Mortgage Focus 2006: participants in Fannie Mae's latest annual benchmarking study saw the average cost to originate fall for all channels--except retail. The Internet/call-center channel posted the biggest drop in per-closed-loan origination costs.Mortgage banking is cyclical cyclical
Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements. and constantly buffeted buf·fet 1
1. A large sideboard with drawers and cupboards.
a. A counter or table from which meals or refreshments are served.
b. A restaurant having such a counter.
3. by market, demographic and technological winds. Last year was no exception. Lenders that participated in Fannie Mae's seventh annual Mortgage Focus benchmarking study bid farewell Farewell
Auld Lang Syne
closing song of New Year’s Eve. [Music: Leach, 91]
(last rites) anointing at the hour of death, sacrament of Orthodox Church and Roman Catholic Church. to the days of "order-taking" their way through a queue Pronounced "Q." A temporary holding place for data. See queuing, message queue and print queue.
(programming) queue - A first-in first-out data structure used to sequence objects. Objects are added to the tail of the queue ("enqueued") and taken off the head ("dequeued"). of calls from eager refinance Refinance
1. When a business or person revises their payment schedule for repaying debt.
2. Replacing an older loan with a new loan offering better terms.
When a business refinances they typically extend the maturity date. borrowers. Sky-rocketing home prices, narrowing spreads between adjustable-rate mortgages Adjustable-rate mortgage (ARM)
A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or (ARMs) and fixed-rate mortgages (FRMs), and a shift to a purchase environment forced lenders to dust off time-honored skills of salesmanship, innovation, outreach Outreach is an effort by an organization or group to connect its ideas or practices to the efforts of other organizations, groups, specific audiences or the general public. and execution. [??] Successful lenders kept costs down and profits up by calibrating their product mix, focusing on staff and customer retention, and making strategic investments in technology. [??] Data collected for Mortgage Focus 2006 cover calendar year 2005 and, for the first time, the study includes an analysis of servicing. The origination Origination
The process through which a mortgage lender creates a mortgage secured by some amount of the mortgagor's real property.
Also known as loan origination, everyone must go through the origination process when securing a mortgage for a piece of real study includes detailed information on origination costs, productivity and loan production for five channels: retail, Internet/call center, wholesale, correspondent and credit union. [??] In this year's origination study, 186 lenders participated, representing one-third of the top 100 U.S. lenders by production volume in 2005. Twenty-eight servicers participated in the pilot servicing study (see sidebar (1) A Windows Vista desktop panel that holds mini applications (gadgets) such as a calendar, calculator, stock ticker and Vonage phone dialer. It is the Windows counterpart to the Dashboard in the Mac. See Windows Vista and gadget. , "Spotlight Shines on Servicing"), including 10 of the top 100 servicers by portfolio size in 2005. Research focused on portfolio volume and composition, financial statements, technology costs, staffing and outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. .
Participating lenders use Mortgage Focus as both a benchmarking tool and blueprint blueprint, white-on-blue photographic print, commonly of a working drawing used during building or manufacturing. The plan is first drawn to scale on a special paper or tracing cloth through which light can penetrate. for future change. "One of the reasons we find the Mortgage Focus study so useful is that it provides detailed breakdowns of income and expense statements. Using these, we can benchmark our performance against our peers, identify year-over-year changes and adjust our strategies where needed," says Rick West, senior vice president in the San Diego San Diego (săn dēā`gō), city (1990 pop. 1,110,549), seat of San Diego co., S Calif., on San Diego Bay; inc. 1850. San Diego includes the unincorporated communities of La Jolla and Spring Valley. Coronado is across the bay. headquarters of Union Bank of California's mortgage division.
Market realities and lender response
As rates rose slightly in 2005, consumers were more likely to pursue purchase or equity transactions such as seconds, home-equity lines of credit (HELOCs) and cash-out refinances and less likely to pursue rate-term refinances. According to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. Fannie Mae's economics department, industry origination volume increased a modest 6 percent to $2.89 trillion--the second-highest figure ever. For the first time since 2000, purchase originations edged out refinances--51.1 percent of total originations versus 48.9 percent, respectively.
