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

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

Executive Summary
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 survive
2. Agility is the new table stakes for 2020; this building block will allow lenders to succeed
3. 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
Copyright © 2014 Accenture All rights reserved.

Industry Trends

Market Environment and Outlook
Mortgage
Originations
and Housing

• 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

Distressed
Whole Loans

• 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

Correspondent
Lending
Competition
Jumbo
Private-Label
Securitization

Mortgage
Regulation

• 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 2013

4

Industry Trends

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

“

6.0%

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
30-Year FRM (%)

Purchase

$US Billions

Refinance

Forecast (as of December 2013)

5.5%

+0.9%
5.2%

5.1%

5.1% 5.1%
5.0%

5.0%

4.9%

4.9%
4.8%

4.4%

4.8%
4.7%

4.4%

4.4% 4.4%

4.3%

$300
$250
$200

4.0%

4.0%

3.5%

$350

5.0%
4.7%

4.5%

$400
5.3% 5.3%

5.2%

5.0%

$450

3.9%

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

3.8%
3.7%
3.5%

$150

3.5%
3.4%

3.0%

$100
$50

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 4Q15

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


5

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.
Pre-Crisis

Crisis

Disruption

6.0%

1.4%
Gain on Sale Margin

Moving Forward
1.2%

4.0%

1.0%
0.8%

3.0%
0.6%
2.0%
0.4%

1.0%
0.2%

3Q13

1Q13

3Q12

1Q12

3Q11

1Q11

3Q10

1Q10

3Q09

1Q09

3Q08

1Q08

3Q07

1Q07

3Q06

1Q06

3Q05

1Q05

3Q04

1Q04

3Q03

1Q03

3Q02

-1.0%

1Q02

0.0%

0.0%
-0.2%

High Risk/High Reward

Low Risk/Low Reward

• Underwriting guidelines loosened
• High volume
• Record introduction of new businesses and
products
• Government guarantee of mortgages
• Too big to fail mentality

• Extreme focus on regulatory
compliance
• Limited work done to
sustain competitive
advantages in future


Primary-Secondary Spread

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

5.0%

Gain on Sale Margin

Primary Secondary Spread

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

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.
Total Net Cost to Originate Residential Mortgage Loans

Based on Un-weighted Averages
For Non-Depository US Companies

$5,000

+97%

$4,500

Net Loan Production Operating Cost ($)

+36%

Period Average

$4,000

$4,182 $4,207
$3,813

$3,500

$3,539 $3,513

$3,000
$2,945

$2,500
$2,000

$4,573

$2,610

$3,360 $3,324 $3,413
$3,353
$3,224

$3,310

$2,722 $2,827

$2,345 Key Points:

$2,324

• 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

$1,500
$1,000

$500
$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 Period
3Q Average

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-soaringspread-besting

7

Industry Trends

Since FY08, originators as a group have raised dramatically their spending on (in
order of magnitude): Outsourcing & Professional Fees, Personnel-related
expenses and IT.
Expenses of US Originators Decomposed Through 3Q13 (vs. 4Q08)
Based on Un-weighted Averages
For Non-Depository US Companies

% Change in Expenses Through 1Q13

Radius = Relative Contribution to Expenses
98%

90%

Outsourcing and
Professional Fees

70%
50%

Benefits

29%
30%

Fulfillment
Personnel
Production Support
Employees

Sales Personnel

44%

Technology 33%

Expense Average = +31%

32%

38%

Other
Operating Expenses

10%
-13%

-10%

15%

Occupancy &
Equipment

-30%
$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

$ Cost Per Loan at 3Q13
Source: MBA Performance Report, 3013

8

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.
Trend of US Mortgage Industry Employment

Wells Fargo FTE Trending….

Mortgage Industry Employment…
Since 1990...


