Home Equity Overview

Transcription

1 Home Equity Overview September 12, 2005 Jim Leath Senior Vice President Fidelity Office of the Enterprise 3535 Piedmont Road, Suite Atlanta, GA United States Telephone:

2 Home Equity Overview Strategy Markets and Products Service Delivery and Technology Risk Management All Rights Reserved. 2

3 Strategy Why fewer non HE products in CL portfolio? Homeowners are encouraged to consider HE product Non-equity secured CL products not proactively sold; sales staff are encouraged to sell one consumer lending product the HE product, partially addressing the limited shelf space struggle Sales incentive programs are designed to promote HE loans/lines Unsecured personal LOCs are being replaced by HELOCs All Rights Reserved. 3

4 Strategy Customer experience needs to be quick and easy All Rights Reserved. 4

5 Strategy Customer experience needs to be quick and easy - Simplified underwriting policies/requirements - Balancing customer relationship with processes Use Automated Underwriting? 52% 48% Yes No Source: 2004 CBA Home Equity Study All Rights Reserved. 5

6 Strategy Average Turnaround Time (Application Receipt to Closing) 60% Overall Average = 17.5 Days 40% 20% 26% 21% 18% 18% 16% 11% 21% 21% 16% 0% 3% 10 Days or Less Days Days Days > 25 Days Source: 2004 CBA Home Equity Study All Rights Reserved. 6

7 Strategy Effective strategy balances quick and easy with risk. Some of the risks that the regulatory agencies are monitoring include: Interest only features Low doc or No doc of assets, employment, income Higher Loan-to-Value and Debt-to-Income ratios Lower credit risk scores for HE Loans Greater use of automated valuation models and other collateral evaluation tools Increased loan broker or other third party generated transactions Source: Credit Risk Management Guidance for Home Equity Lending 5/16/2005 All Rights Reserved. 7

8 Strategy Cross-selling to existing customers: More success Depository and mortgage accounts are best prospects Target select customers for direct mailings, along with rate specials and branch campaigns Sales support and ongoing training for the branches All Rights Reserved. 8

9 Strategy More direct mail campaign success with existing bank customers vs. prospects Direct Mail Campaign Booking Rate 3.0% 2.0% 1.0% 0.0% 1.6% Customers 0.5% Prospects Market Strategy #1 Existing customers #2 Prospects in market #3 Prospects out of market 2004 Source: 2004 CBA Home Equity Study All Rights Reserved. 9

10 Strategy Existing HE penetration within the deposit customer base is 9%: 80% % Deposit Customers with HE 60% 40% 20% 0% 7% 4% 9% Small Medium Large Source: 2004 CBA Home Equity Study All Rights Reserved. 10

11 Markets and Products Heightened consumer demand for fixed-rate equity line products: % Offering Fixed Rate Equity LINE Feature 56% 44% Yes No Source: 2004 CBA Home Equity Study All Rights Reserved. 11

12 Markets and Products Fixed Rate Equity Line Draw Product: Fixed interest rate Allows borrowers to fix interest rates on three to five draws simultaneously Experimenting with the term to mirror traditional direct consumer lending such as five year automobile loans Variable Rate Loan Product: Fixed principle and term Interest rate is typically tied to the prime interest rate Appeals to borrowers with a large, known expenditure and a lower interest rate in the short term All Rights Reserved. 12

13 Markets and Products In the past, product addressed two customer types: Customer #1-- HE Loans fixed rates/terms Customer #2-- HE Lines variable rates/terms Presently, HE lines have expanded to include fixed and variable rates and terms In the future, we see product consolidation and loan enhancement All Rights Reserved. 13

14 Markets and Products Equity Line Funds Access Methods: 120% 100% 80% 60% 40% 20% 100% 46% 73% 36% 64% 0% Check Source: 2004 CBA Home Equity Study Plastic (Cr, Db, ATM) Phone DDA Overdraft On-Line/PC All Rights Reserved. 14

15 Markets and Products Equity Line Funds Access: - Average Number of Draws per Account = 5 - Average Draw Amount = $19,162-56% Have Minimum Draw Amount - $50 to $500 is the Minimum Average Range Source: 2004 CBA Home Equity Study All Rights Reserved. 15

