate Invest-      CoreStar also sends out a thank-you
available and sans commercials for        ment Trust as a competitive advantage.     letter and premium item to all first
ABC.                                      “We can say our products are unique        time funding brokers as a thank you
     Kurt Kabula runs the wholesale       because so much of our product line is     for their business. We believe that ac-
unit of CoreStar Financial, a Wash-       held in our REIT. This gives us the        knowledging our brokers for
ington DC-based national lender. He       ability to create products that are not    submitting and closing files fosters an
believes products and service are rela-   the same as everyone else’s.”                                   Continued Page -5-
                                                                                        Feb., 2006                Page 5

Breaking Down… from Page -4-
environment for developing a mutu-         mixed; a lot of brokers found them-        More often they are found individu-
ally prosperous business                   selves over their heads with               ally, especially in the churning area.
relationship.”                             warehouse lines. These days, more          During the refinance boom, loan turn-
     As a former broker, Henig knew        lenders are using technology to link       over was a result of the rapidity with
going into American Home that re-          themselves to their brokers, using the     which rates descended. No true
sponse time was key to building            Internet to create inviting professional   churning there. It’s the intentional,
effective broker relationships. “Con-      environments to submit and deliver         targeted, willful refinancing that gets
sistent service is critical,” he says.     loans.                                     under the lender’s skin; the other is no
“Answer the phones with a person                Technology advances are not           fun, but it’s a fact of life in a free-fall-
who can help. Product and price are        only inevitable, they accelerate pro-      ing interest rate market.
always in the mix, but service is criti-   cesses, reduce errors (well, not                Being a long-term pro (and a
cal.” Focusing on broker relationships     always), and lower costs. One of the       former lender), Frost can relate.
has helped American Brokers Conduit        most important trends to watch is the      “Lenders pay us YSPs based on a pro-
establish themselves quickly; three        wholesale delivery Web site. As a          jected loan life of four plus years.
years ago, few had heard of the com-       broker, you want to submit your loans      When we churn, we create a loss for
pany, which is now a top-10 national       in a simple, speedy fashion with a         our lenders, who respond by lowering
wholesaler. “We created an extra ser-      minimum of heavy lifting. Copying          yield-spread premiums or increasing
vice level position called the Broker      originals and using couriers to deliver    their fees. There is no free lunch.”
Relationship Manager. This position        them to your lenders is clunky and in-     (Well there is, but only when an AE
helps provide answers to brokers           creasingly unnecessary. Wholesalers        takes you to out for a sandwich.)
while the AE is in the field. Brokers      are investing heavily in electronic de-    Thinking strategically, he notes that,
absolutely love our BRMs,” he says.        livery processes that flow files           “Our loan rates and costs will rise
Almost as importantly, the AEs un-         directly into their electronic             proportionately with the lost revenue
doubtedly love not having to handle        mailrooms, where they enter                of our lenders. Unfortunately there
detailed phone calls when out on the       workflow systems either as virtual         are many in our industry who just
road. Moreover, they are able to make      documents or are printed out on ar-        don’t care.” He adds, “They are ‘me-
more calls, unlike the refinance era       rival. The best sites, most of which       oriented’ people who neither
when they were stuck on the phone          haven’t been rolled out yet, offer in-     understand the economic dynamics at
and mired in transactional minutiae—       stantaneous web confirmation of            play with churning nor care about
and noticeably scarce in the field.        receipt and show the loan’s progress       how their actions undermine us all.”
     Getting things right is always im-    through decisioning, processing and             Fraud has become a cause cele-
portant, as is learning from your          on to closing. Stips are sent to you via   bre all its own, given the range of
mistakes if you are to build relation-     email, and the documents you fax to        scams that exist. Some involve bro-
ships, according to Kabula. “We            satisfy them are registered electroni-     kers, some involve vendors, and
conduct on-site visits and invest our      cally on a web page devoted to your        others even involve lenders. The fact
personal time to make our business         loans with that lender. This keeps bro-    remains that mortgage lending is
relationship right – if we fail in any     kers informed of progress, enabling        highly vulnerable to fraud in its many
way, then we make sure to get it right     them to keep borrowers and agents in       forms, even before getting into the
the next time.” Complacency is the         the loop, and vastly reduces phone         area of identity theft and other crimes.
enemy, he adds. “You are only as           calls between processors, saving time      Mortgage criminals are being pros-
good as the last loan you closed, so       and money. Everyone along the value        ecuted as never before, with the FBI
being proactive will only keep you         chain wins when paper is reduced, so       aggressively going after flipping
moving forward and make you that           look for these technology improve-         schemes, straw borrowers and pneu-
