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Presentation - Smith

  1. 1. Government Housing and Loan Production Conference 2009 Refinancing Options for Troubled Loans
  2. 2. Refinancing Options for Troubled Loans – Best Practices <ul><li>Home Retention </li></ul><ul><ul><li>Create affordable payments through refinance </li></ul></ul><ul><ul><li>Modification of current loan terms when refinance is not an option </li></ul></ul><ul><li>Prevent Recidivism </li></ul><ul><ul><li>Understand the borrowers financial obligations </li></ul></ul><ul><ul><li>Establish credit capacity </li></ul></ul><ul><ul><li>Leverage market intelligence to understand current and forecasted home values </li></ul></ul><ul><li>Model alternatives to establish the best workout </li></ul><ul><ul><li>Gather and retain data required for decision making </li></ul></ul><ul><li>Solicitation Campaigns </li></ul><ul><ul><li>Target campaigns based on preliminary borrower qualification </li></ul></ul><ul><ul><li>Establish clear path for borrower – refinance vs. modification </li></ul></ul><ul><ul><li>Manage borrower contact </li></ul></ul><ul><ul><li>Monitor campaign responses and success rates </li></ul></ul>
  3. 3. Refinancing Options for Troubled Loans <ul><li>Another year of home price corrections </li></ul>Sources: Fiserv, Moody’s © 2009 Fiserv. All Rights Reserved
  4. 4. Refinancing Options for Troubled Loans – Establish Property Value <ul><li>Measuring Home Values, Assessing Trends </li></ul><ul><ul><li>Broker Price Opinions and Appraisal Values </li></ul></ul><ul><ul><li>Price Changes Over Time - Market Specific Price Indexes </li></ul></ul><ul><ul><ul><li>Fiserv Case-Shiller Indexes </li></ul></ul></ul><ul><ul><ul><ul><li>Appreciation/depreciation percentages for more than 3,000 Zip codes, 300 counties, and 100 metro areas </li></ul></ul></ul></ul><ul><ul><ul><li>Fiserv Case-Shiller Indexes, republished as the Standard & Poor’s/Case-Shiller Indexes </li></ul></ul></ul><ul><ul><ul><ul><li>Historical home price trends for 20 large metro areas. </li></ul></ul></ul></ul><ul><ul><li>Forecasting Future Values – Automated Valuation Model </li></ul></ul><ul><ul><ul><li>Fiserv Case-Shiller Indexes and data from Moody’s incorporated into CASA </li></ul></ul></ul><ul><ul><ul><ul><li>Property value estimate and 12 month forecast value for each property </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Chart of future and historical price-appreciation trends in property’s geographical area </li></ul></ul></ul></ul>
  5. 5. Refinancing Options for Troubled Loans – Case-Shiller Home Price Index Methodology <ul><ul><li>Repeat Sales Indexes </li></ul></ul><ul><ul><ul><li>Find two or more transactions for the same house (“sales pair”) </li></ul></ul></ul><ul><ul><ul><li>Collect as many sales pairs as possible for all houses in a market </li></ul></ul></ul><ul><ul><ul><li>For each index period, calculate the average price change for all sales pairs that span each period </li></ul></ul></ul><ul><ul><ul><li>Solves “quality-mix” problem </li></ul></ul></ul><ul><ul><ul><ul><li>Calculations based on price changes for same houses </li></ul></ul></ul></ul><ul><ul><li>Value-Weighted, Arithmetic Indexes </li></ul></ul><ul><ul><ul><li>Indexes track average/aggregate housing market value </li></ul></ul></ul><ul><ul><ul><li>Similar to cap-weighted stock market indexes (S&P 500) </li></ul></ul></ul><ul><ul><li>Interval-Weighted </li></ul></ul><ul><ul><ul><li>Sales pairs with longer intervals between transactions are given less weight </li></ul></ul></ul>
  6. 6. Refinancing Options for Troubled Loans – Case-Shiller Index Coverage <ul><ul><li>Single-family, condominium, and price tier indexes </li></ul></ul><ul><ul><ul><li>Track markets by price segment and property type </li></ul></ul></ul><ul><ul><ul><li>Price trends for difference price segments and property types become less correlated at market turning points </li></ul></ul></ul><ul><ul><li>State, metro area, county and zip code indexes </li></ul></ul><ul><ul><ul><li>Track most localized market trends </li></ul></ul></ul><ul><ul><li>Includes non-conforming mortgages and transactions without mortgages </li></ul></ul><ul><ul><ul><li>Captured the effects of boom in non-conventional mortgage lending and subprime mortgage crisis on home prices </li></ul></ul></ul>
  7. 7. Refinancing Options for Troubled Loans – Standard & Poor’s/Case-Shiller Indexes
  8. 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. 9. Refinancing Options for Troubled Loans – Home Price Forecasting Model <ul><li>Fiserv/Moody’s </li></ul><ul><ul><li>Equilibrium / Disequilibrium Model </li></ul></ul><ul><ul><ul><li>Equilibrium home prices are determined by fundamental economic and demographic factors </li></ul></ul></ul><ul><ul><ul><li>Actual home prices are seldom in equilibrium </li></ul></ul></ul><ul><ul><ul><li>Changes in actual home prices driven by degree of disequilibrium </li></ul></ul></ul><ul><ul><ul><li>Adjustment to home price disequilibrium differs across U.S. regions </li></ul></ul></ul><ul><ul><ul><li>’s U.S. macro and regional economic forecasts feed directly into home price forecasting model </li></ul></ul></ul>
  10. 10. Refinancing Options for Troubled Loans – Factors Driving Fiserv/ Forecasting Model <ul><li>Equilibrium Model (Long-Term, Fundamental Price Level) </li></ul><ul><ul><li>5-year population growth [+] </li></ul></ul><ul><ul><li>Real per capita income [+] </li></ul></ul><ul><ul><li>Change in mortgage underwriting standards (HELOC share) [+] </li></ul></ul><ul><ul><li>Risk-adjusted housing vs. stock market returns [+] </li></ul></ul><ul><ul><li>Population share aged 50-64 × Vacation home share of housing stock [+] </li></ul></ul><ul><li>Price Adjustment Model (Price Changes Toward Equilibrium Level) </li></ul><ul><ul><li>Lagged home prices (momentum) [+] </li></ul></ul><ul><ul><li>Equilibrium home price index – actual home price index (mean reversion) [+] </li></ul></ul><ul><ul><li>Change in user cost of housing (mortgage rates) [-] </li></ul></ul><ul><ul><li>Unemployment rate [-] </li></ul></ul><ul><ul><li>Foreclosure rate [-] </li></ul></ul><ul><li>Models estimated separately for 7 pools of metro areas </li></ul><ul><ul><li>East Coast, Mountain West, Florida, Midwest, California, South, West Coast </li></ul></ul>
  11. 11. <ul><li>Contact: </li></ul><ul><li>Karen Smith, Executive Consultant </li></ul><ul><li>Phone: 574-245-1372 </li></ul><ul><li>eMail: [email_address] </li></ul>