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

9

Industry Trends

Compared to other product/services customers purchase, Mortgage Servicing
and Origination are ranked near the bottom in terms of satisfaction.
Relative JD Power Consumer Satisfaction Scores
Latest Annual US Customer Satisfaction Index Score by Category
(Based on a 1,000 point scale)

950
900
850
800
750
700

683

710

733 736

771
752 763

803 817
787 789 797 801

857
836 851

885 890 896

650

Source: J.D. Power and Associates, 2014

US Dealer Leasing

US Dealer Financing

Digital Camera Buyers

US Tablet Buyers

Captive Luxury Lenders

Captive Mass Market
Lenders

Repeat Home Buyers

Repeat Home Sellers

Mass Consumer Financing

1st Time Home BuyersSellers

Full-Service Investor

Household Insurance

Residential Mortgage
Origination

Retail Banking

Self-Investor Investing

Smalll Business Banking

Residential Mortgage
Servicing

Residential Home
Telephone Service

Internet Customer Service

600

10

Industry Trends

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.
Relative JD Power Consumer Satisfaction Scores
Trending Annual US Customer Satisfaction Index Score by Mortgage Category
(Based on 1,000 Point Scale)

Origination

771

Servicing

798

+37 Points

784
761

757
750

747

747

+18 Points

730

739

718

734
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.

2007 2008 2009 2010 2011 2012 2013

733

725

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

Sources:
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

11

Proactively responding to changing customer values and needs is critical for
Lenders moving forward.
Today’s Customer Segments* Customer Trends

Challenges for Traditional Providers

Unbanked &
Underbanked

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

Youth

Consumer
Lending

• Frequent users of digital channels & wallets • Attract and position young customers
• Many are delaying homeownership or opting
through lifecycle
to rent vs. buy
• 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

Mass Affluent /
HNWI / Private
Banking

• Pitched marketing batted underway with lowcost delivery emerging disruptive providers

• 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

• Increasingly looking for high• The market opportunity for HNW customers
value, customized wealth advice through
is huge
digital channels
• High touch service will be critical with digital
• HNW customers will not reliant on online
making fulfillment process more convenient.
applications; rather, they will want a financial • Banks focused on high net worth customers
manager who knows of their entire financial
are competing for market share that was left
situation
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


Customer segments are evolving into lifestyle/behavior segments
http://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.

Outside

Digital Inside
& Outside
Expanded
Regulation

Inside

Subdued
Economic
Outlook &
Rising Rates

Ongoing
Industry
Convergence

Structural
Change

Emerging
New
Entrants

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

Continued
Consolidation

Customer
Empowerment

Convergent Disruption
Multiple 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”
13

A view to the mortgage industry revolution
Market Events

Begin planning
for GSE
consolidation

Non-agency
market collapses
(Lehman)
Subprime
Mortgage
Crisis

2007

DoddFrank Act
Original
passes
conservatorship
timeline ends

Basel 3, QM
and QRM rules
in place

GSEs
return to
profitability

US
Presidential
Election

GSE
Conservatorship
begins

2009

2011

Uniform GSE
Guidelines and
Tech Standards
begin

2013
FHFA
strategic
plan
released

Dodd-Frank Act
induced technology
changes

2015

“NewCo”
established to
build common
“GSE” platform

2017

GSE
conservatorship
ends?

Private-label MBS
market running
smoothly
GSE „consolidation‟
occurs?

2019

2021

Uniform GSE Guidelines
and Tech converge

Common US mortgage
secondary market
GSE platform induced platform goes live?
technology changes
begin?

Technology-Related Events
Source: CEB TowerGroup Retail Banking analyst Craig Focardi, 2013


14

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

Redefined Traditional Player

Emerging Entrants

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

Redefining Retail
Mortgage Origination

81%
19%

Voice/
Other

Redefining
Information &
Advertising

of total revenues grew nearly 6%
year over year
28%

Wireline Data/
Managed IT Services

53%

Wireless


Redefining
Music Industry and
Content 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)
• 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
15

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)
Ma Bell Era

Baby Bell Era
1983 – 2003
(~ 20 Years)

1885 – 1983
(first ~100 years)
Traditional
Providers

1885:
AT&T
founded

New
Entrant
Example

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

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

Cable Industry
Convergence

Traditional
Telecom
Player
Response

Media Era
2003 – Today
(~10 Years)

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

1994:
AT&T
spins
off
Lucent
and
NCR

1997:
Bell
Atlantic
merges
with
NYNEX,
another
Regional
Bell

2000:
2005:
Bell Atlantic
SBC purchases
merges with
former parent
GTE and
AT&T Corp. and
adopts
rebrands AT&T
name
"Verizon"
2003:
Skype
introduced