much better each time.”                    ments as a lender enhancement              matic appraisals.
Ties That Bind                             designed to tie you to the lender.              But what about all those lesser
     Lenders love the idea of linking      How to Damage Relationships                frauds, the ones that are not criminal
their brokers to them to the extent        With Lenders                               but are a stretch of the truth? It is ar-
they don’t want to go to other lenders.        American Brokers Conduit is not        gued that one in eight loans have
A decade ago, lenders made ware-           alone when they cite “the big four         material misrepresentations, particu-
house lines available to allow brokers     ways” to damage a relationship with a      larly in the area of valuation and
to fund loans, with themselves gain-       lender: early payoffs, early payment       income/debt scenarios. How often are
ing the right of first refusal on the      defaults, fraud, and churning. Some-       appraisers pressured to squeeze an ad-
loans generated. The results were          times, of course, they are interrelated.   ditional thousand or two on a
                                                                                                           Continued Page -6-
                                                                                          Feb., 2006              Page 6
Breaking Down… from Page -5-
1004—whether “fraud” is too strong a       partnership, each party has to make an       when the loans perform, brokers do
word leads to spirited debate, depend-     effort to understand the other.              not. Lenders have a raft of costs on
ing on where you sit. Nothing new               Frost agrees. On each transaction       the back end, brokers do not. All that
here, but brokers in the habit of ob-      he advises, “Tell the lender rep the         is fine from the lender side, but they
scuring key risk factors will be less      whole story up front. They will be           want brokers to understand that if
and less welcome to submit loans.          able to give you an answer that will         they can’t make quality loans that
The word gets around among lenders.        stick if you are totally forthright.” In a   stay on the books for a reasonable
Improving the Partnership                  buyer/vendor situation, the buyer is         time to borrowers willing to pay on a
     There are plenty of ways for bro-     often in a position to play hardball         consistent basis, the well will eventu-
kers to improve their relationships with   with the vendor. Frost believes the          ally run dry.
lenders. First and foremost, lenders       broker/lender relationship is different.           At the same time, brokers deal
want brokers to act with integrity,        “Be reasonable in your expectations,”        with the realities of borrower life in
avoiding the previously mentioned “big     he says. “All they can do is all they        the trenches, lenders do not. Brokers
four”: churning, early payment de-         can do, and all they can do should be        are unsalaried and at-risk in each
faults, fraud, and early payoffs. Henig    enough.” Lenders aren’t mind read-           transaction, lenders are not. Brokers
puts it succinctly when he says, “Qual-    ers, according to Frost. As an               are the trusted borrower resource and
ity brokers don’t have those issues.”      originator, it is your job to collect the    know their borrowers’ situations with
     Another is for brokers to commu-      information needed to make the loan,         an intimacy that lenders are ill
nicate well. Kabula points out that the    and if there isn’t enough information        equipped to provide. They need each
three main things lenders can do to        at hand, it is not incumbent upon the        other to balance the equation that
improve the bond with brokers is to        lender to make up the shortfall. “Gar-       makes the system work.
provide AEs who are accessible, have       bage in, garbage out,” he observes.                Our shared industry has made
expert product knowledge, and set re-      “Take a complete application and sub-        lenders and brokers neighbors, and its
alistic expectations. The last one         mit a package that you would make a          economics have made them partners.
requires input from the brokers in or-     loan on yourself.” Seems to work for         Until things change, these two essen-
der to be realized. “We need for           him. He’s been New Mexico’s top              tial sides of the same coin have to act
brokers to clearly convey what they        loan originator for 20 years and in the      as allies in order to prosper in the face
need from us and what they plan to         top 10 in the U.S. for about as long.        of competition, regulation and other
do,” he says. “If brokers can take the     A Lasting Relationship                       challenges.
time to understand our products,                It’s simple, really. Lenders need             It’s a marriage made in heaven
prices, and processes, then we as          brokers and brokers need lenders.            and like all marriages, it requires
lenders are much more likely to adjust     Brokers want to get deals done and           work to keep it healthy, happy, and
expectations so that everyone is clear     lenders want them to. But keeping in         enduring.
on what needs to happen for mutual         mind that there are many more issues                               By James Henness
success. Cross-communication is key        at work for lenders is important in                 JAMES HENNESSY is managing
and brokers need to interview the AEs      preserving and fostering the partner-          director, Capsilon Financial Systems
just as much as the AEs need to inter-     ship. Lenders have funds at risk,                Group, San Diego, Calif., 858/793-
view the brokers.” If it is to be a true   brokers do not. Lenders make money                  0950, e-mail:

