north america mortgage banking 2020: convergent disruption in the credit industry: a roadmap to...

North America Mortgage Banking 2020“Convergent Disruption in the Credit Industry:A Roadmap to Achieving Sustainable Competitive Advantage by 2020”

Executive Summary

Copyright © 2014 Accenture All rights reserved.

Current Situation: Convergent Disruption• Today’s Lenders are still challenged to rebuild growth, profitability and efficiency following the recent credit crisis

• To further compound lenders’ challenges, convergent disruption is leading to a structural change in the industry; Multiple disruptive forces are converging on the Credit Industry at the same time, both from inside and from outside the Credit Industry, creating an increasingly complex and highly dynamic future environment

Building Blocks for Success in 2020: 1. Optimization & Simplification, 2. Agility and 3. Continuous Innovation• To avoid being marginalized as the future evolves, traditional lenders must become agile and innovative; this will help Lenders adjust

to industry changes and even help them define the industry’s future

• Three building blocks are essential for achieving sustainable competitive advantage in the “Era of Convergent Disruption”:1. Optimization & Simplification are today’s table stakes and are the essential foundation for 2020; this building block is required

to survive2. Agility is the new table stakes for 2020; this building block will allow lenders to succeed3. Continuous Innovation will separate the leaders in 2020; this building block defines high performers

• Lenders that become more agile and innovative will be future high performers, potentially realizing a sustainable >3.5% Gain on Sale Margin in 2020; this is far better than the ~2.3% margin expected for lenders that simply continue optimizing and simplifying the current model

Successful Business Models in the “Era of Convergent Disruption”: New business models will take market share from today’s Lenders• Agility and product commoditization expand the business models for success in the future

• Today’s traditional Lenders could collectively lose about 35% market share by 2020 to new entrants and current players who adopt new business models

• While traditional business models can succeed in 2020, new business models could emerge and be highly successful

Roadmap: Today’s Lenders can choose several different paths • The choice of business model need not be a “one-size-fits-all” decision; Different business models can be adopted for different

business units

• Each business model can also deploy innovative go-to-market strategies to further increase returns

• The Table Stakes will be much higher in the Year 2020 no matter what business model is pursued; Lenders must start building the groundwork today 2

Current Situation

Market Environment and Outlook

Industry Trends

4

Mortgage Originations and Housing

Jumbo Private-Label Securitization

Distressed Whole Loans

Correspondent Lending

Competition

Mortgage Regulation

• Changes in interest rates drive outlook for mortgage origination market; $1.3 trillion in originations forecast for 2014, >60% expected to be purchase money1

• Home purchase demand is anticipated to remain robust, though some seasonal slowing is expected

• Slow economic growth and fiscal uncertainty have modestly tempered the outlook for future price appreciation

• Pipeline of distressed whole loan opportunities remains strong with additional sellers emerging – expected to remain strong through 2014

• Home prices impact returns; expectation of continued price appreciation at a more moderate pace• Alternatives to property resolution (e.g., modification, refinance) are increasingly important strategies to

maximize returns

• Contracting origination market has led to tighter margins

• A smaller market results in higher barriers to entry for new entrants

• Emphasis on disciplined pricing, execution and service to maintain profitability

• Agencies dominate the high-balance loan market; conforming loan limits likely to remain until mid-2014

• Limited depth of market for private-label securities – significant near-term challenge

• In the past, regulator efforts to protect consumers were prioritized by the risks consumers could pose to the safety and soundness of the institution if they took action, such as filing a class action lawsuit

• Under new regulatory scheme, the CFBP will judge compliance by the extent to which consumers have access to financial products and services and that such offerings are fair, transparent, and competitive. Today, it’s the consumer the government is out to protect, not the institution it regulates

1Source: Average of the Mortgage Bankers Association, Fannie Mae and Freddie Mac mortgage market forecasts as of October 2013Copyright © 2014 Accenture All rights reserved.

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q153.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

$50

$100

$150

$200

$250

$300

$350

$400

$450

5.1%5.0%

5.2%

4.9%5.0%

4.9%

4.4%4.4%

4.8%4.7%

4.3%

4.0%3.9%

3.8%

3.5%3.4%

3.5%

3.7%

4.4% 4.4%

4.7%4.8%

5.0%5.1% 5.1%

5.2%5.3% 5.3%

30-Year FRM (%) Purchase Refinance

Source: www.mortgagebankers.org/NewsandMedia/PressCenter/86645.htm

Forecast (as of December 2013)

The benchmark 30-year FRM interest rate is projected to continue to rise over the next two years, according to the MBA.

US Interest Rate Trending and Forecast

+0.9%

Recent Highlights: • An increased in mortgage interest rates – such as

conforming, 30-year fixed rate mortgages – has caused a drop in refinance applications

• Purchase volumes have remained more resilient to higher rates and continue their upward trend

The increase in mortgage rates has pushed refinance application volume down to levels we have not seen since early 2011. Given the expectation for rates to remain at current levels or potentially move higher, the refinance boom we experienced over the past 12 years has…ended”

– Compass Point analyst Kevin Barker, 2013

Industry Trends

5

“


$US Billions

http://www.mortgagebankers.org/NewsandMedia/PressCenter/86645.htm

Crisis DisruptionPre-Crisis

1Q02

3Q03

1Q05

3Q06

1Q08

3Q09

1Q11

3Q12

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

Today’s lenders are still challenged to rebuild growth, profitability and efficiency following the receding credit crisis in today’s low risk/low reward environment.

Moving Forward

Manageable Risk/Higher Reward• Balance rapidly

increasing investments in regulatory compliance with investments to build the business

• Focus on the Customer: Invest in product and customer experience structural innovations that capture market share and proactively respond to changing customer needs, including use of digital

• Rebuild lender reputations

6

Low Risk/Low Reward• Extreme focus on regulatory

compliance• Limited work done to

sustain competitive advantages in future

High Risk/High Reward• Underwriting guidelines loosened• High volume• Record introduction of new businesses and

products• Government guarantee of mortgages• Too big to fail mentality

Ga

in o

n S

ale

Ma

rgin

Prim

ary-S

eco

nd

ary S

pre

ad

Lenders are still struggling in today’s low risk/low reward environment

Gain on Sale Margin Primary Secondary Spread


7Copyright © 2014 Accenture All rights reserved.

2008 Q4

x 2009 Q4

2010 Q1

2010 Q2

2010 Q3

2010 Q4

2011 Q1

2011 Q2

2011 Q3

2011 Q4

2012 Q1

2012 Q2

2012 3Q

2012 4Q

2013 1Q

2013 2Q

2013 3Q

Period Average

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

2324 2345

2945

2610 2722 2827

3539 35133360 3324 3413

3224 3353

3813

4182 4207

4573

3310.23529411765

Total Net Cost to Originate Residential Mortgage Loans

+97%

Key Points:• A re-engineered lending “factory” could cut cost of originating a mortgage by ~25+%, reversing a trend that has seen

origination costs rise by 79% since year-end 2009• Companies need to reduce sales/servicing costs via reduction of redundancy and automation• Increasing attention on technology applications: To improve efficiency and reduce costs, but also to help re-allocate

resources based on shifting demand as well as adding necessary customer/credit analytics• Rising costs with decline of mortgage brokers , which has had had a profound affect on loan origination system

providers with their customer bases shifting dramatically from broker to lender since 2008

Based on Un-weighted AveragesFor Non-Depository US Companies

Footnote 1) The net cost to originate includes all origination operating expenses and commissions, including corporate allocated expenses, minus fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread Note: Tracked by MBA’s Quarterly Mortgage Bankers Performance Report through 3Q12 Source: The Economist, 2 March 2013: “Spread Besting” – www.economist.com/news/finance-and-economics/21572796-feds-frustration-mortgage-profits-have-been-soaring-spread-besting

The net cost to originate a residential mortgage has increased dramatically since year-end 2009, including seeing a steady rise over the past five quarters.