1996: Comcast
launches Comcast
Online, a broadband
Internet service

Scale

Optimize & Simplify

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

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

Today; AT&T is the
largest communications
holding company in the
world with phone,
cable, wire-line data
and managed IT
2011: Microsoft services
buys Skype to
“generate new Today: 33%
of world's voice
revenue
opportunities” calls are on
Skype

2009:
Skype is
largest
carrier of
Int‟l voice
traffic
2005: Comcast creates 2009: General Electric
Comcast Interactive
(GE) and Comcast
Media, a new division announce a buyout
focused on online
agreement for NBC
media
Universal

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

Become more agile and digital
Continuously innovate to stay relevant
Example: 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

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)

16

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
Glass Steagall Era
Build Specialization

Universal Banking Era
Scale

Late 1990s – 2008
(~ 10 Years)

1933 – Late 1990s
(first ~65 years)
Traditional 1933:
Providers Glass–

1938:
Fannie
Steagall Act Mae
separates
created;
commercial Freddie
and
Mac
investment created
banking
in 1970

New
Entrant
Example

Industry
Convergence

1969:
First ATM
installed
(at
Chemical
Bank)

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

Post Credit Crisis Era
Optimize & Simplify
Agility & Innovation On Horizon

2009 – Today
(~5 Years)

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

1985: Quicken

Loans, originally
Rock Financial
Mortgage,
founded
1998: Citibank
merges with
Travelers to form
Citicorp combining
banking, securities
and insurance
services

2007:
Wells Fargo
reintroduces
mobile
banking

1999:
goodmortgage.com
founded

1999: Gramm–
Leach–Bliley Act:
allows commercial
banks, investment
banks, securities
firms, and insurance
companies to
consolidate

2008: Significant
consolidation
• Bank of America
acquires Countrywide
• Wells Fargo acquires
Wachovia
• JPMC acquires most of
Washington Mutual from
FDIC‟s receivership
2008:
• PennyMac founded by
seasoned lending
executives who have
focused on origiinating
HARP-based loans

2010 :GSE
conservatorship
begins

2013+: S&P reports
that the biggest

US banks may
have to spend a
further $104bn to
resolve mortgagerelated legal
issues as they try
to put the costs of
2012:
• Simple (Bank) the subprime
crisis behind
launched – 100%
online bank them.
• American Express
and WalMart
launch Bluebird, a
prepaid debit card

2012:
• Capital One acquires ING
DIRECT in the US and
rebrands its retail unit
CapitalOne 360
• Scotiabank acquires ING Direct
Canada

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)

17

Building Blocks
for Success in 2020

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


Journey to Sustainable Competitive Advantage
Business
Performance
Agility
(Year 2020
Table Stakes)

Continuous Innovation
(Year 2020 Leaders)

Optimization &
Simplification
(Today’s Table Stakes)

Era of
Survival
Today’s Penetration
Average Time to
Sustainable Benefit
Lender Industry
Examples of
Agility &
Innovation

Era of
Convergent Disruption

93% of lenders are here 5% of lenders are here

3-5+ years

2-4+ years

<2% of lenders are hereTime

2-5+ years

Online-only originator
Quicken Loans bolsters
its growing servicing
portfolio

• 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.

Leveraging
virtualization and data
mining tools

• 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.
19

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.
US Mortgage Volumes & Margin Trending
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

Quarterly Averages of US Industry’s Gain on Sale
4.0%

Industry Margin 1

Purchase

0.4%

Recovery

3.5%

“Era for Convergent Disruption”

Refinance

3.8%
$400 High

3.7%

Performers
of the
$350 Future

0.5%
3.0%

3.2%

3.1%

0.4%

2.7%

2.5%

0.2%
2.3%

1.5%
1.5%

1.6%

1.6%

1.0%

Performers

$250

0.3%

2.1%

2.0%

$300 Average
2.5%

0.4%
2.0%

$450

$200
Status Quo
(continued optimization
& simplification only –
Not Sustainable)

$150

0.5%

$100

0.0%

$50
4Q10

1Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

e2H13

O &S

Agility

Innovation

2020

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


20

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”

