North America Mortgage Banking 2020 - "Convergent Disruption in the Credit Industry: A Roadmap to Achieving Sustainable Competitive Advantage by ...
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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.
Current Situation
Industry Trends
Market Environment and Outlook
• Changes in interest rates drive outlook for mortgage origination market; $1.3 trillion in originations forecast
Mortgage for 2014, >60% expected to be purchase money1
Originations • Home purchase demand is anticipated to remain robust, though some seasonal slowing is expected
and Housing • Slow economic growth and fiscal uncertainty have modestly tempered the outlook for future price appreciation
• Pipeline of distressed whole loan opportunities remains strong with additional sellers emerging –
expected to remain strong through 2014
Distressed
• Home prices impact returns; expectation of continued price appreciation at a more moderate pace
Whole Loans • Alternatives to property resolution (e.g., modification, refinance) are increasingly important strategies to
maximize returns
Correspondent • Contracting origination market has led to tighter margins
Lending • A smaller market results in higher barriers to entry for new entrants
Competition • Emphasis on disciplined pricing, execution and service to maintain profitability
Jumbo • Agencies dominate the high-balance loan market; conforming loan limits likely to remain until
Private-Label mid-2014
Securitization • 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
Mortgage to the safety and soundness of the institution if they took action, such as filing a class action lawsuit
Regulation • 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 4
Copyright © 2014 Accenture All rights reserved. mortgage market forecasts as of October 2013
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
“
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
6.0% $US Billions $450
30-Year FRM (%) Purchase Refinance
Forecast (as of December 2013)
$400
5.5%
+0.9% 5.3% 5.3%
5.2% 5.2%
5.1% 5.1% 5.1% $350
5.0% 5.0% 5.0%
5.0% 4.9% 4.9%
4.8% 4.8% $300
4.7% 4.7%
4.4%
4.5% 4.4% 4.4% 4.4% $250
4.3%
4.0% $200
4.0% 3.9%
3.8%
Recent Highlights: 3.7%
• An increased in mortgage interest rates – such as $150
conforming, 30-year fixed rate mortgages – has 3.5% 3.5%
3.5% 3.4%
caused a drop in refinance applications
$100
• Purchase volumes have remained more resilient
to higher rates and continue their upward trend
3.0% $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
Copyright © 2014 Accenture All rights reserved.
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 Primary Secondary Spread
Moving Forward
5.0% Lenders are still 1.2%
struggling in today’s low Manageable
Primary-Secondary Spread
risk/low reward 1.0% Risk/Higher Reward
Gain on Sale Margin
4.0% environment
• Balance rapidly increasing
0.8% investments in regulatory
3.0% compliance with
0.6% investments to build the
business
2.0%
0.4% • Focus on the Customer:
Invest in product and
1.0% customer experience
0.2%
structural innovations that
0.0% capture market share and
0.0%
proactively respond to
1Q05
3Q10
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
changing customer
-1.0% -0.2% needs, including use of
digital
High Risk/High Reward Low Risk/Low Reward • Rebuild lender reputations
• Underwriting guidelines loosened • Extreme focus on regulatory
• High volume compliance
• Record introduction of new businesses and • Limited work done to
products sustain competitive
• Government guarantee of mortgages advantages in future
• Too big to fail mentality
6
Copyright © 2014 Accenture All rights reserved.
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
$4,500 +97% Net Loan Production Operating Cost ($) Period Average +36% $4,573
$4,000 $4,182 $4,207
$3,500 $3,813
$3,539 $3,513
$3,360 $3,324 $3,413 $3,353 $3,310
$3,000 $3,224
$2,945
$2,500 $2,722 $2,827
$2,610
$2,324 $2,345 Key Points:
$2,000 • 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
$1,500
• Companies need to reduce sales/servicing costs via reduction of redundancy and automation
$1,000 • 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
$500 • 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
$-
2008 x 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 Period
Q4 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 3Q 4Q 1Q 2Q 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-soaring-
spread-besting
Copyright © 2014 Accenture All rights reserved. 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
Radius = Relative Contribution to Expenses For Non-Depository US Companies
98%
90%
% Change in Expenses Through 1Q13
Outsourcing and
Professional Fees
70%
Fulfillment
Personnel Sales Personnel
50% Production Support
Benefits Employees 44%
29% 38%
33% 32% Expense Average = +31%
30% Technology
Other
Operating Expenses
10%
-13% 15%
Occupancy &
-10% 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
Copyright © 2014 Accenture All rights reserved. 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...