              MBA’s Weekly Mortgage Applications Survey
      The Mortgage Bankers Asso-           Index decreased 4.4 percent compared         sonally adjusted index activity in-
 ciation (MBA) today released its          with the previous week and was down          cludes the Conventional Index,
 Weekly Mortgage Applications Sur-         21.7 percent compared with the same          which decreased 7.0 percent to
 vey for the week ending February          week one year earlier.                       847.8 from 911.2 the previous
 10. The Market Composite Index —              The seasonally-adjusted Purchase         week, and the Government Index,
 a measure of mortgage loan applica-       Index decreased by 7.9 percent to            which decreased 11.2 percent to
 tion volume was 574.1 – a decrease        391.7 from 425.1 the previous week,          117.8 from 132.7 the previous
 of 7.3 percent on a seasonally ad-        whereas the Refinance Index de-              week.
 justed basis from 619.3 one week          creased by 6.5 percent to 1636.7 from            The four week moving average
 earlier. On an unadjusted basis, the      1751.0 one week earlier. Other sea-
                                                                                                           Continued Page -7-
                                                                                  Feb., 2006             Page 7

    Standardized Procedures for                                                   MBA Survey… from Page -6-
 Balance Due Requests and Release                                                 for the seasonally-adjusted Mar-
                                                                                  ket Index is down 1.6 percent to
  of the Notice of Federal Tax Lien                                               620.2 from 625.2. The four week
                                                                                  moving average is down 2.9 per-
NOTE: This headliner is current through the publication date. Since               cent to 431.6 from 444.6 for the
changes may have occurred after the publication date that would affect            Purchase Index while this aver-
the accuracy of this document, no guarantees are made concerning the              age is down 0.1 percent to
technical accuracy after the publication date.                                    1727.2 from 1729.3 for the Refi-
The Internal Revenue Service is required by law to timely release fully paid      nance Index.
and unenforceable liens. Compliance with this requirement has figured                  The refinance share of mort-
prominently in the Service’s transition to centralized lien filing.               gage activity decreased to 41.2
     The IRS has established standardized procedures to expedite requests         percent of total applications from
for lien discharge, release and subordination nationwide. If the taxpayer         42.1 percent the previous week.
paid the tax, interest and penalties and did not receive a copy of the Certifi-   The adjustable-rate mortgage
cate of Release of Federal Tax Lien, the taxpayer or authorized                   (ARM) share of activity de-
representative may call the Centralized Lien Processing Unit at the toll free     creased to 29.6 percent of total
number 1-800-913-6050.                                                            applications from 29.8 percent
     The Cincinnati IRS Campus centralized lien unit assists taxpayer repre-      the previous week.
sentatives, lenders, and escrow or title companies requesting a balance due            The average contract interest
or payoff statement for a Notice of Federal Tax Lien.                             rate for 30-year fixed-rate mort-
     Third parties must submit this request in writing using a properly com-      gages remained at 6.25 percent,
pleted Form 2848, Power of Attorney and Declaration of Representative             with points increasing to 1.34
(PDF) or Form 8821, Tax Information Authorization, (PDF) signed by the            from 1.23 (including the origina-
taxpayer. Without a Form 2848 or 8821, the IRS cannot disclose taxpayer           tion fee) for 80 percent
information to third parties.                                                     loan-to-value (LTV) ratio loans.
     Fax request to number listed in Publication 1450, Instructions on How             The average contract interest
to Request a Certificate of Release of Federal Tax Lien (PDF).                    rate for 15-year fixed-rate mort-
                                                                                  gages increased to 5.92 percent
Mail request to:                                                                  from 5.84 percent, with points
    Internal Revenue Service                                                      decreasing to 1.17 from 1.28 (in-
    CCP Lien Unit                                                                 cluding the origination fee) for
    P.O. Box 145595                                                               80 percent LTV loans.
    Stop 8420G                                                                         The average contract interest
    Cincinnati, OH 45250-5595                                                     rate for one-year ARMs in-
                                                                                  creased to 5.52 percent from 5.48
When requesting a balance due for tax liabilities identified on a federal tax     percent, with points increasing to
lien please provide the following:·                                               0.99 from 0.96 (including the
   • Name of Taxpayer·                                                            origination fee) for 80 percent
   • The date for the requested computation to be computed through·               LTV loans.
   • Identify yourself and include your telephone number and address              **SPECIAL NOTES**
                                                                                       The survey covers approxi-
     Two copies of all payoff letters will be mailed. Payoff letters cannot be    mately 50 percent of all U.S.
faxed. One copy of the payoff letter must be returned with the payment to         retail residential mortgage origi-
ensure proper application and timely release of the lien.                         nations, and has been conducted
     Payoff computations may take up to 14 calendar days to process. Your         weekly since 1990. Respondents
successfully completed fax transmission or mailing certification, serves as       include mortgage bankers, com-
your acknowledgement.                                                             mercial banks and thrifts. Base
Additional Resources:                                                             period and value for all indexes
     Publication 1450, Instructions on How to Request a Certificate of Re-        is March 16, 1990=100.
lease of Federal Tax Lien (PDF)
     Publications and forms can be downloaded from or by calling
1-800-TAX-FORM (1-800-829-3676)
                                             Source: Internal Revenue Service
                                                                                           Feb., 2006               Page 8

            LEVEL THIS YEAR
Rates Continue On Slight And Gradual Upward Trend
Freddie Mac (NYSE:FRE) released the results of its Primary Mortgage Market SurveySM (PMMSSM) in which the 30-year
fixed-rate mortgage (FRM) averaged 6.28 percent, with an average 0.5 point, for the week ending February 16, 2006, up from
last week’s average of 6.24 percent. Last year at this time, the 30-year FRM averaged 5.62 percent.
     The average for the 15-year FRM this week is 5.91 percent, with an average 0.5 point, up from last week’s average of
5.83 percent. A year ago, the 15-year FRM averaged 5.14 percent.
     Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.95 percent this week, with an average
0.5 point, up from last week when it averaged 5.89 percent. A year ago, the five-year ARM averaged 5.05 percent.
     One-year Treasury-indexed ARMs averaged 5.36 percent this week, with an average 0.7 point, up from last week when it
averaged 5.34 percent. At this time last year, the one-year ARM averaged 4.15 percent.
     (Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining
the mortgage.)
     “So far this year, fixed-rate mortgage rates have risen only slightly,” said Frank Nothaft, Freddie Mac vice president and
chief economist. “Long-term mortgage rates are only marginally higher than they were two months ago.
     “Housing start figures in January came in at the highest level in over three decades, due in part to the combination of low
rates and a warmer climate across the country.” Freddie Mac is a stockholder-owned company established by Congress in
1970 to support homeownership and rental housing.
     Freddie Mac fulfills its mission by purchasing residential mortgages and mortgage-related securities, which it finances
primarily by issuing mortgage-related securities and debt instruments in the capital markets. Over the years, Freddie Mac has
made home possible for one in six homebuyers and nearly four million renters in America.

                                       SUMMARY OF SURVEY RESULTS
                                                   Fixed-Rate Mortgages
                                      Average Conventional 30-       Fees &     Average Conventional 15-         Fees &
                                       Year Commitment Rate          Poin ts     Year Commitment Rate            Poin ts
                   US                            6.28                  0.5                 5.91                   0.5
                Northeast                        6.32                  0.4                 5.95                   0.4
                Southeast                        6.25                  0.6                 5.86                   0.6
                N. Central                       6.38                  0.3                 6.01                   0.3
                Southwest                        6.24                  0.6                 5.87                   0.5
                  West                           6.25                  0.6                 5.85                   0.7

                                         Five/One-Year Adjustable-Rate Mortgages
                                       First Commitment Rate             Fees & Poin ts                 Margin
                    US                           5.95                          0.5                        2.78
                 Northeast                       5.81                          0.5                        2.84
                Southeast                        6.01                          0.6                        2.76
                N. Central                       6.05                          0.4                        2.81
                Southwest                        5.91                          0.6                        2.78
                   West                          5.98                          0.5                        2.74

                                                                                                           Continued Page -9-
                                                                                            Feb., 2006          Page 9