16 Service Delivery/Technology Paper-based workflows impact: - Application Processing - Underwriting - Customer Service Delivery Time -Growth Why is Paper so Persistent? All Rights Reserved. 16

17 Service Delivery/Technology Technology Convergence: Combining Technology For Greater Benefit 1. Is your application on the electronic fast track? 2. Do you really have auto decisioning or auto recommend? 3. Do you use exchange networks or service oriented architecture (SOA)? 4. Do you modify stipulations based on vendor results? 5. Do you enable on-demand documents for closing? Source: Jim Leath, (June 2005) Technology Convergence in Home Equity Lending What s on the Horizon? All Rights Reserved. 17

18 Service Delivery/Technology First Examine Current Policies and Processes to: Eliminate redundant tasks Eliminate support tasks that require manual decision making or duplicate data entry Establish monitoring/measurement of business processes Enable parallel task execution Refine exception processing All Rights Reserved. 18

19 Service Delivery/Technology Technology Convergence Challenges: - Identifying how or where to converge can be difficult - Developing strategy requires time and a comprehensive understanding - How is the decision reached to eliminate redundancies? -where is the greatest return on investment? - Must revisit threshold for risk and policies that determine that threshold -previous technology investments, policies, etc. All Rights Reserved. 19

20 Service Delivery/Technology Credit Decisioning Types: Autodecisioned only 8% Credit Score only 16% Credit Score & Judgmental 65% Judgmental Only 10% Source: 2004 CBA Home Equity Study 0% 20% 40% 60% 80% 100% All Rights Reserved. 20

21 Service Delivery/Technology HE Documents are Prepared and Delivered (check all that apply)? Prepared? Delivered? Vendor/Attorney 4% Express mail 59% Branches 26% Interoffice mail 23% Regionally 9% Remote printing 50% Centrally 87% Prepared at closing 18% 0% 50% 100% % 50% 100% Source: 2004 CBA Home Equity Study All Rights Reserved. 21

22 Service Delivery/Technology What Technologies are in place? Credit Bureau Interface App. Processing Sys (APS) 96% 100% Decentralized APS 77% Auto Property Valuation Auto Customer File Retrieval Internet to APS 50% 55% 59% 0% 20% 40% 60% 80% 100% Source: 2004 CBA Home Equity Study All Rights Reserved. 22

23 Service Delivery/Technology What technology purchases are planned? 100% 80% 60% 67% 50% 50% 40% 33% 20% 0% Origination Systems Servicing Systems Source: 2004 CBA Home Equity Study All Rights Reserved. 23

24 Service Delivery/Technology In the past: Non-interfaced APS and Doc Prep Systems Central preparation and print Closing set up and funding / payoff processing very labor intensive De-central payoff processing Presently: Interfaced APS and Doc Prep Systems Central and remote print capability Closing set up and funding / payoff processing very labor intensive Central and de-central funding / payoff processing In the future: Interfaced APS, Doc Prep, funding systems Central and remote print capability Underwriting policies requiring fewer non-equity debt payoffs Central payoff processing All Rights Reserved. 24

25 Risk Management 1 st Lien Representation 1st Lien: 60% 40% 20% 0% 30% 37% % of Originations % of Outstandings Pros : 1st lien home equities are growing Borrowers are likely to represent less credit risk Lower expected loss if default Cons : If a borrower defaults, more default management responsibilities Source: 2004 CBA Home Equity Study All Rights Reserved. 25

26 Risk Management 60% Percentage of New Home Equity Lines and Loans (by Score Range) Overall Average Score = % 54% 40% 20% 0% 24% 22% 13% 11% 7% 4% 4% 5% 2% 2% 2% 1% Unscored < >= 720 Source: 2004 CBA Home Equity Study All Rights Reserved. 26

27 Risk Management 50% Home Equity Portfolio Account Distributions (by Collateral Loan to Value) 40% 35% 37% 44% of Lines 39% of Loans 30% 20% 15% 16% 24% 23% 19% 15% 10% 7% 7% 0% < 70% 70-74% 75-79% 80-89% % > 100% 1% 1% HE Lines HE Loans Source: 2004 CBA Home Equity Study All Rights Reserved. 27

