Using Market Opportunity Insight to Improve CRA Lending

1Laird Nossuli

CEO Bernard NossuliCOO

❑ Challenges with Building CRA Strategies

❑ Defining Mortgage Opportunity Insight

❑ How Lenders Leverage Data to Improve CRA Performance

❑ Questions

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❑ Hard to quantify strategic and sales goals

❑ Traditionally a “backward-looking” approach

❑ Enterprise-wide strategies often fail; each market is unique

❑ Execution can be challenging due to disconnect between compliance and sales

❑ Must balance compliance/coverage with profitability

Overview: CRA Challenges and Mortgage Opp Insight

Challenges with CRA Strategies:

What is iEmergent’s Mortgage Opportunity Insight?

Market analytics:

❑ Forecast how much opportunity (purchase loans and dollars) to expect in a mortgage market.

❑ Drill down to tract-level of detail to capture the unique behavior of every market.

❑ Utilize forward-looking data in combination with historical data.

❑ Quantify opportunity by different borrower segments.

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What is the Opportunity in Your Markets?

2018 Purchase Forecast by County - US

By State By Metro

Market-by-Market Forecasts:

❑ Look ahead through the next 5 years

❑ Quantify how many loans and dollars to expect

❑ Also compares speed of growth, mortgage density, and competitive landscape

❑ Compare market size and penetration rates for more than 20 market segments (loan type, borrower income, FTHB, borrower race/ethnicity)

❑ Accuracy ranges from 90% for all counties to nearly 99% for largest 500 counties

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Columbus, OH by Tract: 2018 Purchase Forecast

CRA Requires Drilling Down to Census Tracts

CRA Strategies require tract-level insight. iEmergent builds our forecasts from the bottom-up, starting with tracts. It is easy to find the CRA tracts, and compare their locations to branches, loans and pockets of opportunity.

Columbus, OH by county

The above maps of Columbus show its purchase loans by county. In the above right map, you can see the outlines of the tracts, showing how the loans are distributed.

The lower left map shows our all purchase forecast by tract for 2018 in Columbus, with the dark red tracts are those projected to have the most purchase loans, while the lighter tracts are projected to have the least (see legend). The map on the right overlays the CRA-eligible tracts, which you see in bright red.

CRA Eligible Tracts Overlay: 2018 Purchase Forecast by Tract

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2018 Purchase Forecast by Tract – CRA Tracts

Where is the most CRA tract opportunity?

Tract 390490082.10:24 Purchase Loans in 2018

Tract 390490083.70:230 Purchase Loans in 2018

The map on the right shows the same CRA-eligible tracts (that are symbolized with bright red in the map on the left) but now symbolizes them based on their

2018 purchase opportunity (see legend).

When you know which CRA tracts will have more opportunity than others, you know where to go: where to focus your loan officers, where to implement target marketing, etc. Look for pockets of opportunity!

This insight is the foundation for a better CRA lending strategy.

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❑ Identify problem markets where your LMI Tract and HH lending falls short

❑ Establish forward-looking, market-based CRA targets and goals

❑ Remedy gaps in coverage by:❑ Placing LOs in branches better positioned for High-CRA-Opp Zones❑ Providing LOs with targeted information❑ Defining and matching your product mix in High-CRA-Opp Zones❑ Develop sales strategies that consider borrower diversity mix

❑ Use market insight in your CRA examinations and strategic plans

How Can You Leverage Mortgage Opportunity Data?

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Identifying CRA Assessment Areas Where You Need to Improve

How do you know where you need to improve? Compare your performance to your peers? Compare this year to last year and hope it’s better? The problem with these approaches is that they don’t quantify or consider how the market is changing.

Another approach lenders have taken is to “match the market,” which means they strive to obtain the same market share in CRA tracts as they have in non-CRA tracts and have a penetration (% of total market that is CRA) that is equal to or higher than the market’s CRA penetration.

In this example, the table above compares the CRA penetration rate of ABC Bank with the penetration rate of the market. For Columbus, you can see that ABC is under-indexed in CRA: only 10.9% of its loans are from CRA-tract, while 15.6% of the market’s are. In addition, its market share in non-CRA tracts is double that of its share in CRA tracts. For a lender like ABC that is in many markets, this helps them direct their resources accordingly - in this case, all of the markets with a penetration rate in red need improvement.

