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Presentation - Smith


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  • 1. Government Housing and Loan Production Conference 2009 Refinancing Options for Troubled Loans
  • 2. Refinancing Options for Troubled Loans – Best Practices
    • Home Retention
      • Create affordable payments through refinance
      • Modification of current loan terms when refinance is not an option
    • Prevent Recidivism
      • Understand the borrowers financial obligations
      • Establish credit capacity
      • Leverage market intelligence to understand current and forecasted home values
    • Model alternatives to establish the best workout
      • Gather and retain data required for decision making
    • Solicitation Campaigns
      • Target campaigns based on preliminary borrower qualification
      • Establish clear path for borrower – refinance vs. modification
      • Manage borrower contact
      • Monitor campaign responses and success rates
  • 3. Refinancing Options for Troubled Loans
    • Another year of home price corrections
    Sources: Fiserv, Moody’s © 2009 Fiserv. All Rights Reserved
  • 4. Refinancing Options for Troubled Loans – Establish Property Value
    • Measuring Home Values, Assessing Trends
      • Broker Price Opinions and Appraisal Values
      • Price Changes Over Time - Market Specific Price Indexes
        • Fiserv Case-Shiller Indexes
          • Appreciation/depreciation percentages for more than 3,000 Zip codes, 300 counties, and 100 metro areas
        • Fiserv Case-Shiller Indexes, republished as the Standard & Poor’s/Case-Shiller Indexes
          • Historical home price trends for 20 large metro areas.
      • Forecasting Future Values – Automated Valuation Model
        • Fiserv Case-Shiller Indexes and data from Moody’s incorporated into CASA
          • Property value estimate and 12 month forecast value for each property
          • Chart of future and historical price-appreciation trends in property’s geographical area
  • 5. Refinancing Options for Troubled Loans – Case-Shiller Home Price Index Methodology
      • Repeat Sales Indexes
        • Find two or more transactions for the same house (“sales pair”)
        • Collect as many sales pairs as possible for all houses in a market
        • For each index period, calculate the average price change for all sales pairs that span each period
        • Solves “quality-mix” problem
          • Calculations based on price changes for same houses
      • Value-Weighted, Arithmetic Indexes
        • Indexes track average/aggregate housing market value
        • Similar to cap-weighted stock market indexes (S&P 500)
      • Interval-Weighted
        • Sales pairs with longer intervals between transactions are given less weight
  • 6. Refinancing Options for Troubled Loans – Case-Shiller Index Coverage
      • Single-family, condominium, and price tier indexes
        • Track markets by price segment and property type
        • Price trends for difference price segments and property types become less correlated at market turning points
      • State, metro area, county and zip code indexes
        • Track most localized market trends
      • Includes non-conforming mortgages and transactions without mortgages
        • Captured the effects of boom in non-conventional mortgage lending and subprime mortgage crisis on home prices
  • 7. Refinancing Options for Troubled Loans – Standard & Poor’s/Case-Shiller Indexes
  • 8. Refinancing Options for Troubled Loans – Standard vs.S&P/Case-Shiller Indexes No Yes (CASA AVM) Forecasts Yes Yes Condominium Indexes Yes (Three Tiers) Yes (Three Tiers) Price Tier Indexes U.S., 20 Metro Areas, 2 Metro Area Composites 3,000 U.S. ZIP codes 300 U.S. counties 100 U.S. metro areas Geographic Coverage Adjusted and Unadjusted Adjusted and Unadjusted Seasonal Adjustment Monthly Quarterly Index Frequency Monthly 2-Month Lag Quarterly 3-Month Lag Update Schedule S&P/Case-Shiller Fiserv Case-Shiller
  • 9. Refinancing Options for Troubled Loans – Home Price Forecasting Model
    • Fiserv/Moody’s
      • Equilibrium / Disequilibrium Model
        • Equilibrium home prices are determined by fundamental economic and demographic factors
        • Actual home prices are seldom in equilibrium
        • Changes in actual home prices driven by degree of disequilibrium
        • Adjustment to home price disequilibrium differs across U.S. regions
        •’s U.S. macro and regional economic forecasts feed directly into home price forecasting model
  • 10. Refinancing Options for Troubled Loans – Factors Driving Fiserv/ Forecasting Model
    • Equilibrium Model (Long-Term, Fundamental Price Level)
      • 5-year population growth [+]
      • Real per capita income [+]
      • Change in mortgage underwriting standards (HELOC share) [+]
      • Risk-adjusted housing vs. stock market returns [+]
      • Population share aged 50-64 × Vacation home share of housing stock [+]
    • Price Adjustment Model (Price Changes Toward Equilibrium Level)
      • Lagged home prices (momentum) [+]
      • Equilibrium home price index – actual home price index (mean reversion) [+]
      • Change in user cost of housing (mortgage rates) [-]
      • Unemployment rate [-]
      • Foreclosure rate [-]
    • Models estimated separately for 7 pools of metro areas
      • East Coast, Mountain West, Florida, Midwest, California, South, West Coast
  • 11.
    • Contact:
    • Karen Smith, Executive Consultant
    • Phone: 574-245-1372
    • eMail: [email_address]