28 Summary Is your customer experience quick and easy? Do you have an effective strategic balance between quick and easy and risk? Do system interfaces eliminate manual efforts? Do you have persistent paper? Does technology support customer strategy? All Rights Reserved. 28

29 Thank You! All Rights Reserved. 29

30 Appendix All Rights Reserved. 30

31 2004 Survey Details All Rights Reserved. 31

32 Respondent Profile 18th Annual Study 23 Respondents 43% Commercial Banks 35% Bank Holding Companies 22% Savings and Loan/Other Loan Class Sizes by Home Equity Portfolio Dollars Large is more than $2B Medium is $.7B to $2B Small is less than $.7B All Rights Reserved. 32

33 Repeat Respondents 15 Repeat Respondents Responded in both 2003 and 2004 Class Sizes: 10 Large 3 Medium 2 Small Repeat Respondents Data All Rights Reserved. 33

34 Home Equity Portfolio Growth (June to June) 20% 19% HE LOAN Dollars 9% 1% HE LINE Dollars COMMITTED 29% 34% 40% 23% 0% 10% 20% 30% 40% 50% All Rights Reserved. 34

35 $60,000 Average Loan by Class Size $ Outstanding $50,000 $40,000 $30,000 $29,007 $33,059 $45,818 $39,678 $20,000 $10,000 $0 Small Medium Large All All Rights Reserved. 35

36 Home Equity Line Commitments 60% 28% 26% 20% 23% 40% 31% 28% 43% 28% 40% 40% 46% 26% 39% 34% 29% 20% 11% 0% Small Medium Large All All Rights Reserved. 36

37 HE $ Portfolio Average Outstandings (Billions) $10 $8 $7.5 $6 $4 $2 $3.0 $4.8 $0 All All Rights Reserved. 37

38 Average Line Account Sizes $ Outstandings $50,000 $40,000 $30,000 $26,810 $26,627 $30,852 $28,585 $30,400 $36,602 $36,427 $20,000 $10,000 $ All Rights Reserved. 38

39 Average Line by Class Size $ Outstandings $50,000 $40,000 $30,000 $33,570 $43,057 $35,407 $36,427 $20,000 $10,000 $0 Small Medium Large All All Rights Reserved. 39

40 Active Lines at Mid 90s Levels 90% 85% 80% 75% 85% 84% 81% 83% 85% 83% 77% 75% 78% 75% 77% 83% 70% All Rights Reserved. 40

41 Line Utilization $ Outstanding as a % $ Committed 60% 55% 50% 45% 56% 56% 53% 56% 52% 53% 48% 48% 48% 53% 47% 45% 40% All Rights Reserved. 41

42 Utilization ($ in Billions) 2004 $4.8 $ % 46% 2003 $2.9 $6.2 47% 49% $0 $5 $10 $15 Avg $ Outstanding Avg $ Committed All Rights Reserved. 42

43 Average Draws per Account (12 Month Period) All Rights Reserved. 43

44 % First Lien Volume 60% 40% 37% 30% 20% 0% Originations Outstandings All Rights Reserved. 44

45 Provide Alerts on Taxes/Insurance? No 76% Yes 24% First Lien All Rights Reserved. 45

46 Force Place Insurance if Lapse? Yes 55% No 45% First Lien All Rights Reserved. 46

47 More Nonprime Loans? % C or D Credit Rating 12.0% 9.0% 8.0% 4.0% 3.8% 2.7% 5.0% 4.7% 5.2% % HE Lines HE Loans All Rights Reserved. 47

48 Borrower Trends All Rights Reserved. 48

49 Continued Shift in Age Category The growth of senior household debt is really quite remarkable, because compared with younger groups, their increase is the largest. 60% 40% 20% Borrower Age Categories # AARP magazine September, % All Rights Reserved. 49

50 Lending Above the Median Appraised Value Nat l Median Price $170, $ 000 $300 $200 $100 $209 $250 $247 Median $0 All All Rights Reserved. 50

51 Refinancing Debt #1, Lines Line Purpose Refi Debt Home Impr Other 0% 20% 40% 60% All Rights Reserved. 51

52 Refinancing Debt #1, Loans Loan Purpose Refi Debt Home Impr Other 0% 20% 40% 60% All Rights Reserved. 52

53 Home Equity Runoff Line and Loan Commitments 100% 80% 60% 40% 20% 0% -20% -40% -60% New Booking % 44% -22% 22% Runoff % % Actual Portfolio Change 6/03-6/04 All Rights Reserved. 53