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Purchase Forecast by Tract with ABC Bank Originations

Judging Your Performance Against Market Opportunity

Columbus, OH

Purchase Refinance

ABC Pur. Share -Loans

ABC Pur. Share -Dollars

ABC Loans

ABC Dollars ($M)

Market Loans

Market Dollars ($M)

ABC Refi Share -Loans

ABC Refi Share -Dollars

ABC Loans

ABC Dollars ($M)

Market Loans

Market Dollars ($M)

CRA Tracts 0.15% 0.18% 7 $1.0 4,663 $542.0 0.08% 0.07% 3 $0.3 3,738 $407.1

Non-CRA Tracts 0.24% 0.28% 59 $14.5 24,901 $5,163.7 0.09% 0.11% 23 $4.2 24,901 $3,722.6

TOTAL 0.22% 0.27% 66 $15.5 29,564 $5,705.6 0.09% 0.11% 26 $4.5 28,639 $4,129.7

Purchase Loans Dollars

ABC % of CRA 10.61% 6.47%

Market % of CRA 15.77% 9.50%

Refi Loans Dollars

ABC % of CRA 11.54% 6.19%

Market % of CRA 13.05% 9.86%

Total Loans Dollars

ABC % of CRA 10.87% 6.41%

Market % of CRA 14.43% 9.65%

When you see where you’re lending and compare it to the market opportunity, you can easily see gaps in coverage. Once you know where you’re missing opportunity, you can build sales strategies to capture it. Lenders have used these opportunity maps with their branches and loan officers very successfully to help them set and reach their goals.

Gaps in coverage

ABC purchase loan

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What about LMI HH opportunity?

2018 All Income Purchase by Tract 2018 Low Income Purchase by Tract 2018 Mod Income Purchase by Tract

Income LevelPurchase

Loans % Purchase

Dollars ($M) %

Low Income HH 2,320 5.8% $225.6 3.3%

Mod Income HH 7,977 19.8% $1,104.4 16.0%

LMI HH 10,297 25.5% $1,330.0 19.3%

All Income HH 40,312 $6,898.0

Just like other market segments, the distribution of loans by borrower income segments (low, mod, middle, upper) is very different. Quantifying the future mortgage opportunity for each segment, and knowing where to find it, is crucial for setting goals and creating sales and product strategies that work.

iEmergent is firmly dedicated to promoting fair and responsible mortgage lending. iEmergent’s mortgage opportunity forecasting products and services are designed and intended to be used by iEmergent’s clients to advance the goals of fair and responsible lending and helping to meet the mortgage credit needs of all segments of the communities in which iEmergent’s clients operate. iEmergent’s mortgage opportunity forecasting products and services do not displace, abridge, or otherwise alter in any manner requirements imposed by federal and state fair lending laws and the Community Reinvestment Act, including obligations to market, accept applications, and originate loans in all portions of an institution’s market area and/or assessment area without regard to race, national origin or any other prohibited factor.

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Disclaimer

iEmergent Leadership Team

iEmergent is a forecasting and advisory firm for the lending industry. Since 2000, we have been focused on delivering a forward-looking approach to helping organizations navigate the industry’s changing landscape. After nearly 20 years as an executive at two national lenders, our founder leveraged his background in mathematics and predictive modeling to develop a groundbreaking method for forecasting mortgage opportunity. In addition to our forecasts, we provide strategic advisory services to lenders of all sizes and types, as well as mortgage insurance, title, and investment companies. Viewed as industry leaders, we have been featured in Mortgage Banking magazine, HousingWire, National Mortgage News, Origination News, Inman News, and the Credit Union Journal.

OUR PRODUCTS

iEmergent provides accurate, forward-looking data that quantifies what’s next in mortgage markets across the nation. As housing and lending sputter and stutter toward recovery, our forecasts drill down into states, metro areas, counties, and neighborhoods to quantify where and how mortgage opportunity will grow, slow, or stay the same.

Lenders access our data through Mortgage MarketSmart, a web application with dynamic maps or through our detailed reports and assessments. Both include visuals that bring HMDA and detailed forecast data to life, helping organizations easily make decisions about high-level strategic opportunities and tactical, market-level challenges:

• Expand and grow responsibly• Improve sales strategies at all levels• Optimize resources, brand, and locations• Recruit, hire, train, and retain sales resources• Minimize distribution risk and meet CRA and Fair Lending

regulations

FORECAST SEGMENTS

Market Geography• State

• MSA

• County

• Census Tract

Market Segments• Occupancy Types

• Custom Loan Sizes

• Conventional Loan Type

• FHA,VA, FSA Loan Types

• Jumbo, Conforming

• Borrower Income Levels

• Borrower Race/Ethnicity

• First Time Homebuyer

• CRA Eligible

• New Construction Sales

• Custom Loan Sizes

• Refinance Ranges

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OUR COMPANY

For more information about Mortgage MarketSmart,our forecasts, or advisory services, please visitwww.iemergent.com or call us at 515-327-0070.

More about iEmergent and what we do