Long-Term Mortgages Rates Rise to Highest Level This Year… from Page -8-

                                              One-Year Adjustable-Rate Mortgages
                                       First Commitment Rate              Fees & Poin ts              Margin
                    US                            5.36                         0.7                      2.79
                 Northeast                        5.38                         0.9                      2.88
                 Southeast                        5.34                         0.8                      2.76
                 N. Central                       5.35                         0.6                      2.78
                Southwest                         5.38                         0.8                      2.79
                   West                           5.38                         0.6                      2.73

Freddie Mac defines its regions as follows:
Northeast: NY, NJ, PA, DE, MD, DC, VA, WV, PR, ME, NH, VT, MA, RI, CT, VI
Southeast: NC, SC, TN, KY, GA, AL, FL, MS North Central: OH, IN, IL, MI, WI, MN, IA, ND, SD
Southwest: TX, LA, NM, OK, AR, MO, KS, CO, NE, WY
West: CA, AZ, NV, OR, WA, UT, ID, MT, HI, AK, GU
     Freddie Mac’s Primary Mortgage Market Survey (PMMS) is for informational purposes only and Freddie Mac is not re-
sponsible for business decisions made based on the reported results of the PMMS. Freddie Mac may change the methodology
used to conduct the PMMS survey at any time and without notice.
     DEFINITIONS Commitment Rate is the interest rate a lender would charge to lend mortgage money to a qualified
borrower exclusive of the fees and points required by the lender. This commitment rate applies only to conventional financing
on conforming mortgages with loan-to-value rates of 80 percent or less.
     ARM Index - is the One-year Treasury
     Loan to Value Ratio (LTV) is the ratio of the loan amount of a mortgage loan to the lower of the appraisal value or pur-
chase price of the property securing the loan.
     Origination Fees and Discount Points are the total charged by the lender at settlement. One point equals one percent of
the loan amount.
     Margin is a fixed amount added to the underlying index to establish the fully indexed rate for an ARM.
     Weighted Averages for the Primary Mortgage Market Survey have been adjusted as of September 22, 2005. The new
weights use the dollar volume of conventional mortgage originations within the 1-unit Freddie Mac loan limit as reported un-
der Home Mortgage Disclosure Act (HMDA) for 2004. The weights are listed in the table below.

                                  Freddie Mac Region                          PMMS Weights
                                       Northeast                                     24.6
                                       Southeast                                     16.5
                                      North Central                                  17.1
                                       Southwest                                     11.2
                                          West                                       30.7

                                      February 16, 2006
                                                30-Year Fixed Rate Mortgages
                                        US               NE         SE               NC         SW             W
               Average                 6.28              6.32      6.25              6.38      6.24            6.25
             Fees & Points              0.5              0.4        0.6              0.3        0.6            0.6

                                                15-Year Fixed Rate Mortgages
                                        US               NE         SE               NC         SW             W
               Average                 5.91              5.95      5.86              6.01      5.87            5.85
             Fees & Points              0.5              0.4        0.6              0.3        0.5            0.7

                                                                                                        Continued Page -10-
                                                                                                    Feb., 2006             Page 10

   Long-Term Mortgages Rates Rise to Highest Level This Year…from Page -9-

                                                  5/1-Year Adjustable Rate Mortgages
                                            US               NE             SE              NC               SW             W
                Average                     5.95            5.81           6.01             6.05            5.91           5.98
              Fees & Points                 0.5              0.5            0.6             0.4              0.6            0.5

                                                   1-Year Adjustable Rate Mortgages
                                            US               NE             SE              NC               SW             W
                Average                     5.36            5.38           5.34             5.35            5.38           5.38
              Fees & Points                 0.7              0.9            0.8             0.6              0.8            0.6

                                              The National Mortgage Rate Snapshot

                                                    One Year Ago                                      One Week Ago

                                  30-YR      15-YR        5/1-YR     1-YR ARM       30-YR          15-YR    5/1-YR      1-YR ARM
              Average              5.62       5.14         5.05         4.15         6.24          5.83      5.89          5.34
           Fees & Points            0.7          0.7       0.7           0.8          0.6           0.6       0.7          0.5

                                     Success Tips From Sharks
      We sure don’t seem to have much             leader, or homemaker, this book is               of our respective organizations, we
downtime in the mortgage industry                 packed with exceptional sales ideas              should consider our originators, origi-
today. We are either struggling to get            and lessons for life. I first read the           nator prospects, sales support team
loans processed, closed, and under-               book back in the late eighties and have          members, and vendors as customers.
written due to spikes in volume or                revisited it every few years since. A co-        Mackay writes, “All of us gather data
working overtime to strategize on                 worker with our bank noticed my copy             about other people—especially people
growing our application numbers. In               of Sharks when we were flying re-                we want to influence. The only ques-
the meantime, we hold sales meet-                 cently and we spent a good portion of            tion is how well we understand it and
ings, send memorandums, and                       the flight discussing how each of us             what we do with it.” Some sugges-
personally coach our originators on               has used Mackay’s lessons. I have put            tions and observations on using the
the value of investing in themselves              many of these lessons into practice and          Mackay 66 (TM)with your originators
by reading sales-related publications             find their application to our industry is        and prospects:
and books to improve themselves per-              highly effective. I have pulled out just              Originators: Utilization of the list
sonally and professionally. As sales              five Mackay lessons that can have a              of questions. You know what moti-
leaders, we need to practice what we              significant impact if implemented by             vates your originator and how best to
preach. The problem is, who has the               mortgage sales leaders.                          manage to achieve maximum results
time? Well, you need to find the time,            Lesson 4: The 66 Question Customer               for you and maximum benefits and
or, I guarantee your originators will             Profile                                          job satisfaction for originators. Use
not find the time either. You are their                The obvious interpretation of this          this list to continue supporting (and
example. If it isn’t important to you, it         lesson is knowing your Realtor,                  continue recruiting) your originators
sure isn’t important to them.                     builder, and affinity referral sources so        after they have joined you.
      I recently re-read one of my fa-            you can be more effective when mak-                   Originator Prospects: The collec-
vorite books, Swim With The Sharks                ing sales calls and supporting the               tion of knowledge and the capacity to
Without Being Eaten Alive, by                     relationship. I suggest we take it fur-          effectively use it is what makes a
Harvey Mackay. Whether you are a                  ther to include other “customers,” as            great recruiter. Lets face it, mortgage
100 percent outside-sourced origina-              mortgage sales leaders have both inter-          sales leaders should always be recruit-
tor, inside originator, mortgage sales            nal and external customers. As leaders           ing. The Mackay 66 is not a tool to be
                                                                                                                       Continued Page -11-
                                                                                       Feb., 2006             Page 11