Copyright © 2014 Accenture All rights reserved. 9
Source: Compass Point Research & Trading LLC analyst Kevin Barker, 11 July 2013Industry 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
900 885 890 896
857
850 836 851
803 817
800 787 789 797 801
771
752 763
750 733 736
710
700 683
650
600
1st Time Home Buyers-
Internet Customer Service
US Tablet Buyers
Repeat Home Sellers
Household Insurance
Repeat Home Buyers
US Dealer Leasing
US Dealer Financing
Residential Mortgage
Captive Luxury Lenders
Self-Investor Investing
Full-Service Investor
Mass Consumer Financing
Digital Camera Buyers
Retail Banking
Captive Mass Market
Residential Home Telephone
Residential Mortgage
Smalll Business Banking
Origination
Servicing
Lenders
Sellers
Service
Source: J.D. Power and Associates, 2014
Copyright © 2014 Accenture All rights reserved. 10Industry 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 Servicing
798
771
+37 Points 784
761
757
750 747
747
730 +18 Points 733
725
739 718
734
Key Origination Points: Key Servicing Points:
The use of electronic closing documents improves customer Leveling result of increase in new clients combined with new set of rules
closing satisfaction. Closing satisfaction among the 8 percent of released by the CFPB – effective January 2014 – where under new
customers who closed their mortgage using electronic documents rules, servicers are required to have systems, policies and procedures in
in person averages 830, while satisfaction among the 84 percent place to ensure customers receive the appropriate information and
of those who closed with paper documents in person is 772. support from servicers
2007 2008 2009 2010 2011 2012 2013
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
Copyright © 2014 Accenture All rights reserved.Proactively responding to changing customer values and needs is critical for
Lenders moving forward.
Today’s Customer Segments* Customer Trends Challenges for Traditional Providers
Consumer Unbanked & • Looking for low-cost FS alternatives, • Pitched marketing batted underway with low-
Lending Underbanked especially through digital channels cost delivery emerging disruptive providers
Youth • 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 • A number of emerging disruptive providers
primary-banking provider to find a lender emerging, focused on customer-led, socially
with the best rates conscious innovation
• Overall customer satisfaction with mortgage • Gear mortgage and other credit products to
lenders reaches a seven-year high, with shifting needs of this segment
satisfaction among first-time home buyers • Despite improvements, customers
improving considerably from 2012, purchasing a home, particularly 1st-time
• Many are still delaying homeownership or home buyers, continue to experience
opting to rent vs. buy difficulties understanding the loan options
available to them
Mass Affluent / • Increasingly looking for high-value, • The market opportunity for HNW customers
HNWI / Private customized wealth advice through digital is huge
Banking 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
Copyright © 2014 Accenture All rights reserved.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 Digital Inside Outside
& Outside
• Ongoing industry convergence is opening the door to
new competition, new ways of doing business and new
revenue opportunities Ongoing
Expanded
Industry
• Emerging new entrants are joining the market (in many Regulation Inside Convergence
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 Subdued
Economic Structural Emerging
information edge over lender employees. Transparency Change
Outlook & New
will drive improved customer trust. Rising Rates 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 Continued Customer
rate at between 0% and 0.25% in the foreseeable future Consolidation Empowerment
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. Convergent Disruption
Also, the second largest civil settlement ever obtained by Multiple disruptive forces are converging on the Banking
the state attorneys general will cost the nation’s 5 largest Industry at the same time, both from inside and from outside
mortgage servicers, which control about 60% of a servicing the Banking Industry, creating an increasingly complex and
market, an ~$25bn to $32b 1 highly dynamic future environment with “permanent
Source: 1) Office of Mortgage Servicing Oversight. Joint State-Federal Mortgage volatility”
Servicing Settlement FAQ http://nationalmortgagesettlement.com/faq 13
Copyright © 2014 Accenture All rights reserved.A view to the mortgage industry revolution
Market Events Begin planning GSE
for GSE conservatorship
Dodd- consolidation ends?