Differentiate
Through
Sustainable
Competitive
Advantage

3. Year 2020 Lender Leaders
2. Year 2020 Table Stakes

3.
Continuous
innovation
Have the ideas, vision
and leadership to proactively
stay ahead of the market

Adapt
Through

2. Agility
Be able to seize opportunities
In times of change

Drive
Efficiency
Through

1. Optimization and simplification
Be as efficient and effective as possible in current structure

Building Blocks

• 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

1. Today’s Table Stakes
• 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
21

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”

IT Balance
Differentiate

3. Enabling Technology
Year 2020 Lender Leaders
Technology As Continuous
Provider of Innovation

3.
Continuous
innovation
Have the ideas, vision
and leadership to proactively

Corporate
IT

Innovate

3.
Continuous
innovation

Business IT
(“As a
Service”)

2. Agility
Drive
Efficiency

1. Optimization and
simplification

Scale

2. Year 2020 Table Stakes
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

2. Agility
In times of change


Building Blocks

1. Today’s Table Stakes
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
22

Emerging Lender
Business Models

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.
Changing Large US Lender Landscape – 2008 vs. The Present
Total Number of Lenders
All Companies
Big 4 Market Share
Emerging Providers Market Share
Company Name
Wells Fargo & Co.
Chase
Bank of America
Quicken Loans Inc.
US Bank Home Mortgage
CitiMortgage, Inc.
PHH Mortgage
Flagstar
BB&T
SunTrust Bank
PennyMac
Provident Funding Associates
Fifth Third Bank
Ally Bank/ResCap (GMAC)
Franklin American Mortgage Co.
Guaranteed Rate Inc.
USAA Federal Savings Bank
PNC Mortgage
Nationstar Mortgage
PrimeLending
Stearns Lending
Navy FCU
Everbank
United Wholesale Mortgage
NYCB Mortgage
Amerisave Mortgage Corp.
M&T Mortgage
Union Bank
Prospect Mortgage
Sierra Pacific Mortgage
TD Bank NA
Regions Mortgage
Manufacturers & Traders Trust Co.
LoanDepot.com
RBS Citizens, NA
Fremont Bank
Cole Taylor Mortgage

-4.6%

2.5%

6.4%
20.6%
0.5%
-4.9%
10.2%
5.0%
% 5-Yr CAGR % 1-Yr CAGR
12.3%
3.8%
12.0%
26.6%
-4.2%
4.8%
68.7%
114.4%
21.1%
18.5%
-9.2%
4.3%
22.4%
3.2%
27.4%
30.2%
17.9%
14.7%
9.5%
19.3%
-540.4%
30.6%
1.9%
28.1%
8.2%
-8.2%
-46.8%
20.4%
39.8%
-86.2%
20.1%
18.4%
6.2%
35.0%
-206.4%
51.4%
29.7%
72.8%
65.1%
28.9%
54.1%
33.1%
50.8%
-234.6%
-5.9%
7.5%
-42.9%
27.1%
41.2%
31.1%
8.2%
-20.2%
23.8%
33.9%
75.2%
27.4%
20.8%
15.8%
8.7%
310.6%
-99.3%
40.0%
-3.8%
55.0%
60.0%
-125.2%