Period AverageNet Loan Production Operating Cost ($) +36%

http://www.economist.com/news/finance-and-economics/21572796-feds-frustration-mortgage-profits-have-been-soaring-spread-besting


Since FY08, originators as a group have raised dramatically their spending on (in order of magnitude): Outsourcing & Professional Fees, Personnel-related expenses and IT.

$- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 -30%

-10%

10%

30%

50%

70%

90%

Sales PersonnelFulfillment Personnel

Production Support EmployeesBenefits

Occupancy & Equipment

Technology

Outsourcing and Professional Fees

Other Operating Expenses

Expense Average = +31%38%

98%

33%

-13%

29%44%

Expenses of US Originators Decomposed Through 3Q13 (vs. 4Q08)

Source: MBA Performance Report, 3013

Radius = Relative Contribution to Expenses

$ Cost Per Loan at 3Q13

% C

han

ge

in

Exp

ense

s T

hro

ug

h 1

Q13

15%

32%

Based on Un-weighted AveragesFor Non-Depository US Companies

Industry Trends


Trend of US Mortgage Industry Employment Mortgage Industry Employment…Since 1990...

Symbolizing the volatility in managing FTE capacity in the industry, Wells Fargo and other large bank providers are projecting large cutbacks in the foreseeable future.

Source: Compass Point Research & Trading LLC analyst Kevin Barker, 11 July 2013

Wells Fargo FTE Trending….


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US

De

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r F

ina

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ng

US

De

ale

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g

600

650

700

750

800

850

900

950

683710

733 736 752 763 771 787 789 797 801 803 817836 851 857

885 890 896

Relative JD Power Consumer Satisfaction Scores

Compared to other product/services customers purchase, Mortgage Servicing and Origination are ranked near the bottom in terms of satisfaction.

Latest Annual US Customer Satisfaction Index Score by Category(Based on a 1,000 point scale)

Industry Trends

Source: J.D. Power and Associates, 2014

Relative JD Power Consumer Satisfaction Scores

However Mortgage Originators have seen a rebound in their customer satisfaction and though Servicers have also seen a steady improvement, it is not as dramatic.

11

Sources:www.jdpower.com/content/press-release/c6oSdyC/2013-u-s-primary-mortgage-servicer-satisfaction-study.htmwww.jdpower.com/content/press-release/guM7kPe/2013-u-s-primary-mortgage-origination-satisfaction-study.htm

Industry Trends

Trending Annual US Customer Satisfaction Index Score by Mortgage Category(Based on 1,000 Point Scale)

2007 2008 2009 2010 2011 2012 2013

798

784

730

747

718725

733

Origination Servicing

Key Servicing Points:

Leveling result of increase in new clients combined with new set of rules released by the CFPB – effective January 2014 – where under new rules, servicers are required to have systems, policies and procedures in place to ensure customers receive the appropriate information and support from servicers


2007 2008 2009 2010 2011 2012 2013

750

757

739

734

747

761

771

Key Origination Points: The use of electronic closing documents improves customer closing satisfaction. Closing satisfaction among the 8 percent of customers who closed their mortgage using electronic documents in person averages 830, while satisfaction among the 84 percent of those who closed with paper documents in person is 772.

+18 Points

+37 Points

http://www.jdpower.com/content/press-release/c6oSdyC/2013-u-s-primary-mortgage-servicer-satisfaction-study.htm

http://www.jdpower.com/content/press-release/guM7kPe/2013-u-s-primary-mortgage-origination-satisfaction-study.htm

Today’s Customer Segments* Customer Trends Challenges for Traditional Providers

Consumer Lending

Unbanked & Underbanked

• Looking for low-cost FS alternatives, especially through digital channels

• Pitched marketing batted underway with low-cost delivery emerging disruptive providers

Youth • Frequent users of digital channels & wallets• Many are delaying homeownership or opting

to rent vs. buy

• Attract and position young customers through lifecycle

• Gear mortgage and other credit products to shifting needs of this segment

Mass Consumer • Customers are willing to switch from their primary-banking provider to find a lender with the best rates

• Overall customer satisfaction with mortgage lenders reaches a seven-year high, with satisfaction among first-time home buyers improving considerably from 2012,

• Many are still delaying homeownership or opting to rent vs. buy

• A number of emerging disruptive providers emerging, focused on customer-led, socially conscious innovation

• Gear mortgage and other credit products to shifting needs of this segment

• Despite improvements, customers purchasing a home, particularly 1st-time home buyers, continue to experience difficulties understanding the loan options available to them

Mass Affluent / HNWI / Private Banking

• Increasingly looking for high-value, customized wealth advice through digital channels

• HNW customers will not reliant on online applications; rather, they will want a financial manager who knows of their entire financial situation

• The market opportunity for HNW customers is huge

• High touch service will be critical with digital making fulfillment process more convenient.

• Banks focused on high net worth customers are competing for market share that was left by large lenders who got out of jumbo lending to focus on their conforming business. As a result, a gap exists in the market for serving these HNW customers when it comes to mortgage

Proactively responding to changing customer values and needs is critical for Lenders moving forward.

Customer segments are evolving into lifestyle/behavior segmentshttp://www.jdpower.com/content/press-release/guM7kPe/2013-u-s-primary-mortgage-origination-satisfaction-study.htm 12


To further compound lenders’ challenges, convergent disruption is leading to a structural change in the industry.• Becoming Digital on the inside of lenders and on the

outside with customers and suppliers is rapidly redefining interactions, information flows and data transparency

• Ongoing industry convergence is opening the door to new competition, new ways of doing business and new revenue opportunities

• Emerging new entrants are joining the market (in many cases from different industries); they are competing in innovative ways for customers and profitably serving traditionally unprofitable segments

• Customers are more empowered through social media and the prevalence of information and giving them an information edge over lender employees. Transparency will drive improved customer trust.

• Rapid consolidation continues; 20%-30% of today’s lenders will be gone by the year 2020

• A subdued economic outlook is forecast through the next 3 years as the Fed will leave targeted federal funds rate at between 0% and 0.25% in the foreseeable future and interest rates will rise

Expanded regulations may cost largest US banks a further $104bn to resolve mortgage-related legal issues as they try to put the costs of the subprime crisis behind them. Also, the second largest civil settlement ever obtained by the state attorneys general will cost the nation’s 5 largest mortgage servicers, which control about 60% of a servicing market, an ~$25bn to $32b 1

Convergent DisruptionMultiple disruptive forces are converging on the Banking Industry at the same time, both from inside and from outside the Banking Industry, creating an increasingly complex and highly dynamic future environment with “permanent volatility”

ExpandedRegulation

Subdued Economic Outlook &

Rising Rates

Continued Consolidation

Customer Empowerment

Ongoing Industry

Convergence

Digital Inside & Outside

StructuralChange

Emerging New

Entrants

Inside

Outside


Source: 1) Office of Mortgage Servicing Oversight. Joint State-Federal Mortgage Servicing Settlement FAQ http://nationalmortgagesettlement.com/faq

http://nationalmortgagesettlement.com/faq

http://nationalmortgagesettlement.com/faq

A view to the mortgage industry revolution

14

Source: CEB TowerGroup Retail Banking analyst Craig Focardi, 2013

Subprime Mortgage

Crisis

Market Events

Technology-Related Events

Non-agency market collapses

(Lehman)GSE

Conserv-atorshipbegins

Dodd-Frank Actpasses Original

conservatorshiptimeline ends

GSEsreturn to

profitability

Begin planningfor GSE

consolidationBasel 3, QM

and QRM rules in place

USPresidential

Election

Uniform GSE Guidelines and Tech Standards

begin

“NewCo” established to build common “GSE” platform

Uniform GSE Guidelines and Tech converge

Common US mortgage secondary market platform goes live?

