Mortgage Company Financial and Operational Performance

RESI TRACK: Mortgage Company Financial and Operational Performance Marina B. Walsh Vice President, Industry Analysis Presentation Outline Industry Benchmarking Originations HMDA Data Latest IMB Performance Report Data Peer Group Data o o o Trending for Large Banks, Large Independents, Mid size Banks, Mid size IMBs Retail and Consumer Direct Production Channels Technology and Corporate Costs Mortgage Performance and Servicing Trends What Can We Expect in 2018? 2 1

Industry Benchmarking - Originations Shape of the Mortgage Industry Reporting Companies 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Number of Companies Reporting under HMDA 4,556 4,394 4,225 4,112 3,954 3,804 2,039 2,026 2,015 2,004 1,990 1,956 217 157 118 119 108 111 820 823 832 827 861 891 Large Depository Community Bank Credit Union (<$10bn Assets) Independent Mortgage Bank 2011 2012 2013 2014 2015 2016 Source: 2011-2016 HMDA 4 2

Shape of the Mortgage Industry Volume Share Share of Home Purchase Volume (#) by Company Type Share of Refinancing Volume (#) by Company Type 60% 60% 50% 40% 30% 20% 36% 30% 27% 24% 21% 21% 25% 26% 26% 25% 25% 23% 36% 40% 42% 46% 48% 51% 50% 40% 30% 20% 52% 45% 47% 34% 27% 26% 20% 19% 16% 17% 18% 18% 22% 28% 31% 41% 47% 49% 10% 4% 5% 5% 5% 5% 5% 10% 7% 7% 7% 8% 8% 7% 0% Large Depository Community Bank Credit Union (<$10bn Assets) Independent Mortgage Bank 0% Large Depository Community Bank Credit Union (<$10bn Assets) Independent Mortgage Bank 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 Source: 2011-2016 HMDA 5 IMB Net Production Profit (bps) Net Production Income (bps) Avg. Production Volume ($M) Purchase Share (% based on $) $900 119.6 $800 107.4 $700 450 43% 86.5 74.6 38.2 8.7 274 68% 45.7 42.1 32.1 60.4 67.3 55.3 21.6 33.2 72.6 73.7 24.0 10.4 45.7 569 74% 40.5 $600 $500 $400 $300 $200 $100 (8.3) $0 Q317 P Q217 Q117 Q416 Q316 Q216 Q116 Q415 Q315 Q215 Q115 Q414 Q314 Q214 Q114 Q413 Q313 Q213 Q113 Q412 Q312 Source: MBA s Quarterly Mortgage Bankers Performance Report: www.mba.org/performancereport 6 3

IMB Net Production Profits Comparison Across Quarters: 2008 Current Avg. Quarterly Production Profit (bps): 2008 2017 Production Profit (bps) Most Current Quarter 62.9 57.4 50.7 45.7 41.2 41.3 40.5 30.2 24.0 10.4 Q4 Avg. Q416 Q1 Avg. Q117 Q2 Avg. Q217 Q3 Avg. Q317 (P) All QTR Avg. Avg. Q416 Q317 Source: MBA s Quarterly Mortgage Bankers Performance Report: www.mba.org/performancereport 7 IMB Production Revenue and Expenses (bps) 375 375 325 335 275 225 175 125 75 25 40 (25) Q312 Q217 Q117 Q416 Q316 Q216 Q116 Q415 Q315 Q215 Q115 Q414 Q314 Q214 Q114 Q413 Q313 Q213 Q113 Q412 Production Revenue (bps) Fully Loaded Production Expense (bps) Net Production Income (bps) Q317 P Source: MBA s Quarterly Mortgage Bankers Performance Report: www.mba.org/performancereport 8 4

IMB Fully-Loaded Production Expenses ($ per loan) $260,000 Fully Loaded Production Expense ($ per loan) Avg. Loan Balance ($) $250,000 $240,000 $230,000 $220,000 $210,000 $200,000 5,163 5,603 5,779 5,818 6,368 6,959 8,025 6,932 6,769 7,000 7,195 6,984 7,080 7,747 7,845 7,120 6,969 7,562 8,887 7,774 8,060 $190,000 Q317 P Q217 Q117 Q416 Q316 Q216 Q116 Q415 Q315 Q215 Q115 Q414 Q314 Q214 Q114 Q413 Q313 Q213 Q113 Q412 Q312 Source: MBA s Quarterly Mortgage Bankers Performance Report: www.mba.org/performancereport 9 IMB Servicing Retention Share 40.0% 35.0% Chart of the Week IMB Avg. Share of First Mortgage Volume That Is Servicing Retained 34.6% 30.0% 25.0% 20.0% 15.0% 10.0% 14.8% First Mortgage Volume Servicing Retained (% based on $) 25.3% 5.0% 0.0% Q209 Q109 Q408 Q308 Q110 Q409 Q309 Q410 Q310 Q210 Q411 Q311 Q211 Q111 Q312 Q212 Q112 Q213 Q113 Q412 Q114 Q413 Q313 Q115 Q414 Q314 Q214 Q415 Q315 Q215 Q316 Q216 Q116 Q217 Q117 Q416 Q317 P Source: MBA s Quarterly Mortgage Bankers Performance Report: www.mba.org/performancereport 10 5