Affordability suffered due to soaring soaring: see flight; glider.
Sport of flying a glider or sailplane. The craft is towed behind a powered airplane to an altitude of about 2,000 ft (600 m) and then released. price appreciation and modest income growth. Accordingly, ARM share rose as home-buyers realized fixed-rate financing would price potential purchases out of reach. Lenders originated more interest-only (10) loans, payment-option ARMs and hybrid ARMs, and fewer conforming and government loans. (Note: In the Mortgage Focus study, alternative-A loans are segregated from conforming loans Conforming loans
Mortgage loans that meet the qualifications of Freddie Mac or Fannie Mae, which are bought from lenders and issued as pass-through securities. .)
Generally, these forays into new product offerings contributed to higher profitability. For example, among retail channel lenders for which alt-A loans represented more than 5 percent of their total product mix, profitability averaged 33 basis points--17 basis points higher than the channel average.
Successful lenders placed greater emphasis on recruiting and retaining experienced loan officers and account executives (AEs) able to sell and support expanded product menus. Technology use greatly influenced productivity in every channel. The capability to view and sign documents over the Internet, for example, significantly improved cycle times and pull-through.
Recognizing historic interest in non-owner-occupied properties, retail lenders originated 10 percent of their volume from these loans, wholesale lenders 16 percent, and even the typically refinance-oriented Internet/call-center channel originated 13 percent.
Emerging markets, too, were the focus of successful outreach strategies by many lenders. Seventy-five percent of retail top performers pursued an emerging-markets strategy, compared with 50 percent in the retail channel overall.
By using their traditional mortgage banking skills, lenders were able to maintain or reduce their costs. The average cost to originate o·rig·i·nate
1. To bring into being; create.
2. To come into being; start. decreased in every channel except retail (see Figure 1), which increased a mere 1.48 percent. Credit unions had the highest productivity and lowest costs in the consumer-direct channels. Due to lean staffing and the nature of its business model, the Internet/call-center channel's performance began to close in on the credit union's lead (see Figure 2). Internet/call-center participants originated the highest percentage of conforming loans in the study at 73 percent (see Figure 3). Refinances accounted for 59 percent of their volume.
Correspondent lenders benefited from variable cost structures that offered flexibility in a slowing market (see Figure 4). Wholesale lenders had the highest per-loan origination costs, but realized cost improvements compared with last year due to lower yield-spread premium (YSP YSP Yamaha Sound Projector
YSP Yemeni Socialist Party (Yemen)
YSP Marathon, Ontario, Canada (Airport Code)
YSP Yield Spread Premium
YSP Youth Smoking Prevention
YSP Yale Summer Program ) and servicing-released premium (SRP SRP - A data link layer protocol. ) costs, fewer government and subprime loans Subprime Loan
A loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans.
Subprime loans tend to have a rate that is 0.1% to 0.6% higher than the prime rate. , and wholesalers' increased use of the Internet to do loan locks and receive loan files from their brokers.
The Internet/call-center channel was by far the most profitable of all originator Originator
A bank, savings and loan, or mortgage banker that initially made a mortgage loan that is part of a pool. Also, an investment bank that has worked with the issuer of a new securities offering from the beginning and is usually appointed manager of the underwriting categories in the study, earning an average 81 basis points versus 15 basis points for retail lenders, their closest non-credit-union competitors (see Figure 5). These lenders also experienced the greatest improvement in profitability from last year, at 197 percent.
Factors that contributed to the Internet/call-center channel's remarkable profit surge included the highest percentage of conforming and refinance loans in the study, lean staffing and new originations driven by increased marketing expenditures. (see Figure 6).