FHFA strategic

plan released

GSE platform induced technology changes

begin?Dodd-Frank Act

induced technology changes

2007 2009 2011 2013 2015 2017 2019 2021

GSEconservatorship

ends?

Private-label MBSmarket running

smoothly

GSE ‘consolidation’

occurs?


Other industries have experienced similar levels of disruption in recent years; many leaders emerged with entirely new business models.

• Best available technology/ largest content provider

• Strong brand development

• Optimized user experience

• “Google is about getting the right information to people quickly, easily and cheaply – and for free” (L.Page)

• World’s largest music platform

• First sustainable alternative to music piracy

• Comprehensive user experience from online music to electronic devices

RedefiningInformation & Advertising

Redefining Retail Mortgage Origination

Redefining Music Industry andContent Distribution

• The #1 online lender and the 3rd largest retail mortgage lender in the US

• Recognized for a 4th consecutive years for its higher customer satisfaction (source: JD Power)

• Time from application to approval averages 17.8 days for Quicken Loans customers, which is 8.5 days shorter than the industry average (26.3 days)

Emerging EntrantsRedefined Traditional Player

In some cases traditional players completely redefined themselves to remain relevant…

…and in others new entrants are taking dominant roles as they revolutionize the customer experience.

From Ma Bell to Global Networking / IP Provider • From 1984 until 1996 AT&T was an integrated

telecom services and equipment company• As new entrants eroded traditional profits, AT&T

reinvented itself from a telecom and equipment company to a global networking leader to remain relevant

• Excluding its divested Advertising Solutions unit, 81% ($126.4B) of AT&T’s revenues in 2012 came from these growth areas, which grew ~6% YoY

19% 28% 53%

81%of total revenues grew nearly 6% year over year

Voice/Other

Wireline Data/Managed IT Services

Wireless


Lessons Learned from Telecom Industry Disruptions (Credit Industry Parallels):• The pace of change is much faster when enabled by agile, digital technology• Leaders find innovative ways to improve the customer experience, and they continually redefine themselves (e.g., AT&T was

a telecom services and equipment company in 1983 and is a global networking leader today)• Those companies that do not innovate and adjust to industry disruptions eventually become obsolete (e.g., NYNEX)

The telecom industry exemplifies how disruption can quickly and radically alter an entire industry; Lenders must prepare for a similar, sustained era of convergent disruption.

Evolution of the Telecom Industry (a regulated industry like Banking)

1885: AT&T founded

1983: 7 Regional Bell Operating Companies created in AT&T divestiture

1997: Bell Atlantic merges with NYNEX, another Regional Bell

Today; AT&T is the largest communications holding company in the world with phone, cable, wire-line data and managed IT services

2000: Bell Atlantic merges with GTE and adopts name "Verizon"

Traditional Providers

1996: Comcast launches Comcast Online, a broadband Internet service

2005: Comcast creates Comcast Interactive Media, a new division focused on online media

2009: General Electric (GE) and Comcast announce a buyout agreement for NBC Universal

Cable IndustryConvergence

2005: SBC purchases former parent AT&T Corp. and rebrands AT&T

Ma Bell Era Baby Bell Era Media Era

Traditional Telecom Player Response

Optimize & SimplifyExample: AT&T restructures into 3 separate companies (AT&T, Lucent and NCR) then spins off Lucent and NCR

Become more agile and digitalContinuously innovate to stay relevantExample: AT&T is a worldwide provider of IP-based communications, manages largest 4G US network, has wireless coverage overseas and recently developed AT&T U-verse to deliver services across mobile devices, PCs and TVs

ScaleExample: AT&T adopts “one phone system” campaign from 1907-1960s

2003: Skype introduced

2009: Skype is largest carrier of Int’l voice traffic

New Entrant Example

2011: Microsoft buys Skype to “generate new revenue opportunities”

Today: 33% of world's voice calls are on Skype

Today: Verizon Wireless to pay $1B to air NFL games over customers' smartphones

1941: First installation of coaxial cable in the network is placed in service

1993: AT&T restructures into 3 separate companies (AT&T, Lucent, NCR)

1994: AT&T spins off Lucent and NCR

1885 – 1983 (first ~100 years)

1983 – 2003 (~ 20 Years)

2003 – Today (~10 Years)


http://blog.100tb.com/wp-content/uploads/2013/04/skype.jpg
























Lessons Learned from Evolution of the Banking Industry• After a decade of focusing on building scale in the 1990s, the dominance of the universal banking model is being questioned, including by

regulators who are examining “Too Big to Fail” and possible scenarios to carve up failed large full-service banks• In the post credit crisis, banks – traditional and emerging - are focused on strategies to boost customer centricity (e.g., social media/Big Data)

The NA Lending Industry is already experiencing disruptions of the magnitude seen in the Telecom Industry; disruptions that completely transform an industry.

Evolution of the NA Banking / Lending Industry

1998: Citibank merges with

Travelers to form Citicorp combining banking, securities

and insurance services

Traditional Providers

IndustryConvergence

Glass Steagall Era Universal Banking Era Post Credit Crisis Era

New Entrant Example

1998: LendingTree created to provide consumers a centralized location to receive multiple loan offers

1985: Quicken Loans, originally Rock Financial Mortgage, founded

2008: • PennyMac founded by seasoned lending executives who have focused on origiinating HARP-based loans1999: Gramm–

Leach–Bliley Act: allows commercial banks, investment banks, securities firms, and insurance companies to consolidate

2012: • Capital One acquires ING

DIRECT in the US and rebrands its retail unit CapitalOne 360

• Scotiabank acquires ING Direct Canada

2012: • Simple (Bank)

launched – 100% online bank

• American Express and WalMart launch Bluebird, a prepaid debit card

2013+: S&P reports that the biggest US banks may have to spend a further $104bn to resolve mortgage-related legal issues as they try to put the costs of the subprime crisis behind them.

Build Specialization Scale Optimize & SimplifyAgility & Innovation On Horizon

1933:Glass–Steagall Act separates commercial and investment banking

1999:goodmortgage.com founded

1938: Fannie Mae created; Freddie Mac created in 1970

1969: First ATM installed (at Chemical Bank)

1995: First large bank offers online services (Wells Fargo)

2007: Wells Fargo reintroduces mobile banking

2008: Significant consolidation

• Bank of America acquires Countrywide

• Wells Fargo acquires Wachovia

• JPMC acquires most of Washington Mutual from FDIC’s receivership

1933 – Late 1990s(first ~65 years)

Late 1990s – 2008(~ 10 Years)

2009 – Today(~5 Years)

17

2010 :GSE conservatorship begins


http://www.google.com/url?sa=i&rct=j&q=lendingtree&source=images&cd=&cad=rja&docid=wd-e7q7JnD9sxM&tbnid=kojRVQXiKq9tkM:&ved=0CAUQjRw&url=http://www.underconsideration.com/brandnew/archives/a_lendingtree_grows_in_the_web.php&ei=Y0HtUb3oMO2v4AOK-oD4Dw&bvm=bv.49478099,d.dmg&psig=AFQjCNHmYliC7fD8ERmQwu6vJHBfwMPs_w&ust=1374589649334066
















































Building Blocks for Success in 2020

Optimization & Simplification

(Today’s Table Stakes)

Agility(Year 2020

Table Stakes)

Continuous Innovation(Year 2020 Leaders)

Era of Convergent Disruption

Era of Survival

To avoid being marginalized as the future evolves, traditional Lenders must become agile and innovative; this will help Lenders adjust to industry changes and even help them define the industry’s future.