Basel 3, QM
Frank Act and QRM rules
Non-agency Original Private-label MBS
passes in place
market collapses conservatorship market running
(Lehman) timeline ends smoothly
GSE
Subprime Conserv- GSEs US
Mortgage atorship return to Presidential GSE ‘consolidation’
Crisis begins profitability Election occurs?
2007 2009 2011 2013 2015 2017 2019 2021
Uniform GSE FHFA “NewCo” Uniform GSE Guidelines
Guidelines and strategic established to and Tech converge
Tech Standards plan build common
begin released “GSE” platform Common US mortgage
secondary market
GSE platform induced platform goes live?
Dodd-Frank Act technology changes
induced technology begin?
changes
Technology-Related Events
Source: CEB TowerGroup Retail Banking analyst Craig Focardi, 2013
14
Copyright © 2014 Accenture All rights reserved.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 …and in others new entrants are taking dominant roles
redefined themselves to remain relevant… as they revolutionize the customer experience.
Redefined Traditional Player Emerging Entrants • 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)
From Ma Bell to Global Networking / IP Provider Redefining Retail • Time from application to approval
• From 1984 until 1996 AT&T was an integrated Mortgage Origination averages 17.8 days for Quicken Loans
telecom services and equipment company customers, which is 8.5 days shorter than
• As new entrants eroded traditional profits, AT&T the industry average (26.3 days)
reinvented itself from a telecom and equipment
company to a global networking leader to remain • Best available technology/ largest
relevant Redefining content provider
• Excluding its divested Advertising Solutions unit, 81% Information & • Strong brand development
($126.4B) of AT&T’s revenues in 2012 came from Advertising • Optimized user experience
these growth areas, which grew ~6% YoY • “Google is about getting the right
information to people quickly, easily
of total revenues grew nearly 6% and cheaply – and for free” (L.Page)
81% year over year
• World’s largest music platform
19% 28% 53% Redefining • First sustainable alternative to
Music Industry and music piracy
Content Distribution • Comprehensive user experience
Voice/ Wireline Data/ Wireless from online music to electronic
Other Managed IT Services devices
15
Copyright © 2014 Accenture All rights reserved.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 Media Era
1885 – 1983 1983 – 2003 2003 – Today
(first ~100 years) (~ 20 Years) (~10 Years)
Traditional 1885: 1941: First 1983: 1993: 1994: 1997: 2000: 2005: Today; AT&T is the
Providers AT&T installation of 7 Regional AT&T AT&T Bell Bell Atlantic SBC purchases largest communications
founded coaxial cable Bell restructures spins Atlantic merges with former parent holding company in the
in the network Operating into 3 off merges GTE and AT&T Corp. and world with phone,
is placed in Companies separate Lucent with adopts rebrands AT&T cable, wire-line data
service created in companies and NYNEX, name and managed IT
AT&T (AT&T, NCR another "Verizon" 2003: 2009: 2011: Microsoft services
New divestiture Lucent, Regional Skype Skype is buys Skype to
NCR) Bell introduced largest “generate new Today: 33%
Entrant of world's voice
carrier of revenue
Example Int’l voice opportunities” calls are on
traffic Skype
Cable Industry 1996: Comcast 2005: Comcast creates 2009: General Electric Today: Verizon
Convergence launches Comcast Comcast Interactive (GE) and Comcast Wireless to pay $1B to
Online, a broadband Media, a new division announce a buyout air NFL games over
Internet service focused on online agreement for NBC customers'
media Universal smartphones
Traditional Scale Optimize & Simplify Become more agile and digital
Telecom Example: AT&T adopts Example: AT&T restructures into 3 Continuously innovate to stay relevant
“one phone system” separate companies (AT&T, Lucent and
Player Example: AT&T is a worldwide provider of IP-based
campaign from 1907-1960s NCR) then spins off Lucent and NCR
Response 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
Copyright © 2014 Accenture All rights reserved.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 Universal Banking Era Post Credit Crisis Era
Build Specialization Scale Optimize & Simplify
Agility & Innovation On Horizon
1933 – Late 1990s Late 1990s – 2008 2009 – Today
(first ~65 years) (~ 10 Years) (~5 Years)
