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Homeside International

VIEWS: 7 PAGES: 30

									         HomeSide Lending International

                      11th October, 2000




www.national.com.au
                                     Contents

    ã   HomeSide’s US Business

    ã   HomeSide’s Global Strategy

    ã   HomeSide, globally

    ã   Summary




2
         HomeSide’s US Business




                Kevin Race
    President and Chief Operating Officer




3
           US Mortgage Value Chain - Overview


    BORROWER
     BORROWER        ORIGINATION              FUNDING              SERVICING                  INVESTOR
                                                                                               INVESTOR


                o Customer             o Warehousing           o   Loan Set-up
                  Education /          o Managing Interest     o   Information Processing
                  Marketing              Rate Risk             o   Payment Processing
                o Application Taking   o Managing Credit       o   Escrow Management
                o Application            Risk                  o   Loss Mitigation
                  Processing           o Packaging of          o   Customer Service
                o Underwriting           Securities
                                                               o   Master Servicing
                o Pipeline Risk        o Sales & Trading of
                                                               o   Pay Offs
                  Management             mortgage securities
                                                               o   Legal Compliance
                o Closing              o Secondary
                                                                   (e.g., registration, QA)
                                         Marketing




4
                        Origination Process overview

    ã   Retail sources
         ã   Branch offices with sales staff that meet directly with end borrowers, or
         ã   Direct consumer contact via telemarketing or through the internet.

    ã   Wholesale sources
         ã   Broker
               ã Acquiring loans from mortgage brokers where the loans typically close with HomeSide
                  funds
         ã   Correspondent
               ã Acquiring loans from other mortgage bankers where the loans close with the originator's
                  funds and is sold to HomeSide
         ã   Assignment of Trade / Co-issue / Quarterly Bulk
               ã A joint transaction between the originator and HomeSide where the loans are sold to the
                  investor and HomeSide acquires the servicing rights
               ã Bulk acquisitions
         ã   Bulk Acquisition of mortgage servicing portfolios




5
                         Making money in Production

    ã   Economics / Drivers
         ã   Total production market
               ã HomeSide production
         ã   Production margins
               ã Competitors pricing



    ã   Revenue sources
         ã   Application and other Fees
         ã   Sales (price by volume) of loans to third party investors

    ã   Expenses / Expense Drivers
         ã   Variable / Proportional
               ã Application and Processing costs
               ã Purchases (price by volume) of loans from production sources
         ã   Leveragable / less Variable
               ã Channel production costs - sales force / support




6
                                                 Production margins spectrum


                                                                                                      Consumer
    Expected Production Margins




                                                                                                      Direct /
                                                                                                      teleweb
                                                          flow
                                                  Partner                        Broker
                                            erred                                channels
                                        Pref
                                                                 Correspondent
                                                                 channels

                                                  Co-issue
                                                  channels
                                  Bulk
                                  acquisitions




                                                                                            Operational Effort

7
                     Variable Production Expense base

                                   Production Expenses against Production Volume


    25,000,000                                                                                                    8,000,000



                                                                                                                  7,000,000

    20,000,000
                                                                                                                  6,000,000



                                                                                                                  5,000,000
    15,000,000


                                                                                                                  4,000,000


    10,000,000
                                                                                                                  3,000,000



                                                                                                                  2,000,000
     5,000,000

                                                                                                                  1,000,000



             0                                                                                                    0
                 Dec-98   Mar-99          Jun-99        Sep-99             Dec-99            Mar-00      Jun-00

                            Total Production expenses            Production Volume, ex Bulk (in $'000)


8
                                  Servicing overview

    ã   Activities directly connected with borrowers
         ã   Collect payments from mortgagors
         ã   Pay hazard insurance
         ã   Pay taxes
         ã   Pay mortgage insurance
         ã   Handle insurance claims

    ã   Activities directly connected with Investors (owners of the mortgage)
         ã   Remit consolidation payments to investors
         ã   Handle delinquent mortgages
         ã   Foreclose on the Investor’s behalf when necessary
         ã   Sell OREO on Investor’s behalf when requested




9
                            Making money in Servicing

     ã   Economics / Drivers
          ã   Servicing book size
          ã   Servicing Income
          ã   Servicing Cost per Loan
          ã   Amortisation of MSR

     ã   Revenue sources
          ã   Servicing Fees - paid by third party owner
          ã   Ancillary Fees and Charges - paid by borrower
          ã   Incremental revenue - paid by other users of database
          ã   Float income on timing of borrower inflows against third party outflows

     ã   Expenses / Expense Drivers
          ã   Variable / Proportional
                ã Amortisation of MSE
                ã Costs of hedging the MSR balance
          ã   Leveragable / less Variable
                ã Servicing costs