• No longer will traditional practices of optimizing and simplifying the existing infrastructure and business for improved efficiency and effectiveness yield a competitive advantage; this simply allows lenders to survive

• Rather, adoption of a new, broader mindset focused on managing change quickly and effectively is critical to compete in the increasingly complex and highly dynamic banking industry of the future

– Agility is table stakes for the Year 2020

– Continuous Innovation is what will separate the leaders in the Year 2020

• The “Era of Convergent Disruption” has begun

Business Performance

Today’s Penetration 93% of lenders are here 5% of lenders are here <2% of lenders are hereTime

Average Time to Sustainable Benefit

3-5+ years 2-4+ years 2-5+ years

Journey to Sustainable Competitive Advantage

•Leverage a proprietary analytics system that integrates into its servicing system of record

•The system is used to predict loans in danger of delinquency and generate automated decisions to determine the best possible loss mitigation option.

•Recently completed a server / desktop virtualization initiative that improves data security and integrity and enhances employees’ access to systems by providing remote access.

•Also uses robust data mining tools to improve quality control, customer service and compliance.

Online-only originator Quicken Loans bolsters its growing servicing portfolio

Leveraging virtualization and data mining tools

Lender Industry Examples of Agility & Innovation


4Q10 1Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 e2H13 O &S Agility Innovation 20200.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

$50

$100

$150

$200

$250

$300

$350

$400

$450

2.0%

1.5%1.6%

2.7%

3.1%

3.7%

3.2%

2.3%2.1%

1.6%

2.5%

Industry Margin 1 Purchase Refinance

Footnote 1): Gain on Sale as reported by Compass Point Research & Trading Other Sources: The MBA and Accenture Research, December 2013 http://www.mba.org/files/Bulletin/InternalResource/86348_.pdf

US Mortgage Volumes & Margin Trending

As the production side of the business rebounds, lender margins continue their steady decline – so future winners will have to focus on boosting not only their efficiency but their agility and continuous processes to innovate.

20

Average Performers

Status Quo(continued optimization

& simplification only – Not Sustainable)

0.3%

0.4%

0.2%

0.5%

“Era for Convergent Disruption”

High Performers of the Future

3.8%

Quarterly Averages of US Industry’s Gain on Sale

Rising interest rates have reduced mortgage re-financings and income from the sale, securitization and servicing of retail mortgage loans by $4bn among the largest bank lenders

Recovery

0.4%

0.4%


http://www.mba.org/files/Bulletin/InternalResource/86348_.pdf



Three building blocks are essential for achieving sustainable competitive advantage in the increasingly complex “Era of Convergent Disruption.”

3. Building Blocks for Sustainable Competitive Advantage in the “Era of Convergent Disruption”

3.Continuousinnovation

Have the ideas, vision and leadership to proactively

stay ahead of the market

2. AgilityBe able to seize opportunities

In times of change

1. Optimization and simplification

Be as efficient and effective as possible in current structure

• Become Digital: Transform IT platform to overcome rigid legacy technology in back office and enable analytical-driven front office

• Be Customer-Driven: Make all decisions to improve the customer experience and proactively meet customer needs

• Fulfill Self-Service vs. Channel Potential (including social media): Maximize channel management per broker, loan officer and consumer direct to best engage customers in sales and fulfillment using their preferred methods (e.g., mobility, social media and online)

• Manage the New Talent Dynamic: Re-engineer human capital platform/program to leverage best available talent internally and externally on demand

• Employ Optimal and Flexible Financial Strategies: Adaptable portfolio and product strategy

• Channel Fulfillment: Provide capability in all channels to serve target customers most effectively

• Streamline and Simplify The Business: Remove redundancies and improve processes and technologies to become lean and rationalize business, products, technology and operations

• Manage Regulatory Requirements: Handle increasing regulation as a competitive advantage

• Manage Enterprise Risk Management Regime: Provide early-warning to emerging risk threats in possible siloes of business

• Create Capital and Funding Strategies: Optimize to meet business opportunities/challenges as they arise

3. Year 2020 Lender Leaders

SustainableCompetitiveAdvantage

DifferentiateThrough

AdaptThrough

DriveEfficiencyThrough

Building Blocks

1. Today’s Table Stakes

2. Year 2020 Table Stakes

INC

RE

ME

NTA

L IN

NO

VATI

ON


The building blocks are enabled by technology; lender leaders need to balance innovation demands of the business with ongoing scale and efficiency needs of the corporation.

Enabling Technology in the “Era of Convergent Disruption”

Agile Information Technology• Mobility: Extending mobility across the distribution spectrum• Analytics and Data Velocity: Using business intelligence, data analytics and

big data to access the right data at the right time by creating a data supply chain• Social Collaboration: Combining customer oriented service and a highly

effective capability – Social Enterprise• IT Infrastructure: Could include a private cloud for its loan origination system, a

VoIP phone system and paperless underwriting• Electronic Closing Documents: improves customer closing satisfaction

Optimizing & Simplifying Technology• Digital HR & Finance: Workplace Collaboration, Hyper Change

Management and Virtual Learning, Financial Performance Analytics, and Real-time operations performance and cost to serve monitoring

• Digital Logistics & Operations: Electronic document management system and a Web-based LOS that includes a module for borrowers to initiate loan applications

• Cyber Security & Fraud Management: Data privacy management platform including enhanced email security tools and digital file upload portals.

• eCustomer Interface: Loan onboarding processes with automated workflows that collect, compare and route mortgage file data and documents as well as real-time status alerts that give borrowers and their real estate agents real-time status updates on their loans

• Imaging Technology: Allows for document collaboration across all departments



Year 2020 Lender LeadersTechnology As Continuous Provider of Innovation

3. Enabling Technology3.

Continuousinnovation

2. Agility


IT Balance

CorporateIT

Business IT(“As a

Service”)

Innovate

ScaleDrive Efficiency

Differentiate

INC

RE

ME

NTA

L IN

NO

VATI

ON


Have the ideas, vision and leadership to proactively

stay ahead of the market

2. AgilityBe able to seize opportunities

In times of change



Building Blocks

INC

RE

ME

NTA

L IN

NO

VATI

ON


Emerging Lender Business Models

Changing Large US Lender Landscape – 2008 vs. The Present

A handful of the largest US lenders that did not exist five years ago have emerged to capture >10% origination share from traditional legacy providers.