Traditional 1933: 1938: 1969: 1995: First 1998: 2007: 2008: Significant 2010 :GSE 2013+: S&P reports
Providers Glass– Fannie First ATM large bank LendingTree Wells Fargo consolidation conservatorship that the biggest
Steagall Act Mae installed offers online created to reintroduces • Bank of America begins US banks may
separates created; (at services provide mobile acquires Countrywide have to spend a
commercial Freddie Chemical (Wells consumers a banking
and Mac Bank) Fargo) • Wells Fargo acquires further $104bn to
centralized Wachovia resolve mortgage-
investment created location to
banking in 1970 • JPMC acquires most of related legal
receive multiple
loan offers Washington Mutual from issues as they try
FDIC’s receivership 2012: to put the costs of
New 1985: Quicken
Loans, originally 1999: • Simple (Bank) the subprime
Entrant crisis behind
Rock Financial goodmortgage.com 2008: launched – 100%
Example founded online bank them.
Mortgage, • PennyMac founded by
founded • American Express
seasoned lending
and WalMart
executives who have
focused on origiinating launch Bluebird, a
Industry 1998: Citibank 1999: Gramm– HARP-based loans prepaid debit card
Convergence merges with Leach–Bliley Act:
2012:
Travelers to form allows commercial
• Capital One acquires ING
Citicorp combining banks, investment
DIRECT in the US and
banking, securities banks, securities
rebrands its retail unit
and insurance firms, and insurance
CapitalOne 360
services companies to
consolidate • 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
Copyright © 2014 Accenture All rights reserved.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 Journey to Sustainable Competitive Advantage
practices of optimizing and
simplifying the existing Business
Performance Continuous Innovation
infrastructure and business for (Year 2020 Leaders)
improved efficiency and Agility
effectiveness yield a (Year 2020
Table Stakes)
competitive advantage; this Optimization &
simply allows lenders to survive Simplification
(Today’s Table Stakes)
• Rather, adoption of a new,
broader mindset focused on
managing change quickly and
Era of Era of
effectively is critical to compete Survival Convergent Disruption
in the increasingly complex and
Today’s Penetration 93% of lenders are here 5% of lenders are hereAs 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 Refinance “Era for Convergent Disruption” $450
0.4% 3.8%
3.5% Recovery 3.7% $400 High
Performers
0.5% of the
3.0% 3.2% $350 Future
3.1% 0.4%
2.5% 2.7% 0.2% $300 Average
2.5% Performers
0.4%
2.3%
2.0% 0.3% $250
2.1%
2.0%
1.5% 1.6% $200
1.5% 1.6%
Status Quo
(continued optimization
1.0% & simplification only – $150
Not Sustainable)
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
Copyright © 2014 Accenture All rights reserved.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 3. Year 2020 Lender Leaders
Sustainable
2. Year 2020 Table Stakes
Competitive
3. • Become Digital: Transform IT platform to overcome rigid legacy
Advantage technology in back office and enable analytical-driven front office
Continuous • Be Customer-Driven: Make all decisions to improve the customer
innovation experience and proactively meet customer needs
Have the ideas, vision • Fulfill Self-Service vs. Channel Potential (including social media):
and leadership to proactively Maximize channel management per broker, loan officer and consumer
stay ahead of the market 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
Adapt platform/program to leverage best available talent internally and
Through externally on demand
• Employ Optimal and Flexible Financial Strategies: Adaptable
2. Agility portfolio and product strategy
Be able to seize opportunities
In times of change
1. Today’s Table Stakes
• Channel Fulfillment: Provide capability in all
Drive channels to serve target customers most effectively
Efficiency • Streamline and Simplify The Business: Remove
redundancies and improve processes and
Through technologies to become lean and rationalize
business, products, technology and operations
• Manage Regulatory Requirements: Handle
1. Optimization and simplification increasing regulation as a competitive advantage
• Manage Enterprise Risk Management Regime:
Be as efficient and effective as possible in current structure
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
Building Blocks arise
21
Copyright © 2014 Accenture All rights reserved.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 Innovate