10
                           Leveraging Servicing scale

                                    Servicing Total Expense against Portfolio Size

     20,000,000                                                                                                  160,000


     18,000,000
                                                                                                                 140,000

     16,000,000
                                                                                                                 120,000
     14,000,000

                                                                                                                 100,000
     12,000,000


     10,000,000                                                                                                  80,000


      8,000,000
                                                                                                                 60,000

      6,000,000
                                                                                                                 40,000
      4,000,000

                                                                                                                 20,000
      2,000,000


             0                                                                                                   0
                  Dec-98   Mar-99          Jun-99        Sep-99             Dec-99             Mar-00   Jun-00

                             Total Servicing Expense              Avg. Servicing Portfolio (in $ mm)


11
                    Production vs Servicing Revenue


                           Production and Servicing Revenue
                                   Quarterly in US$ millions
     160


     120


      80


      40


       0
           Dec-98     Mar-99   Jun-99    Sep-99      Dec-99    Mar-00   Jun-00


                                    Servicing   Production


12
                            Funding Process overview

     ã   Interface with Investors to determine daily pricing parameters
          ã   Communicate pricing to originators

     ã   Manage pipeline of unclosed loans

     ã   Borrow money from warehousing source

     ã   Fund individual loans

     ã   Obtain commitment from Government Sponsored Entity (GSE)

     ã   Pool like loans into securities

     ã   Deliver securities to a secondary market

     ã   Repay warehouse funding source




13
         Comparison - Traditional Bank vs HomeSide


                               Traditional Bank                               Homeside
     Balance Sheet   • 70% - 80% of Assets are held to        • 70% - 80% of Assets marked-to-market
                       maturity                               • Credit risk sold off or transferred
                     • Credit risk retained                   • Risk management focused on liquidity
                     • Risk management focused on match         management and preservation of asset
                       funding and managing credit risk         value

     Income          • 60%-80% of income driven by net        • 70% of income fee based
     Statement         interest margin                        • Net interest margin result of holding
                     • Fee income result of owning interest     assets for sale event risk
                       margin                                 • Credit risk minimal
                     • Credit costs key event risk            • Interest rate cycle key event risk
                     • Risk management focused on             • Risk management focused on
                       managing and preserving net interest     preserving asset values
                       margin




14
     HomeSide’s Global Strategy



           Blake Wilson
      Executive Vice President
       Chief Financial Officer




15
      Vision, and Competencies



                  To be the most
          efficient provider of mortgage
                services to the world



     Wholesale               Direct Technology
     Origination

                   Servicing
             Securitization and
             Risk Management

              Access to Capital


16
                               Key Strategies Overview

     ã   Continue our Preferred Partner programme to capitalize on industry
         consolidation through acquisitions - by leveraging our :-
          ã   Low Cost servicing platform
          ã   Consolidation expertise

     ã   Exploit technology advantages to create significant share growth through
         e-commerce
          ã   Implement the HomeSide Solutions technology and operations
          ã   Expand business to business platform

     ã   Leverage HomeSide capabilities outside US markets
          ã   Expand HomeSide Australia business
          ã   Enter Europe through HomeSide UK based business to business channel
          ã   Create global mortgage securitization capability to allow the NAB group to more flexibly
              manage capital and funding

     ã   Diversified product range
          ã   Home Equity products
          ã   Fannie Mae expanded approval products



17
                                 U.S. Mortgage Market Size

     The U.S. Mortgage Market is the world’s largest Debt Market

               US Mortgage debt market in US$ trillions
        $5.0

        $4.5

        $4.0                                      R 8%
                                               CAG
        $3.5

        $3.0

        $2.5

        $2.0

        $1.5

        $1.0

        $0.5

        $0.0
               1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

     Source: MBA Database/FNMA Fact Sheet

18
                               Industry Consolidation

     Market Share of US Top Servicers (1994 - 2007E)
                                                                                  Top 5 Servicers
                                                                                  Top 25 Servicers

      100%

       90%                                                                                    82%
       80%

       70%

       60%                                                                     52%
                                                       47%         51%
       50%
                                           42%
                               38%
       40%         35%

       30%                                                   24%         25%
                                     18%         20%
       20%               15%
             13%
       10%

        0%
              1994         1995       1996         1997       1998         1999            2007E

19
                                Preferred Partnerships

     Generalised Structure

     ã   Partner sells existing servicing portfolio to HomeSide in exchange for cash
          ã   Cash value based on fair value of servicing portfolio
          ã   Monetise portion of off-balance sheet value and provide capital for reinvestment
          ã   Eliminate intangible at parent; improve tangible capital ratios
          ã   Eliminates servicing portfolio interest rate and operating risk

     ã   Partner may retain balance sheet and servicing rights to portfolio assets
          ã   HomeSide sub-services the Partner’s portfolio