24

% Declines in Origination

Sources: Accenture Research analysis using MortgageData.com, 2013

New Entrant Since 2008Total Number of Lenders -4.6% 2.5% 484 472 611 -4.9% 1.5% 461 454 594

Total Residential Origination Volume ($US Millions)

Total Residential RETAIL Origination Volume ($US Millions)

All Companies 6.4% 20.6% 1,941,536 1,424,581 13.0% 28.1% 1,158,456 904,165 627,666Big 4 Market Share 0.5% -4.9% 45% 50% 44% 0.0% -3.7% 45% 49% 45%Emerging Providers Market Share 10.2% 5.0% 11% 6% 1% 12.2% 4.4% 13% 9% 1%Company Name % 5-Yr CAGR % 1-Yr CAGR LTM 2013Q2 LTM 2012Q2 LTM 2008Q2 % 5-Yr CAGR % 1-Yr CAGR LTM 2013Q2 LTM 2012Q2 LTM 2008Q2Wells Fargo & Co. 12.3% 3.8% 490,336 472,407 274,557 14.9% 9.6% 251,883 229,922 126,030Chase 12.0% 26.6% 212,735 168,004 120,580 24.7% 8.2% 113,870 105,253 37,758Bank of America -4.2% 4.8% 95,534 91,190 118,519 1.0% 39.0% 95,422 68,660 90,885Quicken Loans Inc. 68.7% 114.4% 94,250 43,952 6,890 68.7% 114.8% 94,250 43,884 6,890US Bank Home Mortgage 21.1% 18.5% 86,946 73,397 33,441 28.4% 18.2% 24,906 21,069 7,144CitiMortgage, Inc. -9.2% 4.3% 73,443 70,383 119,259 16.6% 64.0% 61,334 37,398 28,508PHH Mortgage 22.4% 3.2% 56,890 55,152 20,704 23.2% 26.5% 49,894 39,434 17,553Flagstar 27.4% 30.2% 53,171 40,829 15,860 17.0% 25.4% 3,233 2,578 1,476BB&T 17.9% 14.7% 34,729 30,268 15,244 10.1% 12.1% 13,243 11,818 8,187SunTrust Bank 9.5% 19.3% 34,058 28,548 21,613 11.4% 14.6% 18,265 15,938 10,654PennyMac -- 540.4% 33,672 5,258 -- -- -- -- -- --Provident Funding Associates 30.6% 1.9% 31,964 31,358 8,422 68.6% 21.1% 4,782 3,949 351Fifth Third Bank 28.1% 8.2% 27,748 25,646 8,059 25.7% 2.8% 15,555 15,134 4,950Ally Bank/ResCap (GMAC) -8.2% -46.8% 24,786 46,606 37,928 -14.7% -61.4% 4,425 11,477 9,801Franklin American Mortgage Co. 20.4% 39.8% 23,794 17,024 9,388 34.5% 35.4% 1,037 766 236Guaranteed Rate Inc. -- 86.2% 18,020 9,676 -- -- 86.2% 18,020 9,676 --USAA Federal Savings Bank 20.1% 18.4% 17,932 15,151 7,189 46.2% 18.4% 17,932 15,151 2,689PNC Mortgage 6.2% 35.0% 17,114 12,675 12,667 7.2% 35.0% 17,114 12,675 12,094Nationstar Mortgage -- 206.4% 15,416 5,031 -- -- 148.9% 7,913 3,179 --PrimeLending 51.4% 29.7% 14,455 11,145 1,820 51.5% 29.7% 14,455 11,145 1,814Stearns Lending 72.8% 65.1% 14,436 8,746 938 162.4% 92.7% 2,486 1,290 20Navy FCU 28.9% 54.1% 12,048 7,817 3,383 28.9% 54.1% 12,048 7,817 3,383Everbank 33.1% 50.8% 11,456 7,596 2,742 56.1% 64.1% 6,290 3,834 679United Wholesale Mortgage -- 234.6% 10,953 3,273 -- -- 87.9% 1,037 552 --NYCB Mortgage -5.9% 7.5% 10,258 9,544 13,883 -100.0% -100.0% -- 3 124Amerisave Mortgage Corp. -- 42.9% 10,062 7,040 -- -- 34.2% 8,507 6,340 --M&T Mortgage 27.1% 41.2% 9,357 6,626 2,822 37.3% 40.2% 5,523 3,938 1,131Union Bank 31.1% 8.2% 9,232 8,529 2,386 40.8% 0.5% 3,321 3,305 601Prospect Mortgage -- 20.2% 8,883 7,389 -- -- 19.3% 8,812 7,389 --Sierra Pacific Mortgage 23.8% 33.9% 8,464 6,322 2,913 56.6% 39.9% 2,102 1,503 223TD Bank NA 75.2% 27.4% 8,296 6,513 503 87.2% 27.4% 8,296 6,513 361Regions Mortgage 20.8% 15.8% 8,088 6,985 3,146 20.9% 16.2% 7,967 6,855 3,082Manufacturers & Traders Trust Co. 8.7% 310.6% 7,761 1,890 5,107 22.0% 334.0% 4,197 967 1,552LoanDepot.com -- 99.3% 7,704 3,866 -- -- 106.7% 7,704 3,728 --RBS Citizens, NA 40.0% -3.8% 7,245 7,532 1,349 40.0% -3.8% 7,245 7,532 1,349Fremont Bank 55.0% 60.0% 7,158 4,475 801 46.6% 51.0% 5,110 3,383 754Cole Taylor Mortgage -- 125.2% 7,114 3,159 -- -- 117.3% 1,193 549 --


25

Over the past five years, emerging Online and Independent lenders, many of whom did not exist during the depths of the Credit Crisis, have stolen market share away from primarily the midsize / regional banks in the US.

Mortgage Origination Market Share Change Among US Lender Types

Online Small Banks Independents Midsize Banks Big 40%

10%

20%

30%

40%

50%

60%

6%9%

17%

23%

45%

2008 2012 2013 +0.5%

Sources: Accenture Research analysis using MortgageData.com, December 2013Footnote 1): Market share data comparing each time period at the 2nd Quarter on a trailing 12-month basis

+12.1%

+3.7%+5.3%

Wholesale and Retail Origination Combined

0% % Market Share Change 2008-13 -21.6%


Online Small Banks Independents Midsize Banks Big 40%

10%

20%

30%

40%

50%

60%

10% 11%15%

20%

45%

2008 2012 2013

Mortgage Origination Market Share Change Among US Lender Types

Over the past five years, emerging Online and Independent lenders, many of whom did not exist during the depths of the Credit Crisis, have stolen market share away from primarily the midsize / regional banks in the US.

26

Sources: Accenture Research analysis using MortgageData.com, December 2013Footnote 1): Market share data comparing each time period at the 2nd Quarter on a trailing 12-month basis

0% % Market Share Change 2008-13

Retail Origination

+0.0%

+9.9%

+2.3%+5.3%

-20.8%



Agility and product commoditization expand the business models for success in the future of the mortgage origination industry.

Current Lender Landscape – 2014

Large-Scale, Commodity ProductsSpecialized

Emerging Entrants and Adopters (Current Players who Adopt new Business Models)

Big 4 Banks 4 players

~45% market share*(Wells Fargo, Chase,

BoA, CitiMortgage)

Small Bank Lenders

360+ players~9% market

share*

Highly Agile• Most business generated

through online/digital channels• Highly nimble• Flexible infrastructure• Social media an integral part of

strategy• Optimized and simplified• Customer-centric

• Most business generated through traditional, physical channels

• Less nimble• Heavy infrastructure• Less optimized and simplified

Less Agile

• Focused products or limited geographic focus• Highly customer-centric• Higher priced• Advice-driven• Highly nimble• Simplified/optimized infrastructure• New entrants• Compete largely on advice and product depth/differentiation

• Commodity products (mass market focus)• Product and customer centric• Low price• Low amount of advice• Not very nimble• Large, often legacy infrastructure• Larger foreign entrants, but mostly traditional

players• Compete largely on price

* Market shares are based on enterprise-level revenues

B. Independent LendersC. Emerging Digital Lenders6% MS

Sources: Accenture Research analysis using MortgageData.com, 2013

A. Traditional Lenders

~425 Lenders

~77% market share*

(US Bank Home Mortgage, BB&T, SunTrust, USAA)

Mid-Size Banks


share*

50+ Players~17% market share*

(PHH, Nationstar)

Potential Lender Landscape – 2020 (Status Quo Scenario)

Today’s bank lenders could collectively lose ~20% market share by 2020 to new entrants and current independent lenders who adopt new business models.