3. Enabling Technology 3.
Continuous Business IT
Corporate
Year 2020 Lender Leaders IT
innovation (“As a
Technology As Continuous Service”)
2. Agility
Provider of Innovation
3. Drive
1. Optimization and Scale
Efficiency
Continuous simplification
innovation 2. Year 2020 Table Stakes
Have the ideas, vision Agile Information Technology
and leadership to proactively • Mobility: Extending mobility across the distribution spectrum
• Analytics and Data Velocity: Using business intelligence, data analytics and
stay ahead of the market
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
Be able to seize opportunities 1. Today’s Table Stakes
In times of change 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
1. Optimization and simplification • Cyber Security & Fraud Management: Data privacy
management platform including enhanced email security tools and
Be as efficient and effective as possible in current structure 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
Building Blocks • Imaging Technology: Allows for document collaboration across all
departments 22
Copyright © 2014 Accenture All rights reserved.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 % Declines in Origination New Entrant Since 2008
Total Number of Lenders -4.6% 2.5% 484 472 611 -4.9% 1.5% 461 454 594
Total Residential Origination Volume Total Residential RETAIL Origination
($US Millions) Volume ($US Millions)
All Companies 6.4% 20.6% 1,941,536 1,424,581 13.0% 28.1% 1,158,456 904,165 627,666
Big 4 Market Share 0.5% -4.9% 45% 50% 44% 0.0% -3.7% 45% 49% 45%
Emerging Providers Market Share 10.2% 5.0% 11% 6% 1% 12.2% 4.4% 13% 9% 1%
Company Name % 5-Yr CAGR % 1-Yr CAGR LTM 2013Q2 LTM 2012Q2 LTM 2008Q2 % 5-Yr CAGR % 1-Yr CAGR LTM 2013Q2 LTM 2012Q2 LTM 2008Q2
Wells Fargo & Co. 12.3% 3.8% 490,336 472,407 274,557 14.9% 9.6% 251,883 229,922 126,030
Chase 12.0% 26.6% 212,735 168,004 120,580 24.7% 8.2% 113,870 105,253 37,758
Bank of America -4.2% 4.8% 95,534 91,190 118,519 1.0% 39.0% 95,422 68,660 90,885
Quicken Loans Inc. 68.7% 114.4% 94,250 43,952 6,890 68.7% 114.8% 94,250 43,884 6,890
US Bank Home Mortgage 21.1% 18.5% 86,946 73,397 33,441 28.4% 18.2% 24,906 21,069 7,144
CitiMortgage, Inc. -9.2% 4.3% 73,443 70,383 119,259 16.6% 64.0% 61,334 37,398 28,508
PHH Mortgage 22.4% 3.2% 56,890 55,152 20,704 23.2% 26.5% 49,894 39,434 17,553
Flagstar 27.4% 30.2% 53,171 40,829 15,860 17.0% 25.4% 3,233 2,578 1,476
BB&T 17.9% 14.7% 34,729 30,268 15,244 10.1% 12.1% 13,243 11,818 8,187
SunTrust Bank 9.5% 19.3% 34,058 28,548 21,613 11.4% 14.6% 18,265 15,938 10,654
PennyMac -- 540.4% 33,672 5,258 -- -- -- -- -- --
Provident Funding Associates 30.6% 1.9% 31,964 31,358 8,422 68.6% 21.1% 4,782 3,949 351