With its smaller staff requirements, the correspondent channel had the highest productivity as measured in closed loans per direct full-time equivalent Full-time equivalent (FTE) is a way to measure a worker's involvement in a project, or a student's enrollment at an educational institution. An FTE of 1.0 means that the person is equivalent to a full-time worker, while an FTE of 0.5 signals that the worker is only half-time. (FTE FTE Full-Time Equivalent
FTE Full-Time Employee
FTE Full-Time Equivalency
FTE Full Time Employment
FTE Foundation for Teaching Economics
FTE Full Time Enrollment
FTE For the Enterprise (SQL)
FTE Fund for Theological Education ) (see Figure 7). Internet/call-center channel lenders were almost 50 percent more productive than retail lenders.
Wholesale lenders closed the lowest percentage of conforming loans of all channels, and their alt-A production grew substantially. Retail lenders concentrated on more complex and labor-intensive purchase transactions, which made up 65 percent of channel volume.
Business model influenced product strategy in consumer-direct channels
In the consumer-direct channels, retail lenders turned to customer retention, a broadened product menu and best-execution strategies to succeed. Internet/call-center lenders maintained a simple product menu and submitted more loans through an automated au·to·mate
v. au·to·mat·ed, au·to·mat·ing, au·to·mates
1. To convert to automatic operation: automate a factory.
2. underwriting Underwriting
1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt).
2. The process of issuing insurance policies. system at the point of sale.
For Mortgage Focus participant Wachovia Mortgage Finance, Charlotte, North Carolina “Charlotte” redirects here. For other uses, see Charlotte (disambiguation).
Charlotte is the largest city in the state of North Carolina and the 20th largest city in the United States. , this meant rolling out a new mortgage processing system more closely matched to customer needs, according to Scott Muenger, senior financial analyst.
"Wachovia had a very busy year in 2005, implementing a new mortgage processing system and growing our mortgage sales force," says Muenger. "While we still have room for improvement, we were recognized by [Westlake Village, California-based] J.D. Power and Associates as third for overall customer satisfaction among 13 mortgage lenders in the recently released 2005 J.D. Power and Associates Primary Mortgage Origination study. I think this shows that focusing on our customers, despite the aggressive growth initiatives under way, has really paid off for us."
Where did channel lenders find their profitability "sweet spots?" Retail participants expanded their product horizons; those that originated more than the channel average of 19 percent of payment-option, negatively amortizing and hybrid ARMs were 21 basis points more profitable than the channel average.
Conversely con·verse 1
intr.v. con·versed, con·vers·ing, con·vers·es
1. To engage in a spoken exchange of thoughts, ideas, or feelings; talk. See Synonyms at speak.
2. , standardization standardization
In industry, the development and application of standards that make it possible to manufacture a large volume of interchangeable parts. Standardization may focus on engineering standards, such as properties of materials, fits and tolerances, and drafting drove the Internet/call-center channel's profits. Lenders that originated a higher-than-average percentage of conforming or refinance loans reported profitability greater than the channel average.
Lenders whose loan officer tenure exceeded the channel average benefited from increased originator productivity; in the retail channel, this gain was 23 percent. Competitive compensation was the top employee-retention strategy.
In the retail channel, lenders with a closing-to-delivery cycle time of fewer than seven days, compared with the channel average of nine days, closed an average of 43 loans per direct FTE--11 percent more than the channel average. Internet/call-center channel lenders that closed their customers' loans in fewer than 30 days (compared with the channel average of 41 days) were 39 percent more productive.
Wholesale and correspondent lenders sought greater efficiencies
Both wholesale and correspondent channel lenders responded to market changes with technology applications designed to increase efficiency, new products to enhance profitability and improved processing options to lower costs.
Automation and Internet delivery spurred productivity and reduced costs. In the wholesale channel, closed-loan files received via the Internet more than doubled from 11 percent to 29 percent.