Success Tips FromSharks… from Page -10-
completed in front of a prospect at              • Send one to each recruit you        don’t participate in idle chitchat, you
one sitting, but a vehicle by which         meet with. You may not be interested       manage each minute, and accomplish
you can collect and store information       in the candidate, but they will remem-     a few days work into one day. We al-
on candidates over a period of weeks,       ber being treated with respect even        ways say the day before a vacation is
months, or years. It sometimes takes        after you inform them of your deci-        our most productive day. Why? Be-
years to hire top candidates. The more      sion. The candidate may have the           cause we developed a plan,
information you have about the candi-       opportunity to give someone their          implemented it, avoided being side-
date, the more effective you will be in     opinion of you in the future, or they      tracked, and reviewed it periodically
the recruiting process. If a candidate      may turn into a SuperStar who you          throughout the day to ensure we were
likes to fish, then charter a boat and      may want to approach in the future.        doing everything on our list. It sure
go fishing. When the candidate’s col-            • Send a note to vendors              works perfectly the day before a vaca-
lege football or basketball team is in      thanking them for their support, refer-    tion, so, why do so few mortgage
town, invite them to go to the game         rals, and extra special attention to the   sales leaders and originators have a
with you. Does their spouse or partner      relationship. Vendors can be your un-      written plan? I imagine many of our
like the opera? Send them two tickets.      paid sales and recruiting force if you     originators feel it is a one-time exer-
The object is to get to know the re-        treat them with respect and show           cise each fourth or early first quarter
cruit personally and your success rate      some appreciation.                         and the plans are rarely referred to
will increase.                                   • Send to your top producers,         again. The “day before vacation plan”
Lesson 10: Short Notes Yield Long           rookies who had a good month, sales        is easy to monitor and track results. A
Results                                     leaders who hired a top recruit, bank-     yearly plan is not if it’s completed in
     I remember when I first put this       ers who referred a big deal to you,        December or January and seldom re-
lesson into practice. I started writing a   joint-venture partners, and sales sup-     viewed again. Do you, the leader,
note to each selling and listing agent      port team members such as                  have a plan you refer to on a continu-
on every application I took. I included     processors, closers, and underwriters.     ous basis? Is it is living document you
my card and my processor’s card and              • Take Mackay’s lesson one            update and manage to, or is it com-
I know they contributed to my suc-          step further and create customized         pleted and shelved? Many mortgage
cess. Personalized notes are not only       notecards personalized with your           sales leaders have the greatest inten-
great sales tools, but they can be sig-     photo. Customers, referral sources,        tions but we get busy with our day to
nificant tools when recruiting              and originator prospects will remem-       day business of meetings, fire drills,
originators and leading your team           ber your face more quickly than your       operational flow issues, pricing prob-
members. When was the last time you         name so take advantage of an oppor-        lems, guideline changes, program
received an e-mail from someone, a          tunity to put your “face” in front of      roll-outs, personnel issues, and the
minute ago? Maybe you received 10           the reader.                                like. However, if we are not leading
since you started reading this article.     Lesson 14: If You Don’t Have A Des-        by example and also periodically re-
Now, when was the last time you re-         tination, You Will Never Get There         viewing individual plans with our
ceived a handwritten note from                   “One of my good friends gave          originators, why put much effort into
anyone? Was it this week, last week,        me her definition of a goal, and it’s      the process? Well, we must get away
last month? With the onset of instant       the best one I’ve ever heard,” wrote       from the completion of the plan being
e-mail communication, handwritten           Mackay. “‘A goal is a dream with a         a task to it being a part of our formal
notes have become a dying communi-          deadline.’ Write yours down-because        sales process. The plan needs to be a
cation tool. But I suggest it is an         that’s the only way you’ll give them       living document referred to monthly
extremely effective communication           the substance they need to force you       and updated consistently. This starts
and sales tool for our industry. Do         to carry them out.”                        with sales leaders leading by example
you remember the airline commercial              Yes, this is another great sales      and dedication to review plans on a
a few years ago, which featured a           leader telling us to have a business       monthly basis with our originators.
manager handing out plane tickets to        plan. You can’t pick up any leadership     Lesson 49: It Isn’t The People You
his salespeople so they could go            or sales strategy book without at least    Fire That Make Your Life Miserable,
spend face-to-face time with their          one chapter devoted to business plan-      It’s The People You Don’t
customers? I still think that was a tre-    ning. There is a simple reason…they             This is one of Mackay’s shortest
mendous commercial. Sending a               work. What do you do the night be-         chapters because most agree this is
personal note is the same thing just on     fore the last day at work prior to a       the one of the most obvious manage-
a smaller and less expensive scale.         weeklong vacation? You plan every-         ment lessons. Why do we as mortgage
Some practical suggestions for imple-       thing you are going to do that day. On     sales leaders continue to believe that
menting and using personal notes:           the last day, you come in early, you                           Continued Page -12-
                                                                                      Feb., 2006           Page 12