Peer Group Comparisons Peer Groups: Overall Net Production Income (bps) 200.0 Large Banks Large Independents Mid Size Banks Mid Size Independents 150.0 100.0 50.0 72 62 59 15 41 0.0 (29) (50.0) 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H2017 Source: PGR: MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 12 6

Peer Groups: Investor Mix (% based on $) 2% Private Investor/Other 19% 11% 8% 5% Ginnie Mae I or II Program 38% 40% 8% 49% 40% 35% Fannie Mae/Freddie Mac (MBS) 12% 2% 27% 13% 19% Fannie Mae/Freddie Mac (Cash Window) Originated for Portfolio 3% 37% 31% 44% 29% 24% 4% Large Banks Large Independents Mid Size Hybrid Banks Mid Size CBCUs Mid Size Independents Source: PGR (2016): MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 13 Peer Groups: Production Channel Mix (% based on $) Consumer Direct Avg. Total Production Volume $43.1B $24.4B $2.9B $1.7B $3.0B 4% 7% 15% 17% 13% 5% 1% 7% 6% 2% 20% Correspondent 44% 47% Broker Wholesale 3% 13% 80% 90% 67% 39% Retail 23% Large Banks Large Independents Mid Size Hybrid Banks Mid Size CBCUs Mid Size Independents Source: PGR (2016): MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 14 7

Peer Groups: Weighted Avg. Purchase Channel Mix (% based on $) Consumer Direct Avg. Purchase Production Volume $22.5B $12.9B $1.3B $1.0B $1.9B 1% 3% 1% 12% 4% 5% 6% 1% 6% 2% 15% Correspondent 50% 56% Broker Wholesale 2% 12% 88% 92% 77% Retail 35% 32% Large Banks Large Independents Mid Size Hybrid Banks Mid Size CBCUs Mid Size Independents Source: PGR (2016): MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 15 Peer Groups: Retail Channel 8

Peer Groups: Retail Channel Product Mix (% based on #) Large Banks Large IMBs Mid Size Hybrid Banks Mid Size CBCUs Mid Size IMBs 74% 72% 75% 59% 53% 38% 35% 41% 44% 28% 30% 23% 19% 21% 15% 14% 14% 14% 11% 1% 4% 3% 4% 2% 4% Purchase First Time Homebuyer Government ARM Jumbo Source: PGR (2016): MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 17 Peer Groups: Fully-Loaded Retail Production Expenses as % of Total Retail Production Revenue Sales Expense Fulfillment Expense Production Support + Corporate Administration Expense 109% 34% 26% 91% 13% 20% 86% 16% 23% 83% 19% 23% 100% 88% 16% 19% 50% 58% 47% 41% 53% Large Banks Large Independents Mid Size Hybrid Banks Mid Size CBCUs Mid Size Independents Source: PGR (2016): MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 18 9

Fully-Loaded Retail Production Expenses as % of Total Retail Production Revenue (Total PGR Sample) Sales Expense Fulfillment Expense Production Support + Corporate Administration Expense 98% 100% 91% 90% 84% 24% 20% 18% 68% 18% 14% 21% 22% 21% 21% 16% 38% 45% 53% 50% 51% 2012 2013 2014 2015 2016 Source: PGR: MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 19 Retail Channel Compensation Trends The gap between pay-out rates at banks and non-banks is widening for Retail Originators. Note: The grey bar indicates the gap in median effective pay-out rate between Banks and Non-Banks 140 120 Median Effective Payout Rate (Bps) 100 80 60 40 28 48 43 49 58 Non-Bank Bank 20 0 2012 2013 2014 2015 2016 Source: Residential Compensation Survey Program; McLagan, an AON Hewitt Company: www.mba.org/compensation 20 10