Wholesale lenders that used electronic data transfer or that required brokers to use proprietary technology had lower average costs to originate than the channel average. In their search for efficiency, some lenders turned to Web-based business process management (BPM (Business Process Management) A structured approach that models an enterprise's human and machine tasks and the interactions between them as processes. BPM software provides users with a dashboard interface that offers a high-level view of the operation that typically )--a technology workflow The automatic routing of documents to the users responsible for working on them. Workflow is concerned with providing the information required to support each step of the business cycle. solution with the ability to escalate es·ca·late
v. es·ca·lat·ed, es·ca·lat·ing, es·ca·lates
To increase, enlarge, or intensify: escalated the hostilities in the Persian Gulf.
v.intr. decision-making through routing and rules management. These lenders saw their average productivity increase from 86 closed loans per direct FTE in last year's study to 120 closed loans per direct FTE in this year's study.
Both channels (wholesale and correspondent) profited by broadening their product mix. Wholesale lenders with above-average alternative-A and subprime volume had average profitability of 59 basis points and 72 basis points, respectively, compared with the channel average of 10 basis points. For correspondent lenders, an above-average number of subprime loans generated a profit of 81 basis points compared with the channel average of -4 basis points.
Credit unions continued shift to second liens A Second lien financing is a form of financing secured on a second ranking basis by (more or less) the same security, which secures the first ranking financing. The first lien lenders and the second lien lenders agree that, in the event of a security enforcement or bankruptcy, the
Key developments in the credit union channel included a shift in loan mix; evolution of a more sales-oriented culture; technology-driven process improvements; and increased outsourcing.
"As the Florida real estate market heated up and home-price appreciation accelerated in 2005, more and more of our members decided that they would prefer to invest in their current homes rather than buy up," says Kim Ray Yarnelli, vice president of real estate services for GTE GTE General Telephone & Electronics
GTE Génie Thermique et Énergie (French)
GTE Gas Turbine Engine
GTE Global Tropospheric Experiment
GTE Geothermal Energy
GTE Gas Turbine Efficiency plc (Sweden & USA) Federal Credit Union, Tampa, Florida “Tampa” redirects here. For other uses, see Tampa (disambiguation).
Tampa is a United States city in Hillsborough County, on the west coast of Florida. It serves as the county seat for Hillsborough County.GR6. . "Fortunately, we had already created a fully automated application and underwriting process on the Internet, and were able to easily handle the transition to a HELOC HELOC Home Equity Line Of Credit and seconds market."
Changing loan mix resulted in fewer refinances and more seconds and HELOCs. HELOCs and seconds represented more than half of loan volume for nearly 60 percent of credit unions in the study. This group had 39 percent higher productivity, and its average cost to originate was 27 percent lower than the channel average. However, the average profitability for this group was just under 4 basis points--far below the 38 basis points reported by the credit unions where HELOCs and seconds volume represented less than half of their origination volume.
To foster a more sales-oriented culture, credit unions focused on competitiveness and experimented with variable compensation. Credit union lenders with above-channel average incentive costs reported average profitability of 59 basis points; conversely, credit unions that did not pay incentives reported an average loss of 13 basis points.
Internet originations for credit union lenders in the study nearly doubled from last year. Moreover, productivity among credit unions that communicated loan status to borrowers via the Internet grew 36 percentage points per FTE from last year's study.
The average outsourcing cost per closed loan rose significantly as more credit union lenders adopted outsourcing practices. On average, credit unions that outsourced any function reported net profit of 33 basis points--more than double that of lenders that kept all of their functions in-house.
Fraud concerns continued
Lenders' concerns about mortgage fraud persisted for a third straight year. Sixty-eight percent of respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. viewed mortgage fraud as a significant threat to their balance sheets and income statements (see Figure 8).
The wholesale channel expressed the greatest degree of concern and resource commitment--96 percent of channel lenders reported that fraud is a serious threat, and 68 percent allocated 1 percent or more of their budget for fraud management.