Success Tips FromSharks… from Page -11-
originators who consistently produce       gift of gab in the interview, and talk-      Myths and
below expectations will finally “see       ing a “big game.” Mackay Envelope
the light” and become contributors?        Company is extremely selective in            Realities of
Why do we accept poor service levels       hiring and the process is long and ar-
from originators whose customers call      duous. He also warns against hiring             ‘ARM
us to complain about unreturned            based on a great resume. Mortgage
phone calls, improper expectation set-     sales leaders should take this lesson to    Migration’ in a
ting, expired locks, and poor service?     heart and implement immediately. I
I believe we do so because we natu-        have seen “guarantee jumpers” move          Climbing Rate
rally hate confrontation and don’t         from lender to lender. I wonder how
want to give up on someone we may          they keep finding employment and            Environment
have personally hired. Think about         the answer is simple. They are sharp,
                                                                                      The first major wave of adjustable-
your headaches day-to-day. I bet they      dress well, say all the right things
                                                                                      rate mortgage (ARM) resets is
are caused by a handful of weaker          about database management, invest-
                                                                                      coming in 2006. This raises the
producers and maybe a high produc-         ing in themselves, etc. Then they talk
                                                                                      question, what will consumers do
ing/low-scoring originator.                about lack of processing support,
                                                                                      when they receive their upcoming
     High maintenance I can live with,     changes in leadership, poor manage-
                                                                                      ARM payment reset notifications?
but when you add low customer ser-         ment, bad underwriting, can’t close
                                                                                      Past experience with ARMs tells us
vice scores, that is a recipe for          deals…on and on. And we believe
                                                                                      that most will choose to refinance.
disaster. While we may move slowly,        them.
                                                                                           So perhaps the more pertinent
we will eventually ask our weaker               While I still make some mistakes,
                                                                                      question becomes, which product
producers to leave if they don’t re-       I have learned over the years to use
                                                                                      will they choose? Given a rising
spond to coaching. However, our            probing questions during interviews
                                                                                      rate environment with a flat yield
track record in dealing with the “high/    to determine if the candidate has the
                                                                                      curve, we thought the answer was
low LO” is not good. It happened to        motivation, drive, sales skills, intel-
                                                                                      obvious – a fixed-rate mortgage
me the other day. There are red light      lect, work ethic, and industry
                                                                                      (FRM). Yet after an examination of
blinking on my phone, I check the          knowledge to be a successful origina-
                                                                                      more than 2 million ARM loans in
message and listen to a frantic cus-       tor with our organization. Don’t just
                                                                                      Lender Landscape, the answer and
tomer complain about an originator’s       ask about percentages of volume from
                                                                                      our observations surprised us. They
poor execution. I think back to how        different referral sources; ask the can-
                                                                                      may surprise you too. Here is a re-
many times I asked this originator’s       didate to name these sources and tell
                                                                                      cap of some of our findings:
sales manager to get the service levels    you about each one. You will quickly
                                                                                      Myth #1: Most consumers with an
up or get him out. You no doubt have       know if these sources are “referral
                                                                                      ARM will migrate to an FRM in a
experienced the same scenarios, but        partners.” I have been in this industry
                                                                                      climbing rate environment.
then the originator has a few great        a number of years and I have had only
                                                                                           Reality: The proliferation of
months, makes you some money, and          one other sales leader call me to get a
                                                                                      new mortgage products has created
you move on. The resulting problem         reference on a former employee—
                                                                                      a vast and complex array of
is not only the impact to your             only one. We shy away from calling
                                                                                      choices for today’s borrowers. In
company’s reputation on the street,        our sales leader peers in fear that they
                                                                                      turn, it has also complicated the
but you have lowered the “service          may try to hire the originator back to
                                                                                      process of forecasting consumer
bar” for your office. If left unchecked,   their company because, if we like
                                                                                      migration to new products when re-
you will see a slow decline in your        them why shouldn’t they?
                                                                                      financing an ARM. While our data
overall service level.                          (Portions of Swim With The
                                                                                      shows that many consumers will
Lesson 63: I Have Never Seen A Bad         Sharks Without Being Eaten Alive
                                                                                      opt for the security of an FRM, we
Resume                                     were reprinted with permission by
                                                                                      found that they are also taking ad-
     I don’t know about you, but I         Harvey Mackay.)
                                                                                      vantage of the many mortgage
have made my fair share of hiring                                 By A. Blair Glenn
                                                                                      options at their disposal to find the
mistakes. There are two critical hiring           A. BLAIR GLENN is senior vice
                                                                                      perfect fit for their current need.
mistakes sales leaders tend to make:           president with Wachovia Mortgage
                                                                                           We also found that geography
hiring flash without substance and           Corporation, Jacksonville, Fla., 954/
                                                                                      contributes significantly to ARM
hiring originators who may not fit                               626-4006, e-mail:
                                                                                      migration behavior. For example,
your business model. I am guilty of           
                                                                                      Californians love their ARMs. In
hiring an originator because of attire,
                                                                                                        Continued Page -13-
                                                                                                       Continued Page -16-
                                                                                       Feb., 2006             Page 13

Myths and Realities of ARM… from Page -12-
fact, most California consumers will be staying with ARMs when they refinance. A general finding, based upon data from the
third and fourth quarters of 2005, indicated that 75 percent of Californian consumers who have an ARM prefer to stay in an
ARM. By comparison, nationwide numbers show that 50 percent of consumers who have an ARM stay with an ARM when
     What is driving Californians to habitually refinance from one ARM to another ARM? Do they know something the rest
of the United States does not? Or, is it due to:
      • Affordability?
      • Mobility?
      • Experience in using ARM financing?
      • Real or perceived savings on an ARM versus an FRM?
      • Combination of the above?
     Whatever the reason, the trend is rather unique to California borrowers. In the second most popular state for ARMs -
Florida - almost 55 percent of consumers prefer to refinance into the safety of an FRM in today’s rate environment. This is a
significant difference from the 65 percent of Floridians who had an ARM and returned to another ARM in the first half of
     In reviewing 2005 data in Lender Landscape®, here is what we uncovered:

                    ARM Index                     Percentage of Consumers Returning to ARMs* in 2005
                                                  USA                California             Florida
                 1-Year Treasury                  44%                  69%                   42%
              Moving Treasury (MTA)               80%                  86%                   77%

Data source: Lender Landscape®, 2005 data. *measured by loan count.