     ã   Partner enters into extended exclusive rights agreement to sell all of the
         origination flow
          ã   Significant investment made by HomeSide in technology, management and process linkages
              to streamline that flow into HomeSide

     ã   Partners retains customer relationship for banking products; HomeSide obtains
         rights to customer for mortgage-related products



20
                 History of Preferred Partnerships

     ã   BankBoston                      March 1996

     ã   Barnett Mortgage                May 1996

     ã   Banc One Mortgage Corporation   June 1998

     ã   People’s Bank                   November 1998

     ã   First Chicago NBD               March 1999

     ã   Cendant Corporation             June 1999

     ã   NAB Australia                   June 2000

     ã   Colonial Bank                   August 2000




21
                                                   Internet Useage

      Origination via the Internet
                                1998                                               2005
                                Percentage                                         Percentage




                    Influenced by                                  Influenced by
                         WEB                 10-20%                     WEB
                                                                                                    50-75%




                      Originated                                     Originated
                                      1%                             over WEB
                                                                                           10-20%
                      over WEB




                     Closed over                                   Closed over
                        WEB                                           WEB
                                                                                       5-10%




     Source: Morgan Stanley Dean Witter Research, February 1999.



22
                                 HomeSide Solutions

     ã   Technology development and business alliance with the worlds largest
         mortgage participant

          ã   Leverages HomeSide’s Mortgage Desktop technology to create a new Internet mortgage
              underwriting and origination experience for customers
               ã Significantly reduced process steps / costs

               ã Firm approval for loans granted on-line, real time

          ã   Creates Internet origination channel for HomeSide

     ã   Leverages the investment that financial services companies (New Entrants)
         have already made in their brand names

     ã   Fannie Mae will facilitate the evolution of this channel to be a significant
         portion of their flow by 2003




23
                    HomeSide Solution Partnerships

     ã   Trusted Advisors
          ã   Banks and Insurance (eg. Banc One / Wingspan)
          ã   Brokerage and Investment Managers
          ã   Real Estate Brokers
          ã   Legal and Accounting Advisors

     ã   Significant Consumer Brands
          ã   Internet Portals
          ã   Retailers
          ã   Global Consumer Brands

     ã   Affinity Groups
          ã   Entertainment (eg. Black Entertainment Network - BET.com)
          ã   Corporations
          ã   Relocation (eg. Suddath Relocations)




24
       HomeSide, globally



          Blake Wilson
     Executive Vice President
      Chief Financial Officer




25
                            Global Mortgage Markets

                            Mortgage Market size (in US$ billions)

        Brazil       36

     Australia        150

     Poland *               740

          UK                760

     Germany                      1100

        Japan                            1610

          US                                                           5000


                 0          1000          2000   3000     4000       5000     6000



26
                Preferred Partnerships with the NAB Group


                                                                                                 Secondary
                             Origination            Origination
        Marketing                                                            Servicing           Marketing
                               - Sales             - Production
                                                                                                 & Funding

                       National Retailers
                                                                          Servicing           National Funding
                                               Retailer Production
                                                Retailer Production

                       Direct Retailing
     Segments
     Customer




                                                                                              Securitisation
                                                                                               Securitisation
                                                    Broker
                         Wholesale
                          (Broker)                                                             New Investor
                                                                                                New Investor
                                                                                                 Funding
                                                                                                  Funding

           Responsibility:          HomeSide          National        3rd Party Originators     New Investors




27
                                     HomeSide Australia

     Servicing

     ã   Phase 1 - Plan Solution                              March 1998 - August 1998

     ã   Phase 2 - Develop & Implement                        September 1998-June 2000

          ã   Conversion completed of NAB Loans

               ã   May 9                  10,000 BNZA Loans
               ã   May 22                 115,000 VIC & TAS Loans
               ã   June 12                245,000 All Other Loans

          ã   HomeSide Australia now servicing 370,000 loans

     ã   Phase 3

          ã   Securitisation Capability




28
                HomeSide UK - Entrance Strategies

     “Blending HomeSide US expertise with local requirements and talent”

     Servicing related opportunities

     ã Forge Preferred Partnership with market leader
     ã Support Securitization as the need grows in Global Markets



     Origination related opportunities

     ã Transfer our proven “business to business” model to new markets
     ã Leverage Internet and Workflow experiences and tools




29
                                               Summary

     ã   HomeSide is headquartered in the world’s largest mortgage market


     ã   Our cost efficiency and scale gives us the ability to :-
          ã   create economic value from alliance and acquisition opportunities.
          ã   leverage existing technology into actively growing e-commerce markets - and we are doing so in
              an alliance with the world’s largest mortgage player


     ã   Our Australian experience with the NAB Australia project is now leverageable into
         other markets




30

								
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