The highest usage of fraud-detection tools was reported by the wholesale (64 percent) and Internet/call-center (60 percent) channels. Fraud was less troubling for credit unions, which have the closest relationship with their customers; just 36 percent of these respondents felt fraud was a serious or important issue.
In anticipation of rising rates and decreasing volume in 2006, lenders plan to emphasize service delivery, technology adoption, human resource (HR) initiatives and product mix as competitive differentiators. Retail lenders identified increasing efficiency as their most important business objective, followed closely by hiring, training and retention.
In Mortgage Focus 2006, however, lenders who ranked market share as their first- or second-strongest competitive differentiator also had considerably higher profitability than lenders who chose a different focus, showing that strategies focused on market share had the strongest correlation with profitability.
Internet/call-center participants ranked the extension of Internet capabilities as their most important business objective for the year ahead. While 90 percent of Internet/call-center participants had Web sites and actively monitored site usage, only 10 percent captured leads online. Internet/call-center channel participants ranked customer service as their most important distinguishing strategy.
More than one-third of credit unions participating in Mortgage Focus 2006 named efficiency increases and staff training as their top business objectives for 2006, while rate ranked third. Interestingly, credit unions that ranked rate as their top strategy were nearly three times as profitable as those that ranked service as their top priority.
Top business objectives for lenders in the third-party origination channels include emerging-market outreach, increased efficiency and customer service. While conforming loans generally lowered costs and increased productivity for both wholesale and correspondent channel participants in 2005, a product mix that favored subprimes and hybrid ARMs proved more profitable.
Even in an environment of diminishing di·min·ish
v. di·min·ished, di·min·ish·ing, di·min·ish·es
a. To make smaller or less or to cause to appear so.
b. volumes and higher rates, lenders can prosper. Certainly, sustainable success calls for strategies well-aligned with risk appetite, resources and business models. However, putting time-honored, entrepreneurial en·tre·pre·neur
A person who organizes, operates, and assumes the risk for a business venture.
[French, from Old French, from entreprendre, to undertake; see enterprise. skills to work may well provide an extra competitive edge.
Sal Mirran is senior vice president of business and strategy development for Fannie Mae Fannie Mae: see Federal National Mortgage Association. in Washington, D.C.
RELATED ARTICLE: SPOTLIGHT SHINES ON SERVICING
In an environment of price depreciation, regulatory tightening, default-prone products and fraud, servicing may be returning to its importance as a "profit protector protector /pro·tec·tor/ (-tek´ter) a substance in a catalyst that prolongs the rate of activity in the latter. ." Clearly, servicing divisions' influence on lender profitability warrants closer evaluation. Mortgage Focus' pilot servicing study analyzed an·a·lyze
tr.v. an·a·lyzed, an·a·lyz·ing, an·a·lyz·es
1. To examine methodically by separating into parts and studying their interrelations.
2. Chemistry To make a chemical analysis of.
3. servicer cost, productivity and profitability, categorized cat·e·go·rize
tr.v. cat·e·go·rized, cat·e·go·riz·ing, cat·e·go·riz·es
To put into a category or categories; classify.
cat by portfolio size (small, medium and large) as well as for servicing participants overall.
The pilot study found average total cost to service among participants was $106.69 per loan. Costs were driven by customer service (payoffs, taxes and customer inquiries), default and indirect costs Indirect costs are costs that are not directly accountable to a particular function or product; these are fixed costs. Indirect costs include taxes, administration, personnel and security costs. See also
The average direct cost to service--a subset A group of commands or functions that do not include all the capabilities of the original specification. Software or hardware components designed for the subset will also work with the original. of the total cost to service, which includes only costs and associated expenses for staff directly involved in the servicing function--was $61.93 per loan. Large-segment servicers (those with 100,000 or more loans in portfolio) reported the best performance, with an average direct cost to service of $59.77. The customer-inquiry function appeared to hold the greatest potential for cost savings, as there was a variance The discrepancy between what a party to a lawsuit alleges will be proved in pleadings and what the party actually proves at trial.