Retail Productivity (Total PGR Sample) Loans Closed per Loan Officer (per month) Loans Closed per Fulfillment FTE (per month) 5.4 5.0 4.1 4.8 5.0 3.8 2012 2013 2014 2015 2016 1H2017* 7.0 5.8 5.5 5.6 5.2 4.0 2012 2013 2014 2015 2016 1H2017* * Large Banks and Large Independents only for 1H2017 Source: PGR: MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 21 Monthly Retail Underwriter Productivity (Total PGR Sample) 200 193 Applications per Retail Underwriter per Month 180 160 140 120 100 80 60 40 149 127 150 119 106 97 98 Monthly Productivity Defined: Average of the number of mortgage applications in a given year divided by the number of full time equivalent underwriters, divided by twelve. Underwriters include junior, senior and all other level underwriters as well as appraisal reviewers, validators and credit analysts. 72 58 50 20 35 35 35 34 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: PGR: MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 22 11

Peer Groups: Other Production Channels Average Channel Profitability bps (Total PGR Sample) Retail Broker Wholesale 250.0 250.0 200.0 200.0 150.0 150.0 100.0 100.0 50.0 (50.0) 43.1 45.1 132.6 59.2 10.0 2012 2013 2014 2015 2016 50.0 (50.0) 113.9 58.5 51.3 42.7 (8.6) 2012 2013 2014 2015 2016 Consumer Direct Correspondent 250.0 250.0 200.0 200.0 150.0 150.0 100.0 100.0 50.0 225.3 111.0 61.8 72.1 83.2 50.0 108.3 44.4 13.1 30.6 41.0 (50.0) 2012 2013 2014 2015 2016 (50.0) 2012 2013 2014 2015 2016 Source: PGR: MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 24 12

Consumer Direct Net Production Income by Business Model bps (Total PGR Sample) Consumer Direct Net Production Income by Business Model (Groups L & J Combined) 314.1 Servicing Portfolio Retention (#) < 50% Servicing Portfolio Retention (#) >= 50% Customer Acquisition Focus 225.3 Total PGR Sample 201.9 142.4 111.0 93.2 61.8 59.8 83.7 72.1 54.4 111.9 83.2 19.0 (0.9) 2012 2013 2014 2015 2016 Source: PGR: MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 25 Servicing Recapture (% Servicing Portfolio Retention Volume / # Payoffs) 30% 25% 25% 26% 20% 19% 19% 17% 15% 10% 5% 0% Large Banks Large Independents Mid Size Hybrid Banks Mid Size CBCUs Mid Size Independents Source: PGR (2016): MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 26 13

Mortgage Performance and Servicing Trends Overall Delinquency Rate by Type 14.00 12.00 10.00 Percent 8.00 7.94 6.00 4.00 4.24 3.72 3.47 2.00 0.00 Q1.2004 Q2.2004 Q3.2004 Q4.2004 Q1.2005 Q2.2005 Q3.2005 Q4.2005 Q1.2006 Q2.2006 Q3.2006 Q4.2006 Q1.2007 Q2.2007 Q3.2007 Q4.2007 Q1.2008 Q2.2008 Q3.2008 Q4.2008 Q1.2009 Q2.2009 Q3.2009 Q4.2009 Q1.2010 Q2.2010 Q3.2010 Q4.2010 Q1.2011 Q2.2011 Q3.2011 Q4.2011 Q1.2012 Q2.2012 Q3.2012 Q4.2012 Q1.2013 Q2.2013 Q3.2013 Q4.2013 Q1.2014 Q2.2014 Q3.2014 Q4.2014 Q1.2015 Q2.2015 Q3.2015 Q4.2015 Q1.2016 Q2.2016 Q3.2016 Q4.2016 Q1.2017 Q2.2017 All Loans Conventional Loans FHA Loans VA Loans Source: NDS: National Delinquency Survey: www.mba.org/nds 28 14

Looking Back at Hurricane Katrina 35.0 30.0 Hurricane Katrina Aug 2005 Delinquency and Foreclosure Metrics Louisiana Non seasonally adjusted, percent 1.2 1.0 25.0 20.0 15.0 10.0 5.0 0.8 0.6 0.4 0.2 Total Past Due Foreclosure Starts Source: NDS: National Delinquency Survey: www.mba.org/nds 29 Net Servicing Income ($ per loan) Net Servicing Income Prime ($ per loan) $500 423 Net Operating Income Before Taxes $400 Net Financial Income Before Taxes $300 341 310 268 278 $200 135 192 124 155 163 168 165 199 $100 43 12 20 41 $0 (3) ($100) (57) (41) Source: MBA Servicing Operations Study and Forum (Prime Servicers): www.mba.org/sosf; PGR (1H2017) 30 15