Fifth Third Bank 28.1% 8.2% 27,748 25,646 8,059 25.7% 2.8% 15,555 15,134 4,950
Ally Bank/ResCap (GMAC) -8.2% -46.8% 24,786 46,606 37,928 -14.7% -61.4% 4,425 11,477 9,801
Franklin American Mortgage Co. 20.4% 39.8% 23,794 17,024 9,388 34.5% 35.4% 1,037 766 236
Guaranteed Rate Inc. -- 86.2% 18,020 9,676 -- -- 86.2% 18,020 9,676 --
USAA Federal Savings Bank 20.1% 18.4% 17,932 15,151 7,189 46.2% 18.4% 17,932 15,151 2,689
PNC Mortgage 6.2% 35.0% 17,114 12,675 12,667 7.2% 35.0% 17,114 12,675 12,094
Nationstar Mortgage -- 206.4% 15,416 5,031 -- -- 148.9% 7,913 3,179 --
PrimeLending 51.4% 29.7% 14,455 11,145 1,820 51.5% 29.7% 14,455 11,145 1,814
Stearns Lending 72.8% 65.1% 14,436 8,746 938 162.4% 92.7% 2,486 1,290 20
Navy FCU 28.9% 54.1% 12,048 7,817 3,383 28.9% 54.1% 12,048 7,817 3,383
Everbank 33.1% 50.8% 11,456 7,596 2,742 56.1% 64.1% 6,290 3,834 679
United Wholesale Mortgage -- 234.6% 10,953 3,273 -- -- 87.9% 1,037 552 --
NYCB Mortgage -5.9% 7.5% 10,258 9,544 13,883 -100.0% -100.0% -- 3 124
Amerisave Mortgage Corp. -- 42.9% 10,062 7,040 -- -- 34.2% 8,507 6,340 --
M&T Mortgage 27.1% 41.2% 9,357 6,626 2,822 37.3% 40.2% 5,523 3,938 1,131
Union Bank 31.1% 8.2% 9,232 8,529 2,386 40.8% 0.5% 3,321 3,305 601
Prospect Mortgage -- 20.2% 8,883 7,389 -- -- 19.3% 8,812 7,389 --
Sierra Pacific Mortgage 23.8% 33.9% 8,464 6,322 2,913 56.6% 39.9% 2,102 1,503 223
TD Bank NA 75.2% 27.4% 8,296 6,513 503 87.2% 27.4% 8,296 6,513 361
Regions Mortgage 20.8% 15.8% 8,088 6,985 3,146 20.9% 16.2% 7,967 6,855 3,082
Manufacturers & Traders Trust Co. 8.7% 310.6% 7,761 1,890 5,107 22.0% 334.0% 4,197 967 1,552
LoanDepot.com -- 99.3% 7,704 3,866 -- -- 106.7% 7,704 3,728 --
RBS Citizens, NA 40.0% -3.8% 7,245 7,532 1,349 40.0% -3.8% 7,245 7,532 1,349
Fremont Bank 55.0% 60.0% 7,158 4,475 801 46.6% 51.0% 5,110 3,383 754
Cole Taylor Mortgage -- 125.2% 7,114 3,159 -- -- 117.3% 1,193 549 --
Sources: Accenture Research analysis using MortgageData.com, 2013 24
Copyright © 2014 Accenture All rights reserved.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 2012 2013 +0.5%
50% 0% % Market Share Change 2008-13 -21.6%
45%
40%
30%
+12.1% 23%
20% 17%
+3.7%
+5.3%
9%
10%
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
Copyright © 2014 Accenture All rights reserved.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 2012 2013 +0.0%
50% 0% % Market Share Change 2008-13 -20.8%
45%
40%
30%
+9.9%
20%
20% +5.3% +2.3%
15%
10% 11%
10%
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
26
Copyright © 2014 Accenture All rights reserved.Agility and product commoditization expand the business models for success in
the future of the mortgage origination industry.