% Declines in Origination

New Entrant Since 2008

484
472
611
-4.9%
1.5%
461
454
594
Total Residential Origination Volume
Total Residential RETAIL Origination
($US Millions)
Volume ($US Millions)
1,941,536
1,424,581
13.0%
28.1%
1,158,456
904,165
627,666
45%
50%
44%
0.0%
-3.7%
45%
49%
45%
11%
6%
1%
12.2%
4.4%
13%
9%
1%
LTM 2013Q2 LTM 2012Q2 LTM 2008Q2 % 5-Yr CAGR % 1-Yr CAGR LTM 2013Q2 LTM 2012Q2 LTM 2008Q2
490,336
472,407
274,557
14.9%
9.6%
251,883
229,922
126,030
212,735
168,004
120,580
24.7%
8.2%
113,870
105,253
37,758
95,534
91,190
118,519
1.0%
39.0%
95,422
68,660
90,885
94,250
43,952
6,890
68.7%
114.8%
94,250
43,884
6,890
86,946
73,397
33,441
28.4%
18.2%
24,906
21,069
7,144
73,443
70,383
119,259
16.6%
64.0%
61,334
37,398
28,508
56,890
55,152
20,704
23.2%
26.5%
49,894
39,434
17,553
53,171
40,829
15,860
17.0%
25.4%
3,233
2,578
1,476
34,729
30,268
15,244
10.1%
12.1%
13,243
11,818
8,187
34,058
28,548
21,613
11.4%
14.6%
18,265
15,938
10,654
33,672
5,258
------31,964
31,358
8,422
68.6%
21.1%
4,782
3,949
351
27,748
25,646
8,059
25.7%
2.8%
15,555
15,134
4,950
24,786
46,606
37,928
-14.7%
-61.4%
4,425
11,477
9,801
23,794
17,024
9,388
34.5%
35.4%
1,037
766
236
18,020
9,676
--86.2%
18,020
9,676
-17,932
15,151
7,189
46.2%
18.4%
17,932
15,151
2,689
17,114
12,675
12,667
7.2%
35.0%
17,114
12,675
12,094
15,416
5,031
--148.9%
7,913
3,179
-14,455
11,145
1,820
51.5%
29.7%
14,455
11,145
1,814
14,436
8,746
938
162.4%
92.7%
2,486
1,290
20
12,048
7,817
3,383
28.9%
54.1%
12,048
7,817
3,383
11,456
7,596
2,742
56.1%
64.1%
6,290
3,834
679
10,953
3,273
--87.9%
1,037
552
-10,258
9,544
13,883
-100.0%
-100.0%
-3
124
10,062
7,040
--34.2%
8,507
6,340
-9,357
6,626
2,822
37.3%
40.2%
5,523
3,938
1,131
9,232
8,529
2,386
40.8%
0.5%
3,321
3,305
601
8,883
7,389
--19.3%
8,812
7,389
-8,464
6,322
2,913
56.6%
39.9%
2,102
1,503
223
8,296
6,513
503
87.2%
27.4%
8,296
6,513
361
8,088
6,985
3,146
20.9%
16.2%
7,967
6,855
3,082
7,761
1,890
5,107
22.0%
334.0%
4,197
967
1,552
7,704
3,866
--106.7%
7,704
3,728
-7,245
7,532
1,349
40.0%
-3.8%
7,245
7,532
1,349
7,158
4,475
801
46.6%
51.0%
5,110
3,383
754
7,114
3,159
--117.3%
1,193
549
--

Sources: Accenture Research analysis using MortgageData.com, 2013

24

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
Wholesale and Retail Origination Combined

60%
2008
50%

2012

0%

2013

+0.5%

% Market Share Change 2008-13

-21.6%

45%

40%

30%
+12.1%
20%

23%

17%

+3.7%
+5.3%

10%

9%
6%

0%
Online

Small Banks

Independents

Midsize Banks

Big 4

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


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
Retail Origination

60%
2008
50%

2012

0%

2013

+0.0%

% Market Share Change 2008-13

-20.8%

45%

40%

30%
+9.9%
20%

10%

+5.3%
10%

+2.3%

20%

15%

11%

0%
Online

Small Banks

Independents

Midsize Banks

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

Big 4

26

Agility and product commoditization expand the business models for success in
the future of the mortgage origination industry.
Current Lender Landscape – 2014
C.
Emerging
Digital
Lenders
6% MS

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

Small Bank
Lenders
360+ players
~9% market
share*

• Most business generated through
traditional, physical channels
• Less nimble
• Heavy infrastructure
• Less optimized and simplified

Less Agile

Emerging Entrants and Adopters (Current
Players who Adopt new Business Models)
50+ Players
~17% market share*
(PHH, Nationstar)

B. Independent Lenders
A. Traditional
Lenders
~425 Lenders
~77% market share*
(US Bank Home
Mortgage, BB&T,
SunTrust, USAA)
Mid-Size
Banks
60+ players
~23% market
share*

Big 4 Banks
4 players
~45% market share*
(Wells
Fargo, Chase, BoA, CitiM
ortgage)

Specialized

Large-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

* Market shares are based on enterprise-level revenues
Sources: Accenture Research analysis using MortgageData.com, 2013

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

27

Today‟s bank lenders could collectively lose ~20% market share by 2020 to new
entrants and current independent lenders who adopt new business models.
Potential Lender Landscape – 2020 (Status Quo Scenario)
Highly Agile