28


Highly Agile

Less Agile

Big 4 Lenders 4 players

~30% market share

Market Share # of Players

CommentsToday 2020 Today 2020

Big 4 Lenders ~45% ~30% 4+ 4+ • The Big 4 Lenders will continue to manage through the complexity of increasing regulatory requirements and will be motivated to battle for lower risk / higher margin markets (HNW)

Mid-Size Lenders

~23% ~17% 60+ 45+ • Midsize / regional leaders have lost the most market share since the credit crisis and will continue to see runoff as they look to reposition their business models to be more competitive and unique in an increasingly fragmented credit market

Small Bank Lenders

~17% ~26% 360+ 250+ • Though the number of small banks will continue to consolidate, the survivors (including innovate credit unions) will continue to capture market share for customers seeking high-touch customer service

Online ~6% ~15% <5 10+ • With Quicken dominating the space, new entrants will emerge, especially from the ranks for independent lenders

Independents ~17% ~26% 50+ 95+ • The independent lender model appears to be gaining mind/market share very rapidly

Emerging Lenders and Adopters (Current Players who Adopt new Business Models)~100 players~40% market share

Examples of who could steal market share from Traditional Lenders:• A handful more pure play online lenders will

look to take advantage of Quicken Loan’s market dynamics

• Small/community banks that become highly agile and can now compete with larger banks (e.g., innovative credit unions)

• Agile / innovate independent lenders• Retailers that continue to move into the

lending space

Mid-Size Banks


share

A. Traditional Full-Service Lenders

300+ banks

~60% market share

Small Bank Lenders


share*

10+ Players~15% market

share

C. Emerging Digital

Lenders

90+ Players~26% market

share*

B. Independent Lenders


29

Emerging Disruptors

Through the rest of the decade, traditional lenders will increasingly need to respond to emerging lending disruptors like Quicken, Guaranteed Rate and Goodmortgage.com, which will look to continue to build scale.

Banks Disruptors Common Characteristics of the Emerging Disruptors

Innovation

Agility

Optimization and Simplification

Innovation

Agility

Optimization and Simplification

3

2

1

1

2

3Circa 2020

Circa 2013

Market nimble

Scale

Circa 2020

Circa 2013

Market entry

Scale

• Emphasize social responsibility

• Focus on customer centricity and empowerment

• Present simpler fee structure to customers

• Provide personal financial management tools and access to other accounts

• Embedded with social media, especially Facebook

• Leverage Big Data and analytics

• Willingness to leverage Cloud and Virtualization


• Key Membership Metrics:

– 39m households

– 71.2m cardholders

– 90% renewal rate (for US and Canada)

– $2.3bn+ in cash fees for LTM

• Financial Services Proposition:

– Began making mortgages in late 2010

– Sells auto and homeowners’ insurance

– Offers credit card processing for small businesses

– Provides financial planning

• Credit Value Proposition: Costco does not make money on mortgages, but instead uses it as another incentive to get people to renew their store memberships, where Costco makes a large chunk of its profit.

• History of Innovation:

– First with its membership-fee structure

– Move into selling gasoline

Courting customers who are fed up with their banks, Costco continue to build out its financial services offering, after first offering mortgages in late 2010.

30

Sources:www.fool.com/investing/general/2013/10/11/10-reasons-why-peter-drucker-would-have-thought-co.aspx#878482The New York Times, 13 November 2013

www.costcofinance.com/LoginAndPricing.aspxCostco’s Emerging FS/Credit Business


http://www.fool.com/investing/general/2013/10/11/10-reasons-why-peter-drucker-would-have-thought-co.aspx#878482

http://www.fool.com/investing/general/2013/10/11/10-reasons-why-peter-drucker-would-have-thought-co.aspx#878482

http://www.costcofinance.com/LoginAndPricing.aspx

Highly Agile• Most business generated

through online/digital channels• Highly nimble• Flexible infrastructure• Social media an integral part of

strategy• Optimized and simplified• Customer-centric

• Traditionally customer facing• Most business generated

through traditional, physical channels

• Less nimble• Heavy infrastructure• Less optimized and simplified

Less AgileLarge-Scale, Commodity Products

• Focused products or limited geographic focus• Highly customer-centric• Higher priced• Advice-driven• Highly nimble• Simplified/optimized infrastructure• New entrants• Compete largely on advice and product depth/differentiation

• Commodity products (mass market focus)• Product and customer centric• Low price• Low amount of advice• Not very nimble• Large, often legacy infrastructure• Larger foreign entrants, but mostly traditional

players• Compete largely on price

Best positioned for global expansion

Specialized

Potential Landscape – 2020 (Emerging Model Scenario)

While traditional business models can succeed in 2020, two new lender business models could emerge and be highly successful.

31

Industries Outside Lending

PossiblyLarge Retailers + One of the Large 4 / Largest Indies / Larger Midsize Banks

E. Retail Correspondents

5-8 players (Lenders + Large

Retailers)

~10% market share

(Example: Costco partnering with one

of the Big 4)

A. Big 2 Lenders 2 players

~25% market share

A. Midsize Lenders

~40 players~15% market

share

B. Independent Lenders90+ Players

~15% market share*

D. Digital Hybrids 10+ Players~20% market

share*

A. Small Bank Lenders


share

Possibly a handful of small banks (~10) decide they will be more competitive by assuming a pure play digital approach ; might be conducive for credit unions

Possibly Today’s Largest Digital Lenders, 1 of the Big 4 Lenders, and Large Indies and Midsize Banks Focus on Evolving to a Digital Model With Scale

20+ Players~5% market share

C. Emerging Digital Lenders

Digital pure plays have to adopt a broader infrastructure to scale and properly manage customer expectations



These new business models have the potential to be highly disruptive to the banking industry.

32

2. Hybrid Digital Bank Scenario:• Example: One of the Big

4 banks and a few of the Midsize banks focus on going digital with scale

• Market Edge: Gaining cost and process efficiencies vis a vis traditional lenders

1. Emerging Digital Scenario:• Example: Some small

banks and independents see a competitive advantage in becoming as a digital pure play

• Market Edge: Gaining cost efficiencies and expanding beyond legacy physical footprint

3. Digital Hybrid Independents:• Example: A few of the

largest indies will see advantage of focusing on a digital value proposition

• Market Edge: Could have competitive advantage over most lenders, especially in adjusting to market demand

4. Retail Correspondent Bank Scenario:• Example: One of the Big 4

banks or midsize banks will provide the lending engine behind one of the big retailers

• Market Edge: Immediate market share and low pricing across a broad range of products appealing to existing customers

5. Retail Correspondent Indie Scenario:• Example: Large retailers

partner with a few of the large independent lenders

• Market Edge: The independent lenders who partner with retailers will gain an additional distribution channel and higher customer brand awareness

Highly Agile

Less Agile


High Performers will be OUTSIDE this box (more agile)



~25% market share

A. Midsize Lenders


share

B. Independent Lenders90+ Players

~15% market share*

D. Digital Hybrids 10+ Players~20% market

share*



share



E. Retail Correspondents

5-8 players (Lenders + Large Retailers)

~10% market share

(Example: Costco, Sam’s Club, Home

Depot partnering with one of the Big 4)

1

2 3

4

5



Lenders choosing to remain Traditional Full-Service Providers can also be successful by becoming more agile and/or large-scale.