Emerging Entrants and Adopters (Current
Current Lender Landscape – 2014
Players who Adopt new Business Models)
50+ Players
Highly Agile C. B. Independent Lenders
• Most business generated ~17% market share*
Emerging
through online/digital channels (PHH, Nationstar)
• Highly nimble
Digital
• Flexible infrastructure Lenders A. Traditional
• Social media an integral part of 6% MS Lenders
strategy
• Optimized and simplified
~425 Lenders
• Customer-centric ~77% market share*
(US Bank Home
Mortgage, BB&T,
SunTrust, USAA)
• Most business generated through Small Bank Mid-Size Big 4 Banks
traditional, physical channels Lenders Banks 4 players
• Less nimble
• Heavy infrastructure 360+ players 60+ players ~45% market share*
• Less optimized and simplified ~9% market ~23% market (Wells Fargo, Chase,
Less Agile share* share* BoA, CitiMortgage)
Specialized Large-Scale, Commodity Products
• Focused products or limited geographic focus • Commodity products (mass market focus)
• Highly customer-centric • Product and customer centric
• Higher priced • Low price
• Advice-driven • Low amount of advice
• Highly nimble • Not very nimble
• Simplified/optimized infrastructure • Large, often legacy infrastructure
• New entrants • Larger foreign entrants, but mostly traditional
• Compete largely on advice and product depth/differentiation players
• Compete largely on price
* Market shares are based on enterprise-level revenues
Sources: Accenture Research analysis using MortgageData.com, 2013
Copyright © 2014 Accenture All rights reserved. 27Today’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 B. Independent Lenders 90+ Players Emerging Lenders and Adopters (Current
~26% market Players who Adopt new Business Models)
share* ~100 players
C. Emerging
Digital ~40% market share
Lenders A. Traditional Full- Examples of who could steal market share
10+ Players Service Lenders from Traditional Lenders:
~15% market • A handful more pure play online lenders will
300+ banks
share look to take advantage of Quicken Loan’s
~60%
market dynamics
market share
Small Bank • Small/community banks that become highly
Lenders Mid-Size Big 4 Lenders agile and can now compete with larger banks
250+ players Banks 4 players (e.g., innovative credit unions)
~26% market 45+ players ~30% market • Agile / innovate independent lenders
share* ~17% market share • Retailers that continue to move into the
Less Agile share lending space
Specialized Large-Scale, Commodity Products
Market Share # of Players
Today 2020 Today 2020 Comments
Big 4 Lenders ~45% ~30% 4+ 4+ • 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)
Mid-Size ~23% ~17% 60+ 45+ • Midsize / regional leaders have lost the most market share since the credit crisis and will continue to see runoff as
Lenders they look to reposition their business models to be more competitive and unique in an increasingly fragmented
credit market
Small Bank ~17% ~26% 360+ 250+ • Though the number of small banks will continue to consolidate, the survivors (including innovate credit unions) will
Lenders continue to capture market share for customers seeking high-touch customer service
Online ~6% ~15%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 Common Characteristics of
the Emerging Disruptors
Circa Circa
2020 3 2020 • Emphasize social
Optimization and responsibility
Market Simplification Scale • Focus on customer centricity
3 nimble and empowerment
Innovation • Present simpler fee structure
2 to customers
Agility • Provide personal financial
2 management tools and
Agility Innovation access to other accounts
1 • Embedded with social
media, especially Facebook
1 Scale Market entry • Leverage Big Data and
Optimization and analytics
Simplification Circa Circa
• Willingness to leverage
2013 2013
Cloud and Virtualization
29
Copyright © 2014 Accenture All rights reserved.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: • History of Innovation:
www.fool.com/investing/general/2013/10/11/10-reasons-why-peter-
drucker-would-have-thought-co.aspx#878482 – First with its membership-fee structure
The New York Times, 13 November 2013
– Move into selling gasoline
30
Copyright © 2014 Accenture All rights reserved.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,
Digital pure plays have to adopt a broader 1 of the Big 4 Lenders, and Large Indies
infrastructure to scale and properly manage and Midsize Banks Focus on Evolving to