C. Emerging
Digital
Lenders
10+ Players
~15% market
share

Mid-Size
Banks
45+ players
~17% market
share

Specialized
Market Share

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. Traditional FullService Lenders
300+ banks
~60%
market share

Small Bank
Lenders
250+ players
~26% market
share*

Less Agile

90+ Players
~26% market
share*

Big 4 Lenders
4 players
~30% market
share

• 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

# of Players

Today
~45%

2020
~30%

Today
4+

2020
4+

Comments

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
Online
Independents

~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

~6%
~17%

~15%
~26%

<5
50+

10+
95+

• With Quicken dominating the space, new entrants will emerge, especially from the ranks for independent lenders

Big 4 Lenders


• 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)

• The independent lender model appears to be gaining mind/market share very rapidly

28

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.
Emerging Disruptors

Banks

Disruptors

Circa
2020

Circa
2020

3
Optimization and
Simplification

Market
nimble
3
Innovation

Scale

2
Agility

2
Agility

Innovation

1
1

Scale

Optimization and
Simplification


Circa
2013

Market entry
Circa
2013

Common Characteristics of
the Emerging Disruptors
• 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

29

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.
Costco‟s Emerging FS/Credit Business

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


• History of Innovation:
– First with its membership-fee structure
– Move into selling gasoline
30

While traditional business models can succeed in 2020,
two new lender business models could emerge and be highly successful.
Potential Landscape – 2020 (Emerging Model Scenario)

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

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

Highly Agile

Industries Outside Lending

through online/digital channels
• Highly nimble
• Flexible infrastructure
• Social media an integral part of
strategy
• Optimized and simplified
• Customer-centric

C. Emerging Digital
Lenders
20+ Players
~5% market share

D. Digital Hybrids


90+ Players
~15% market 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
• Traditionally customer facing
through traditional, physical
channels
• Less nimble
• Heavy infrastructure
• Less optimized and simplified

10+ Players
~20% market
share*

E. Retail
Correspondents

A. Small Bank
Lenders
~240 players
~10% market
share

A. Midsize
Lenders
~40 players
~15% market
share

5-8 players
(Lenders + Large
Retailers)

A. Big 2
Lenders
2 players
~25% market
share

~10% market share
(Example: Costco
partnering with one
of the Big 4)

Less Agile

Best
positioned
for global
expansion

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

Specialized


•
•
•
•
•
•
•
•

•
•
•
•
•
•
•

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
31

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

Highly Agile
C. Emerging Digital
Lenders
1
20+ Players
~5% market share


A. Small Bank
Lenders
~240 players
~10% market
share

A. Midsize
Lenders
~40 players
~15% market
share

D. Digital Hybrids

3

90+ Players
~15% market share*

A. Big 2
Lenders
2 players
~25% market
share

10+ Players
~20% market
share*

High Performers
will be OUTSIDE
this box (more
agile)

E. Retail
4
Correspondents
5-8 players (Lenders
+ Large Retailers)

5

~10% market share
(Example:
Costco, Sam’s
Club, Home Depot
partnering with one of
the Big 4)

Less Agile
Specialized
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

2

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


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
32

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

Highly Agile
C. Emerging Digital Lenders
2
3
D. Digital Hybrids
20+ Players
1
90+ Players
~5% market share
~15% market share*

A. Small Bank
Lenders
~240 players
~10% market share

Less Agile
Specialized

A. Midsize
Lenders
~40 players
~15% market share

A. Big 2 Lenders
2 players
~25% market share

10+ Players
~20% 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)

High Performers
will be OUTSIDE
this box (more
agile)

4
5


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

33

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”
3. Year 2020
Leaders
3.
Continuous
innovation
Have the ideas,
vision and leadership
to proactively

2. Agility
•
•
•
•
•

In times of change
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


2. Year 2020
Table Stakes

1. Today’s
Table Stakes

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

34

Appendix
Links to Additional Information
Business Model Profiles

The US Mortgage Lender industry is managing a $18.5 trillion balance sheet.
US Household Balance Sheet – $US Billions