Common questions to consider:
  1. What kind of marketing messages will resonate with your target market? The safety of an FRM or the potential monthly
     payment affordability of another ARM?
  2. How can you anticipate consumer preferences?

     To illustrate the above, we reviewed the Chicago market, which is currently the 1-year Treasury indexed ARM capital of
the United States. In fact, Chicago has well over 30 percent more 1-year Treasury indexed ARMs than the second largest mar-
ket for this product – Los Angeles. (Note: hybrid ARMs tend to be slightly more popular in Chicago versus short term
ARMs.) This shows that to be successful, a lender in Chicago would be inclined to focus their marketing message on 1-year
Treasury indexed ARMs.
     Our research clearly demonstrates that while ARMs, as a product category, have gained major acceptance in most of the
country, there are definite differences in regional appetites for specific products.

                       2nd Half of 2005 Hybrid ARM Originations
                                                       Market Share by
                     MSA                               Number of Loans                   % Interest Only*
            Washington, DC-MD-VA                            5.6%                              43.3%
                  Chicago, IL                               5.1%                              18.4%
          Los Angeles-Long Beach, CA                        4.0%                              46.7%

As measured using Lender Landscape® for month ending October, 2005, Market Share measured by market to outstanding
Hybrid ARMs in the U.S. *Also measured by loan count.

                                                                                                        Continued Page -14-
                                                                                     Feb., 2006            Page 14

Myths and Realities of ARM… from Page -13-

    Myth #2: Consumers, who get a particular type of ARM product, tend to stay with the same specific ARM product when
going back to an ARM.
    Reality: While this is true with some ARMs, it doesn’t hold true across the board. It depends largely upon the
consumer’s comfort level with the specific benefits and features of their previous ARM and the current direction of rates.
    Switches from one type of ARM to another may be predicated upon changes in the consumer’s life since the last ARM
was originated, a change in their risk tolerance, a greater awareness of available options, or many other considerations.
    Our data does show that certain ARMs have a much higher propensity to switch to a new type of ARM than others. Com-
paring based on the index, it is evident just how dramatic this difference can be.
    As an example, during the third and fourth quarters of 2005, 72 percent of consumers who held an ARM based upon the
Moving Treasury Average (MTA) went back to another MTA-indexed ARM after refinancing. However, among those con-
sumers with an ARM indexed upon the 1-year Treasury rate, ony 53 percent stayed with the same ARM index on their new
loan. Further, among those who did change, the MTA-indexed ARMs were the most popular choice.

Source: Lender Landscape®, 3rd & 4th Qtr 2005
     Many of the so-called ‘exotic’ ARMs are indexed by the MTA or COFI. Whereas, the most common index among hybrid
ARMs is the 1-year Treasury rate. For this reason, the correlation we found between index and preference for ARMs may im-
ply a basic measure of affinity for ‘exotic’ ARMs within the marketplace.

                                                                                                     Continued Page -15-
                                                                                              Feb., 2006           Page 15

Myths and Realities of ARM… from Page -14-

     Myth #3: Most consumers with ARMs switch near the payment reset date.
     Reality: That depends on the direction of rates.
     The chart below shows a series of prepayment curves of 3/1 ARMs by origination year, going back to 1997. It is worth
noting that despite the fact that each line represents the exact same type of ARM product, they each follow very different pat-
terns. The 1997 series (thick red line) shows the peak of payoff activity occuring immediately after the first reset date. Of
course, from 1998 to 2000 rates were basically edging up. In sharp contrast, the thick blue line corresponds to 3/1 ARMs
originated in 2002. As you know, the following year, rates were at historic lows, which led to a peak in the prepayment activ-
ity for this vintage well in advance of their first reset dates.

                                                         Age at PIF in months (by year)
                pct of payoffs

                                                       loan age in months at time of payoff

     So where will rising rates take today’s ARM consumers? Based upon historical data and trends, we predict that the ma-
jority of consumers will wait until the last possible moment to complete their refinance options unless we see a lot more
pressure on upward rate movement. However, this has no bearing on when consumers may begin researching their options.

    Myth #4: Similar consumers in the same market have similar risk tolerances.
    Reality: Guidance provided by the loan officer may be more influential with their consumers than they may realize.
    A self fulfilling prophecy? Yet another view of the complex world of ARM migration trends is something we did not nec-
essarily expect to see as broadly as we did; the lender’s retail loan officer’s influence. How much does a lender influence
consumer choice?

                                            2005 ARM Migration Results for 1-year Treasury index*

                                                        Hybrid 5/1 ARMs - California
                                                         % Returning to ARM                   % Selecting an FRM
                                 Lender A                         52%                                 48%
                                 Lender B                         81%                                 19%

*1st and 2nd quarter 2005 payoffs, actual results from Lender Landscape®.

                                                                                                            Continued Page -16-
                                                                                          Feb., 2006             Page 16

Myths and Realities of ARM… from Page -15-

     The brand names of the lenders represented in the table are essentially equal. The property locations are the state of Cali-
fornia, and the time period is identical. Yet their respective customers are making radically differing choices.
     So what differentiates these two lenders? Is it the structure of the ARMs and FRMs offered? Do their loan officers em-
ploy different sales techniques? Is there a different comfort level with the products being offered? Are there variations in how
they present the options and choices to their respective customers?
     At the very least, we believe this data demonstrates the powerful affect a loan officer has on their client’s decision-mak-
ing process.
     Was this phenomenon unique to California? Not at all. We examined another market on the East coast, and analyzed the
same two lenders. While the figures vary by geography, the disparity between lenders remains significant.