33

High Performing Lenders Banks will transform themselves by 2020 to become:1. More Digital – Focus of applying digital capabilities will be on the sales process/rate shopping and consumer finance education. When it comes

to needs analysis and product fit, it will be a very customer / loan officer centric interaction. Digital capabilities can also be used in the back office to exchange data/information and provide transparency into the life of the loan

2. Truly Customer-Driven – All decisions will be made to satisfy customer needs: this requires offering more transparency, ease of doing business, having to request assistance once and setting and meeting expectations

3. Omni-Channel – Over half of business will be conducted through digital channels; although physical channels will still play a very important part in the business, these banks will not rely on them for survival

4. Innovative at the Core – Innovation will be embedded in all levels of the organization to proactively stay ahead of the market; do not settle for anything less than being a leader

5. Partnering With Leaders in Other Industries – Witnessed by the recent moves of top builder-oriented retailers, opportunities will continue exist for lenders to partner with companies in other industries’

6. OR Large-Scale – Deliver products to the mass market at lower margins (number of products sold makes up for lower margins); costs must be substantially reduced through reduced product complexity and streamlined technology and operations to make this work

Highly Agile

Less Agile


High Performers will be OUTSIDE this box (more agile)



~25% market share

A. Midsize Lenders

~40 players~15% market share

B. Independent Lenders 90+ Players~15% market share*

D. Digital Hybrids 10+ Players~20% market share*


~240 players~10% market share



F. Retail Correspondents

5-8 players (Lenders + Large Retailers)

~10% market share(Example: Costco, Sam’s Club, Home

Depot partnering with one of the Big 4)

12 3

45


The Table Stakes will be much higher in the Year 2020 no matter what business model is pursued; Lenders must start building the groundwork today

3 Building Blocks for Sustainable Competitive Advantage in the “Era of Convergent Disruption”

What Must Lenders Do TODAY to Succeed in the “Era of Convergent Disruption”?

• Proactively invest in initiatives that will build the business rather than reactively respond to regulations, competitors and industry changes

• Fundamentally shift from a product-oriented organization to a customer-driven organization

• Rebuild bank reputations

• Embrace and integrate new technologies, channels and strategies

3. Continuousinnovation

Have the ideas, vision and leadership

to proactively stay ahead of the market

2. Agility

• Become More Digital• Be Customer-Driven• Fulfill Omni-Channel Potential (incl. social media)• Manage the New Talent & Regulatory Dynamic• Employ Optimal and Flexible Financial Strategies


• Channel Fulfillment• Streamline and Simplify The Business• Manage Regulatory Requirements• Manage Enterprise Risk Management Regime• Create Capital and Funding Strategies



3. Year 2020 Leaders

Be able to seize opportunities In times of change



AppendixLinks to Additional InformationBusiness Model Profiles

-$1 QoQ-$9 YoY

Includes life insurance companies; pension funds, retirement funds, finance companies and REITsSources: Federal Reserve, Amherst Securities, Compass Point Research & Trading LLC analyst Kevin Barker, 11 July 2013

Residential Real Estate = $18,453

Mortgage Debt Outstanding = $9,868 Homeowner’s Equity = $8,585

Agency Balance Sheet = $5,830

Bank Balance Sheet = $2,957

Non-Agency MBS = $886

Other =

$195

GSE MBS = $4,490GinnieMBS = $1,340

1st Lien =

$2,051

2nd Lien =

$748

Other*=

$158

Prime=

$188

Alt A=

$288

OptionARM

= $117

Sub-Prime=$293

+$819 QoQ+$2,077 YoY

+4 QoQ-$102 YoY

+$ 18+$102

-$17+$60

-$22-$84

-$2-$11

-$12-$47

-$11$56

-$7-$25

-$8-$46

Dramatic increases in home equity could support the issuance of HELOCs, increase the amount of loans able to refinance and improve the mobility of homeowners.

36

The US Mortgage Lender industry is managing a $18.5 trillion balance sheet.

US Household Balance Sheet – $US Billions



2006 2007 2008 2009 2010 2011 2012 201325

30

35

40

45

50

55

60

65

720

740

760

780

30.0

46.9

52.150.0

61.0

53.0

Cycle TimeCustomer Satisfac-tionSeries4

Customer SatisfactionOn Scale of 1,000

Total Cycle Time in Days

Sources: JP Power & Associates’ annual US Primary Mortgage Origination Satisfaction Study, November 2011; http://online.wsj.com/article/SB10001424052702303459004577364102737025584.html; http://www.jdpower.com/content/press-release/guM7kPe/2013-u-s-primary-mortgage-origination-satisfaction-study.htm; PNC investor presentation

As customer satisfaction continues to improve steadily, mortgage lenders are still seeing some inconsistent performances year on year with their origination cycle times.

Trend for Residential Mortgage Origination Cycle Time & Customer Satisfaction

• The time from application to approval averages 17.8 days for Quicken Loans customers, which is 8.5 days shorter than the industry average (26.3 days)

• In late 2011, CitiMortgage had been adding staff, streamlining its processes in effort to cut its refinance time from 77 days to <50 days

http://online.wsj.com/article/SB10001424052702303459004577364102737025584.html





38

Half of the complaints received by the CFPB are related to mortgages.

Consumer Complains Received by the CFPB – Through June 2013


Between July 1, 2012 and June 30, 2013, the CFPB received ~122,000 consumer complaints. Source: http://files.consumerfinance.gov/f/201312_cfpb_report_financial-report.pdf

Consumer Complaints by FS Product Consumer Complaints Related to Mortgages

http://files.consumerfinance.gov/f/201312_cfpb_report_financial-report.pdf



39

Gain on Sale margin assumes a mortgage is originated at going market rate, a guarantee fee paid to GSEs, servicing fees are paid and a mortgage is sold in the secondary market.

Gain on Sale Margin Index Decomposed 1


1 MSR capitalized at 90 bps, 30-year fixed retail originations onlySources: Compass Point Research & Trading LLC analyst Kevin Barker, 11 July 2013; chart sources include Bankrate, Bloomberg, FHFA and Compass Point

Inputs 4Q12 Average 1Q13 Average HARP Notes

Duration (years) 7 7 8 Assume mortgage duration

Coupons per yr 12 12 12 Monthly mortgage payment

Mortgage rates 3.43% 3.55% 4.00% Primary rate

Guarantee-fee 0.40% 0.48% 0.48% Paid to GSE

Servicing free 0.25% 0.25% 0.25% Paid to servicer

Other 0.10% 0.10% 0.10% Hedging, fall-out, etc.