Direct Servicing Expenses ($ per loan) 4.11% 4.11% 4.46% Direct Servicing Expense Prime ($ per loan) Direct Servicing Expense Avg. Direct Servicing Expense NDS 90+ day Delinquency Rate (% based on #, annualized) 5.00% 4.50% 4.00% 3.46% 3.03% 3.50% 142 3.00% 2.63% 2.30% 2.50% 1.82% 1.51% 1.31% 2.00% 1.50% 1.00% 0.50% 58 89 96 121 164 205 171 180 170 171 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H2017* 0.00% Source: MBA Servicing Operations Study and Forum (Prime Servicers): www.mba.org/sosf; PGR (1H2017) 31 The Costs of Performing and Non-Performing Loans $3,000 Cost of Performing Loans 2,777 $2,500 Cost of Non Performing Loans 2,304 2,414 2,386 $2,000 2,000 2,113 $1,500 1,369 $1,000 704 911 $500 $0 482 59 77 90 96 114 156 156 181 163 164 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H2017* Source: MBA Servicing Operations Study and Forum (Prime Servicers): www.mba.org/sosf; PGR (1H2017) 32 16

Servicer Productivity Servicer Productivity Prime (Loans Serviced per Servicing FTE) 261 Avg. # Loans per Servicing FTE Avg. # Defaulted Loans per Default FTE 197 189 114 102 77 84 77 80 83 1,638 1,101 1,128 893 766 647 704 684 679 800 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H2017* Source: MBA Servicing Operations Study and Forum (Prime Servicers): www.mba.org/sosf; PGR (1H2017) 33 IMB Servicing by Government/Non-Government % (based on #) 700.0 600.0 500.0 Net Servicing Financial Income ($ per loan): < 50% Gov't Volume Net Servicing Financial Income ($ per loan): >= 50% Gov't Volume Annualized Net Servicing Financial Income ($ per loan) Total 400.0 300.0 200.0 100.0 (100.0) (200.0) (300.0) Q317 P Q217 Q117 Q416 Q316 Q216 Q116 Q415 Q315 Q215 Q115 Q414 Q314 Q214 Q114 Q413 Q313 Q213 Q113 Q412 Q312 Source: MBA s Quarterly Mortgage Bankers Performance Report: www.mba.org/performancereport 34 17

What is the MBA Quarterly Capital and Liquidity Profile? The Quarterly Capital and Liquidity Profile ( CLP ) provides a snapshot of seven key metrics often used by regulators, warehouse lenders, independent mortgage companies, correspondent lenders and other stakeholders. These basic metrics can be used to assess the capital adequacy and liquidity positions of independent mortgage bankers that own mortgage servicing rights. Using data from the quarterly Mortgage Bankers Financial Reporting Form (MBFRF) as well as MBA's industry-wide National Delinquency Survey, the metrics are now tracked on a quarterly basis starting 1Q 2017 for MBA members. The CLP includes data from those who report servicing within the MBFRF. The CLP also includes breakouts between servicers with more than a 50 percent share of government loans and servicers with less than a 50 percent share of government loans. https://www.mba.org/researchformembers 38 Technology Spending 18

Peer Groups: Production and Corporate Technology Expense ($ per loan) Large Banks Large Independents Mid Size Banks Mid Size Independents $1,400 $1,200 1,279 $1,000 1,028 $800 $600 $400 $200 352 268 314 403 $0 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H2017 Source: PGR: MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr 37 What Can We Expect in 2018? 19

Some Alternatives to Consider in 2018 1. Consider Technology Investments More Spending (to gain Efficiencies) or Less Spending (to save $)? 2. Reduce Staff Sales Staff: Nonperformers; Salaried; Commissioned Processing, Underwriting, Closing Production Support Corporate Functions / Executive Management 3. Revise Commission, Bonus, Guarantees, Signing, Retention Structures 4. Use Contractors; Outsourcers; Temporaries 5. Be Selective about Training and Travel 6. Save on Benefits (401k, Healthcare, Vacation) 39 Some Alternatives to Consider in 2018 (continued) 7. Revisit Production Channel Mix 8. Evaluate Product Mix 9. Change Secondary Marketing Strategy 10. Change Servicing Strategy: To Retain or Not to Retain? 11. Grow Your Way to Economies of Scale in either Production, Servicing or Both 12. Gain Market Share 13. Use Opportunity to Buy or Sell 14. Wait for Competition to Exit 15. For Depositories, Think about the Customer in More Holistic Terms Mortgage as a Product vs. Separate Business Line 40 20

Questions? MBA Research Sign-Ups and Services 42 21

Contact Information Marina B. Walsh Vice President, Industry Analysis Research and Economics 202-557-2817 mwalsh@mba.org MBA Research: www.mba.org/research RIHA: www.housingamerica.org 43 22