Residential Real Estate = $18,453

Homeowner’s
Equity = $8,585

Mortgage Debt Outstanding = $9,868

Agency Balance Sheet =
$5,830

GSE MBS = $4,490

+4 QoQ
-$102 YoY

Ginnie
MBS =
$1,340

+$ 18
+$102

Bank Balance Sheet =
$2,957
1st Lien
=
$2,051

-$17
+$60

Non-Agency MBS = Other
=
$886
$195

-$1 QoQ
+$819 QoQ
-$9 YoY +$2,077 YoY

2nd Lien Other* Prime Alt A Option Sub- Dramatic increases in home equity
=
=
= ARM Prime could support the issuance of
=
$748 $158 $188 $288 = $117 =$293 HELOCs, increase the amount of

-$22
-$84

-$2 -$12 -$11 -$7
-$8
-$11 -$47 $56 -$25 -$46

loans able to refinance and
improve the mobility of
homeowners.

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


36

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
Total Cycle
Time in Days
Cycle Time

• 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)

Customer
Satisfaction

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

65
60

55

Customer Satisfaction
On Scale of 1,000
780
61.0

53.0

52.1

760

50.0

50

46.9

45
40

740
35
30.0

30
25

720
2006

2007

2008

2009

2010

2011

2012

2013

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

37

Half of the complaints received by the CFPB are related to mortgages.
Consumer Complains Received by the CFPB – Through June 2013

Consumer Complaints by FS Product

Consumer Complaints Related to Mortgages

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

38

Appendix

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
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 (noncash)

Total Gain on Sale
1

4.14%

2.57%

7.25%

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


39

3.
Continuous
innovation

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

Business

2. Agility

1. Optimization and
simplification

Technology

https://kxws.accenture.com/Repositories/C23/54/24/Acc
enture_Banking_2016_v14_PRINT.pdf
http://www.accenture.com/us-en/Pages/insight-banking2012-revenue-growth-innovation-summary.aspx

http://www.accenture.com/us-en/Pages/insightbanking-technology-vision-reshaping-landscapesummary.aspx

Digital

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/C23/82/64/121315_BankingCloud_v5.1_Final_May2012.pdf
https://kx.accenture.com/repositories/contributionform.as
px?path=C25/89/26&mode=read

Customer Centricity

https://kx.accenture.com/Repositories/ContributionForm.aspx?p http://www.accenture.com/us-en/Pages/insight-boostingath=C26/36/72&mode=Read
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-banking2016-next-generation-banking-summary.aspx

New Talent Dynamic

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

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

Optimal Financial
Strategies

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

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

Channel Fulfillment

https://kxws.accenture.com/Repositories/C23/54/24/Accenture_
Banking_2016_v14_PRINT.pdf

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

Streamline & Simplify

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

https://kxws.accenture.com/Repositories/C25/99/9/WSS
153_CoreBankingTop3Reasons7.pdf
https://kxws.accenture.com/Repositories/C22/96/48/Win
ningInNewBankingEra.pdf
https://kx.accenture.com/repositories/contributionform.as
px?path=C25/93/90&mode=read

Manage Regulations

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

http://www.accenture.com/usen/blogs/regulatory_insights_blog/archive/2011/11/16/inf
ormation-management-impacts-of-recent-financialregulation.aspx

Manage Enterprise
Risk

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

http://www.accenture.com/us-en/Pages/insight-acn2012-risk-analytics-study-insights-banking-industry.aspx

Capital & Funding
Strategies

http://www.accenture.com/us-en/Pages/insight-capitaloptimization-summary.aspx
http://www.accenture.com/usen/blogs/regulatory_insights_blog/archive/2012/03/19/regulatio
n-in-the-news.aspx

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

Continuous Innovation

Agility

Optimization &
Simplification


40

Reference Links
• 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-servicerslist-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-satisfactionstudy.htm

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


41

About Accenture
Accenture is a global management
consulting, technology services and
outsourcing company, with approximately
281,000 people serving clients in more than
120 countries. Combining unparalleled
experience, comprehensive capabilities
across all industries and business
functions, and extensive research on the
world‟s most successful
companies, Accenture collaborates with
clients to help them become highperformance businesses and governments.
The company generated net revenues of
US$28.6 billion for the fiscal year ended Aug.
31, 2013. Its home page is
www.accenture.com.

Copyright © 2014 Accenture
All rights reserved.
Accenture, its logo, and
High Performance Delivered
are trademarks of Accenture.

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