                                   2005 ARM Migration Results for 1-year Treasury index*

                                          Hyb rid 5/1 ARMs – Large East Coast Market
                                                    % Returning to ARM                     % Selecting an FRM
                     Lender A                              30%                                     70%
                     Lender B                              66%                                     44%

*1st and 2nd quarter 2005 payoffs, actual results from Lender Landscape®.

     ARM adjustment/payment resets are projected to go from approximately $100 billion throughout 2005 to over $400 bil-
lion in the next 12 months. Now is the time to begin planning for a successful ARM migration strategy. Those lenders who
fully understand the unique needs of their clients and champion the best possible economics for those relationships will ulti-
mately win.
     We hope the data that we have presented will help facilitate discussions on how lenders develop marketing plans, and
help their loan officers execute and close sales. To learn more about how MGIC can help your team of professionals, please
contact your MGIC Account Manager.
                                                                                            Article written by Mark E. Marple,
                                                                           Vice President of Business & Product Development,
                                                                                      Mortgage Guaranty Insurance Company

  Return of the 30-Year Treasury Bond Means Changes In
                  High-Cost Calculations
 On February 9, 2006, the U.S. Trea-              When people talk about preda-           yield on Treasury securities having
 sury Department had its first sale of       tory or high-cost loans, most often          comparable periods of maturity as of
 30-year bonds, resurrecting a debt          they are referring to loans with points      the 15th day of the month immedi-
 security that had been discontinued         and fees that exceed a certain percent-      ately preceding the month in which
 in February 2002. We’ll leave it to         age of the total loan amount.                the application is received by the
 the pundits to tell us what this            However, the federal Section 32 high         creditor. There are some variations
 means for investors, the deficit and        cost analysis and all state-specific         in a couple of states (e.g., the loan
 the economy in general. For those           high cost analyses (with the exception       interest rate rather than the loan APR
 of us who deal with predatory lend-         of Minnesota and West Virginia) con-         may be used as the point of compari-
 ing matters, the reintroduction of the      tain some form of “APR test.” Most           son), but, by and large, this
 30-year bond will have an impact on         often this test involves the following       formulation is the one most com-
 high cost calculations beginning            formulation: a loan is a high cost loan      monly in use.
 March 1, 2006.                              if the loan APR exceeds by [X] % the                          Continued Page -17-
                                                                                     Feb., 2006             Page 17

Return of 30-Year Treasury Bond Means Changes in High-Cost Calculations… from Page -14-
     The commentary to Section 32         30-year terms. The staff of the Fed-       32 and state-specific high-cost APR
clearly states which Treasury yield       eral Reserve Board resolved this           tests with respect to applications re-
values should be used for comparison      question in comment 4(iii) to the          ceived by a creditor on or after March
purposes: “Creditors must use the         commentary to Regulation Z Section         1, 2006 (or in the case in New Mexico
yield corresponding to the constant       226.32(a)(1)(i):                           loans, loans made on or after March
maturity that is closest to the loan’s         iii. If a mortgage loan has a term    1, 2006). With respect to applications
maturity. If the loan’s maturity is ex-   of 30 years, and the H-15 does not         received by a creditor before March 1,
actly halfway between security            contain a yield for 30-year constant       2006 (or in the case in New Mexico
maturities, the annual percentage rate    maturities, but contains a yield for 20-   loans, loans made before March 1,
on the loan should be compared with       year constant maturities, and an           2006), the 20-year Treasury yield
the yield for Treasury securities hav-    average yield for securities with re-      value will still be used for 30-year
ing the lower yield.” At the time that    maining terms to maturity of 25 years      term loans.
the federal Section 32 high cost test     and over, then the annual percentage            What does this change mean as a
was first enacted, 30-year bonds were     rate on the loan is compared with the      practical matter? It is important to
being sold and their yield values were    yield for 20-year constant maturities.     note that historically, 30-year Trea-
published in the Federal Reserve               Accordingly, ever since the sale of   sury yield values are lower than the
Board’s H-15 bulletin. Thus, when a       30-year bonds was discontinued, the        20-year Treasury yield values, often
loan had a 30-year term, it was clear     20-year constant maturity Treasury         by as much as 40 or more basis
that the 30-year Treasury yield value     yield value has been used for compari-     points. The 30-year Treasury yield
was used for comparison purposes. If      son purposes with respect to not only      value as of February 15, 2006 is
the loan had a 25-year term, it was       30-year term loans, but all loans with     4.58%, 20 basis points below the
equally clear that the lower of the 20-   terms of greater than 20 years.            4.78% 20-year Treasury yield value
year and 30-year Treasury yield value          Now that the sale of 30-year          as of that date. This means that the
was used for comparison purposes.         Treasury bonds has been reintroduced       APR test high-cost thresholds for loan
Finally, if the loan had a term be-       and the 30-year Treasury constant ma-      terms greater than 25 years, including
tween 26 and 30 years, or greater than    turity yield values are once again         30-year term loans, will be almost al-
30 years, then the 30-year Treasury       being published in the H-15 bulletin       ways lower (and sometimes perhaps
yield value was also used for com-        (View H-15 bulletin here:                  substantially lower) than would be the
parison purposes.                      case if the 20-year Treasury yield
     After the sale of 30-year Treasury   data.htm), the 30-year Treasury yield      value were to be used.
bonds was discontinued, there was         value will once again be used for                      by Bill Lambropoulos, Esq.
some confusion as to which yield          comparison purposes for loans with               General Counsel and Director of
value should be used for loans with       30-year terms for the federal Section           Compliance and Legal Services at
                                                                                                     Document Systems, Inc.

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