54 Winning Deposit Customer s Vote? % HE with Deposit Relationship 100% 80% 60% 63% 67% 68% 40% 20% 0% All % 80% % Deposit Customers with HE 60% 40% 20% 8% 12% 9% 0% All All Rights Reserved. 54

55 Higher Penetration Trend % Formal Customer Retention Program Measure Customer Profitability Do Filter CIF,Deposit, Consumer LAS Systems Do not Buy External Databases Conduct Preapproved and Non Preapproved Direct Mail Campaigns for Lines (Avg. 15) Perform Proactive Follow-up Using Internal Telemarketing and Branches All Rights Reserved. 55

56 Marketing Activity Importance Scores Scale of 1 (Low Importance) - 6 (High Importance) 1 Direct Mail 2 Cross Sell 3 Brand 1 Cross Sell 2 No Clos Cost 3 Direct Mail Higher Penetration All All Rights Reserved. 56

57 Technology Trends All Rights Reserved. 57

58 Major Technology Investments? Prior 24 mos. Next 24 mos. Yes 41% No 59% Yes 65% No 35% % of Respondents All Rights Reserved. 58

59 What Systems Planned? in the Next 24 Months 80% 67% 60% 40% 31% 50% 50% 42% 33% 20% 0% Origination Systems Servicing Systems All Rights Reserved. 59

60 2004 HE Technology Usage % Decentralized APS 49% Auto Property Valuation 59% 37% Auto Customer File Retrieval 55% 34% 0% 20% 40% 60% 80% 100% All Rights Reserved. 60

61 Home Equity FTE by function 100% 75% 52% 15% 13% 27% 50% 25% 47% 85% 87% 73% 0% Small Medium Large All Non Mgt/Non Sup/Non Clerical FTE Mgt./Supervisory/Clerical FTE All Rights Reserved. 61

62 Origination and Servicing 100% 75% 60% 58% 52% 57% 50% 25% 0% 40% 42% 48% 43% Small Medium Large All Servicing FTE Origination FTE All Rights Reserved. 62

63 Turnaround Time? Application Receipt to Closing 60% 40% 20% Avg 17.5 days days % 21% 16% 12% 12% 19% 21% 31% 16% 0% N/A 10 Days or Less Days Days Days > 25 Days All Rights Reserved. 63

64 Portfolio Quality Trends All Rights Reserved. 64

65 Delinquencies Lines down 3.0% Loans down 2.0%.59%.37% 1.66% 1.16% 1.55% 1.30% 1.0% 0.61% 0.46% 0.0% HE Lines HE Loans All Rights Reserved. 65

66 Delinquencies and the Aging Band 80% 60% 50% 43% Lines are 35% v. 31% Loans are 41% v. 29% 40% 20% 14% 16% 9% 26% 22% 19% 0% > 120 Days HE Lines HE Loans All Rights Reserved. 66

67 Annual $ Charge Offs $ as % of Outstandings 0.4% 0.3% 0.29% 0.23% 0.2% 0.1% 0.10% 0.11% 0.0% Lines Loans All Rights Reserved. 67

68 HE Portfolio Summary -Home Equities Continue to Drive Consumer Portfolio Growth HE Line Year-Over-Year Growth Percentages Off 2003 Highs HE Loan Growth Doubled -C & D Paper Percentages Up All Rights Reserved. 68

69 Summary Consumer -Refinancing Debt #1 -Demographics Show Seniors Still Rank Higher than Youngest Borrower Group -Borrowers Appraised Home Value Average is Well Above the Median -Low Deposit Customer Penetration All Rights Reserved. 69

70 Technology Summary -65% Plan to Invest in Technology -Focus on Origination Technology -Contributing to GreaterEfficiency -Big Increases in Decentralized APS; APV; Auto Customer File Retrieval All Rights Reserved. 70

71 Credit Quality Summary - Delinquency Rates Down -Higher Concentrations of Delinquencies in > 90 Day Delinquencies -Annual $ Charge Offs Slightly Up for Lines; Down for Loans All Rights Reserved. 71