Net Yield 2.68% 2.72% 3.17%

MBS Yield 2.18% 2.46% 2.30% Yield in MBS market

Net Spread 0.50% 0.26% 0.87%

Secondary Market Price $1,032.43 $1,016.70 $1,063.52 Price of bond in market

Face Value $1,000.00 $1,000.00 $1,000.00 Original value of mortgage

Priced-in Margin 3.24% 1.67% 6.35% Diff between secondary $ and mortgage balance

Capitalization of MSR 0.90% 0.90% 0.90% Initial value of MSR created (non-cash)

Total Gain on Sale 4.14% 2.57% 7.25%

Appendix


Additional information about each building block is available in the provided links

Additional Information Business TechnologyContinuous Innovation https://kxws.accenture.com/Repositories/C23/54/24/Acc

enture_Banking_2016_v14_PRINT.pdfhttp://www.accenture.com/us-en/Pages/insight-banking-2012-revenue-growth-innovation-summary.aspx

http://www.accenture.com/us-en/Pages/insight-banking-technology-vision-reshaping-landscape-summary.aspx

Agility

Digital https://kxws.accenture.com/Repositories/C25/73/9/Accenture%20Interactive_Banking_Social%20Engaging_Banking_3_14_13.pdfhttps://kxws.accenture.com/Repositories/C25/17/54/Accenture%20Interactive_PoV_Banking_on_Digital_1_8_13.pdf

https://kxws.accenture.com/Repositories/C23/82/64/12-1315_BankingCloud_v5.1_Final_May2012.pdfhttps://kx.accenture.com/repositories/contributionform.aspx?path=C25/89/26&mode=read

Customer Centricity https://kx.accenture.com/Repositories/ContributionForm.aspx?path=C26/36/72&mode=Read

http://www.accenture.com/us-en/Pages/insight-boosting-relevance-returns-digital-channel-banking-summary.aspx

Omni-Channel Potential

https://kxws.accenture.com/Repositories/C23/54/24/Accenture_Banking_2016_v14_PRINT.pdf

http://www.accenture.com/us-en/Pages/insight-banking-2016-next-generation-banking-summary.aspx

New Talent Dynamic http://www.accenture.com/us-en/Pages/insight-going-above-beyond-banks-optimize-talent.aspx

http://www.accenture.com/us-en/Pages/insight-global-analytics-shortage-banking-summary.aspx

Optimal Financial Strategies

http://www.accenture.com/us-en/Pages/insight-basel-consequences-summary.aspx

http://www.accenture.com/us-en/Pages/insight-cfo-catalyst-change.aspx

Optimization & Simplification

Channel Fulfillment https://kxws.accenture.com/Repositories/C23/54/24/Accenture_Banking_2016_v14_PRINT.pdf

http://www.accenture.com/us-en/Pages/insight-power-online-banking-channel-summary.aspx

Streamline & Simplify http://www.accenture.com/us-en/Pages/insight-banks-rise-global-transformation-challenge-summary.aspxhttp://www.accenture.com/us-en/Pages/insight-banking-2016-next-generation-banking-summary.aspx

https://kxws.accenture.com/Repositories/C25/99/9/WSS153_CoreBankingTop3Reasons7.pdfhttps://kxws.accenture.com/Repositories/C22/96/48/WinningInNewBankingEra.pdfhttps://kx.accenture.com/repositories/contributionform.aspx?path=C25/93/90&mode=read

Manage Regulations http://www.accenture.com/us-en/Pages/insight-dodd-frank-act-strategic-tactical-implications.aspx

http://www.accenture.com/us-en/blogs/regulatory_insights_blog/archive/2011/11/16/information-management-impacts-of-recent-financial-regulation.aspx

Manage Enterprise Risk

http://www.accenture.com/us-en/Pages/insight-rethinking-risk-financial-institutions-partnership.aspx

http://www.accenture.com/us-en/Pages/insight-acn-2012-risk-analytics-study-insights-banking-industry.aspx

Capital & Funding Strategies

http://www.accenture.com/us-en/Pages/insight-capital-optimization-summary.aspxhttp://www.accenture.com/us-en/blogs/regulatory_insights_blog/archive/2012/03/19/regulation-in-the-news.aspx

http://www.accenture.com/us-en/Pages/insight-navigating-complexities-liquidity-risk.aspx


2. Agility




http://www.accenture.com/us-en/Pages/insight-banking-2012-revenue-growth-innovation-summary.aspx

http://www.accenture.com/us-en/Pages/insight-banking-2012-revenue-growth-innovation-summary.aspx




https://kxws.accenture.com/Repositories/C25/73/9/Accenture%20Interactive_Banking_Social%20Engaging_Banking_3_14_13.pdf



https://kxws.accenture.com/Repositories/C25/17/54/Accenture%20Interactive_PoV_Banking_on_Digital_1_8_13.pdf

https://kxws.accenture.com/Repositories/C25/17/54/Accenture%20Interactive_PoV_Banking_on_Digital_1_8_13.pdf

https://kxws.accenture.com/Repositories/C23/82/64/12-1315_BankingCloud_v5.1_Final_May2012.pdf

https://kxws.accenture.com/Repositories/C23/82/64/12-1315_BankingCloud_v5.1_Final_May2012.pdf

https://kx.accenture.com/repositories/contributionform.aspx?path=C25/89/26&mode=read


https://kx.accenture.com/Repositories/ContributionForm.aspx?path=C26/36/72&mode=Read

https://kx.accenture.com/Repositories/ContributionForm.aspx?path=C26/36/72&mode=Read







http://www.accenture.com/us-en/Pages/insight-going-above-beyond-banks-optimize-talent.aspx

http://www.accenture.com/us-en/Pages/insight-going-above-beyond-banks-optimize-talent.aspx











http://www.accenture.com/us-en/Pages/insight-banks-rise-global-transformation-challenge-summary.aspx

http://www.accenture.com/us-en/Pages/insight-banks-rise-global-transformation-challenge-summary.aspx



https://kxws.accenture.com/Repositories/C25/99/9/WSS153_CoreBankingTop3Reasons7.pdf

https://kxws.accenture.com/Repositories/C25/99/9/WSS153_CoreBankingTop3Reasons7.pdf

https://kxws.accenture.com/Repositories/C22/96/48/WinningInNewBankingEra.pdf

https://kxws.accenture.com/Repositories/C22/96/48/WinningInNewBankingEra.pdf



http://www.accenture.com/us-en/Pages/insight-dodd-frank-act-strategic-tactical-implications.aspx

http://www.accenture.com/us-en/Pages/insight-dodd-frank-act-strategic-tactical-implications.aspx








http://www.accenture.com/us-en/Pages/insight-capital-optimization-summary.aspx

http://www.accenture.com/us-en/Pages/insight-capital-optimization-summary.aspx

http://www.accenture.com/us-en/blogs/regulatory_insights_blog/archive/2012/03/19/regulation-in-the-news.aspx

http://www.accenture.com/us-en/blogs/regulatory_insights_blog/archive/2012/03/19/regulation-in-the-news.aspx



• www.insidemortgagefinance.com/topics/mortgage_banking_profitability.html

• www.mba.org/files/Bulletin/InternalResource/86348_.pdf

• www.nationalmortgagenews.com/mortgage-technology/2013-top-tech-savvy-lenders-and-servicers-list-revealed-1038346-1.html?pg=2

• www.nationalmortgagenews.com/mortgage-technology/25_tech_savvy_lenders.html

JD Power:

• www.jdpower.com/content/press-release/c6oSdyC/2013-u-s-primary-mortgage-servicer-satisfaction-study.htm

• www.jdpower.com/content/press-release/guM7kPe/2013-u-s-primary-mortgage-origination-satisfaction-study.htm

Reference Links


http://www.insidemortgagefinance.com/topics/mortgage_banking_profitability.html


http://www.nationalmortgagenews.com/mortgage-technology/2013-top-tech-savvy-lenders-and-servicers-list-revealed-1038346-1.html?pg=2

http://www.nationalmortgagenews.com/mortgage-technology/2013-top-tech-savvy-lenders-and-servicers-list-revealed-1038346-1.html?pg=2

http://www.nationalmortgagenews.com/mortgage-technology/25_tech_savvy_lenders.html





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