In Zoning law, an official permit to use property in a manner that departs from the way in which other property in the same locality of more than $80 between high-cost and low-cost servicers.
Servicers that outperformed their peers in this study focused on effective call management and supporting technology, especially robust Web site functionality.
While large-segment servicers outperformed other servicing segments, bigger was not always better. In the default-management function, for example, 86 percent of servicers with the highest levels of productivity were in the small segment due to their low delinquency delinquency
Criminal behaviour carried out by a juvenile. Young males make up the bulk of the delinquent population (about 80% in the U.S.) in all countries in which the behaviour is reported. ratios.
The customer-service function had the lowest productivity of the functional areas in all servicing segments. In the small segment, 56 percent of servicers handled routine calls using a live operator instead of a voice-response unit (VRU VRU Voice Response Unit
VRU Voice Recognition Unit
VRU Vapor Recovery Unit
VRU Vertical Reference Unit
VRU Vancouver Rugby Union (Vancouver, BC, Canada)
VRU Virtual Resource Unit
VRU Virtual Readiness University
VRU Virtual Response Unit ) or Web site.
Study results indicated that the benefits of technology on servicer productivity are significant, if still largely untapped. For example, servicers in the medium segment (those with 50,000 to 100,000 loans in portfolio) that used imaging were found to have productivity nearly four times as high as servicers that maintained paper files.
Total revenue averaged $250.30 per loan for all servicers in the study. Top performers started with higher service fee revenue per loan, which offset write-downs. Servicers with larger portfolios had larger write-downs in total dollars and in average amount per loan.
The amount of ancillary Subordinate; aiding. A legal proceeding that is not the primary dispute but which aids the judgment rendered in or the outcome of the main action. A descriptive term that denotes a legal claim, the existence of which is dependent upon or reasonably linked to a main claim. income collected was proportionate pro·por·tion·ate
Being in due proportion; proportional.
tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates
To make proportionate. to portfolio size. Large-segment servicers collected an average of $71.26 per loan in ancillary income--more than double the $32.47 per loan of ancillary income that servicers overall reported. Less than one-third of study participants reported revenue from insurance and bi-weekly programs.
Competitive rates, good service and convenience can produce customer loyalty and deter portfolio runoff Portfolio Runoff
A decrease in the value and size of portfolios investing in mortgages and mortgage-backed securities.
This decrease occurs because of homeowners capitalizing on lowering interest rates through refinancing. . "Tracking the reasons why customers pay off is a good barometer of how competitive our rates are and how well we serve the customer," says Karen Reed, vice president for CUSO CUSO Credit Union Service Organization
CUSO Canadian University Services Overseas
CUSO Canadian University Services Organization
CUSO Carson United Soccer Organization Mortgage Corporation, Hampden, Maine.
Nonetheless, only a small minority of servicers have formalized for·mal·ize
tr.v. for·mal·ized, for·mal·iz·ing, for·mal·iz·es
1. To give a definite form or shape to.
a. To make formal.
b. customer retention and measurement programs. Improving service metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. may help cultivate cul·ti·vate
tr.v. cul·ti·vat·ed, cul·ti·vat·ing, cul·ti·vates
a. To improve and prepare (land), as by plowing or fertilizing, for raising crops; till.
b. profitable portfolios--the top priority of the majority of this year's servicing participants.
RELATED ARTICLE: TOP PERFORMERS FOCUSED ON INFORMATION TECHNOLOGY INVESTMENTS, STAFF EXPERTISE
This year, Mortgage Focus includes a "top performer" category. Each channel review of top performers analyzed the performance and strategies of low-cost, high-productivity (LCHP LCHP Low-Carbohydrate, High-Protein ) lenders--models of efficiency that outperformed 75 percent of their peers in cost and productivity--and highly profitable LCHP lenders and servicers.
Retail and wholesale top performers relied on the Internet more extensively than their peers. One-third of retail channel top performers offered electronic signing of loan disclosures, compared with 9 percent of the overall channel.
Average staff tenure for retail channel highly profitable LCHP lenders was 46 percent higher than the channel average. Wholesale channel top performers had average account executive (AE) tenure that was more than twice that of their peers.
Figure 1 All Channels Emerged Unscathed Average Cost to Originate Per Closed Loan Mortgage Focus 2005 Mortgage Focus 2006 Internet/Call Center $2,920 $1,958 Retail $2,703 $2,743 Credit Union $1,206 $1,081 Correspondent $2,588 $2,512 Wholesale $3,925 $3,581 SOURCE: FANNIE MAE Note: Table made from bar graph. Figure 2 Credit Union and Internet/Call-Center Channels Were Least Costly Average Cost to Average Cost to Originate Per Closed Originate Per Closed Loan Loan (basis points) Mortgage Focus 2006 Mortgage Focus 2005 Internet/Call Center 129 $1,958 Retail 176 $2,743 Credit Union 99 $1.081 Correspondent 139 $2,512 Wholesale 177 $3,581 SOURCE: FANNIE MAE Note: Table made from bar graph. Figure 3 Conforming Loans Dominated Internet/Call-Center Channel Volume Percentage of Total Loan Count Internet/Call Credit Product Type Center Retail Union Correspondent Wholesale Conforming 73% 61% 53% 69% 44% Government 2% 5% 1% 9% 6% Jumbos 4% 6% 3% 4% 9% Alternative-A 8% 4% 0.5% 9% 22% Subprime 0% 2% 0.5% 1% 2% Seconds 5% 7% 17% 3% 9% HELOC 7% 8% 23% 3% 5% Other 1% 7% 2% 2% 3% SOURCE: FANNIE MAE Figure 4 Correspondent Lenders Benefit From Variable Cost Structures Average Cost Per Closed Loan Internet/ Call Credit Center Retail Union Correspondent Wholesale Direct Personnel $882 $1,363 $663 $357 $808 Incentives $239 $531 $159 $69 $242 YSPs and SRPs $1,664 $1,841 Other Direct $385 $475 $203 $141 $361 Indirect $500 $534 $170 $303 $286 SOURCE: FANNIE MAE Note: Table made from bar graph. Figure 5 Internet/Call-Center Channel Was Most Profitable Channel Profitability Basis Points Correspondent -4 Wholesale 10 Retail 15 Credit Union 24 Internet/Call Center 81 SOURCE: FANNIE MAE Note: Table made from bar graph. Figure 6 Internet/Call-Center Channel Enjoyed Greatest Profit Improvement Basis Points Mortgage Focus 2005 Mortgage Focus 2006 Correspondent -0.16 -4 Wholesale 6 10 Retail 34 15 Credit Union 51 24 Internet/Call Center 27 81 SOURCE: FANNIE MAE Note: Table made from bar graph. Figure 7 Correspondent Business Model Allowed For Greater FTE Productivity Closed Loans Per Direct FTE Internet/Call Credit Center Retail Union Correspondent Wholesale Direct FTE 61 39 95 180 86 Originator 196 102 399 Account 1,426 466 Executive Processor 315 234 435 2,454 771 Underwriter 806 709 1,490 2,681 522 Closer 988 645 1,008 2,166 685 Post-Closer 1,181 1,214 1,516 1,897 1,668 Shipper 3,070 1,895 2,552 1,478 2,529 Secondary 1,933 1,999 3,564 4,086 3,322 Marketing SOURCE: FANNIE MAE Note: Table made from bar graph. Figure 8 Seriousness of Mortgage Fraud Serious/Very Important Issue 68% A Somewhat Important Issue 15% A Minor Issue 10% Not an Issue 7% SOURCE: FANNIE MAE Note: Table made from pie chart.