customer expectations a Digital Model With Scale
Highly Agile Industries Outside Lending
• Most business generated
through online/digital channels C. Emerging Digital D. Digital Hybrids 10+ Players
• Highly nimble Lenders ~20% market Best
• Flexible infrastructure 20+ Players share*
90+ Players positioned
• Social media an integral part of ~5% market share B. Independent Lenders
strategy ~15% market share* for global
• Optimized and simplified expansion
• Customer-centric
Possibly a handful of small banks
(~10) decide they will be more
E. Retail
competitive by assuming a pure play
digital approach ; might be conducive
Correspondents
Possibly
for credit unions 5-8 players Large
(Lenders + Large Retailers +
• Traditionally customer facing
Retailers) One of the
• Most business generated A. Small Bank A. Midsize A. Big 2
~10% market share Large 4 /
through traditional, physical Lenders Lenders Lenders
Largest
channels ~240 players ~40 players 2 players (Example: Costco Indies /
• Less nimble ~10% market ~15% market ~25% market partnering with one Larger
• Heavy infrastructure share share share of the Big 4) Midsize
• Less optimized and simplified
Banks
Less Agile
Specialized Large-Scale, Commodity Products
• Focused products or limited geographic focus • Commodity products (mass market focus)
• Highly customer-centric • Product and customer centric
• Higher priced • Low price
• Advice-driven • Low amount of advice
• Highly nimble • Not very nimble
• Simplified/optimized infrastructure • Large, often legacy infrastructure
• New entrants • Larger foreign entrants, but mostly traditional
• Compete largely on advice and product depth/differentiation players
• Compete largely on price
31
Copyright © 2014 Accenture All rights reserved.These new business models have the potential to be highly disruptive to the
banking industry.
Potential Landscape – 2020 (Emerging Model Scenario)
Industries Outside Lending
Highly Agile
C. Emerging Digital D. Digital Hybrids 2 3 10+ Players
Lenders ~20% market High Performers
1
20+ Players share* will be OUTSIDE
90+ Players this box (more
~5% market share B. Independent Lenders
~15% market share* agile)
A. Small Bank A. Midsize A. Big 2 E. Retail 4
Lenders Lenders Lenders Correspondents 5
~240 players ~40 players 2 players 5-8 players (Lenders
~10% market ~15% market ~25% market + Large Retailers)
share share share
~10% market share
(Example: Costco,
Sam’s Club, Home
Depot partnering with
Less Agile one of the Big 4)
Specialized Large-Scale, Commodity Products
1. Emerging Digital 2. Hybrid Digital Bank 3. Digital Hybrid 4. Retail Correspondent 5. Retail Correspondent
Scenario: Scenario: Independents: Bank Scenario: Indie Scenario:
• Example: Some small • Example: One of the Big 4 • Example: A few of the • Example: One of the Big 4 • Example: Large retailers
banks and independents banks and a few of the largest indies will see banks or midsize banks will partner with a few of the
see a competitive Midsize banks focus on advantage of focusing on a provide the lending engine large independent lenders
advantage in becoming as a going digital with scale digital value proposition behind one of the big • Market Edge: The
digital pure play • Market Edge: Gaining cost • Market Edge: Could have retailers independent lenders who
• Market Edge: Gaining cost and process efficiencies vis competitive advantage over • Market Edge: Immediate partner with retailers will
efficiencies and expanding a vis traditional lenders most lenders, especially in market share and low gain an additional
beyond legacy physical adjusting to market demand pricing across a broad distribution channel and
footprint range of products appealing higher customer brand
to existing customers awareness
32
Copyright © 2014 Accenture All rights reserved.Lenders choosing to remain Traditional Full-Service Providers
can also be successful by becoming more agile and/or large-scale.
Potential Landscape – 2020 (Emerging Model Scenario)
Industries Outside Lending
Highly Agile
C. Emerging Digital Lenders 2 3 10+ Players
D. Digital Hybrids
~20% market share* High Performers
1 20+ Players
~5% market share 90+ Players will be OUTSIDE
B. Independent Lenders this box (more
~15% market share*
agile)
F. Retail 4
A. Small Bank A. Midsize A. Big 2 Lenders
Correspondents
Lenders Lenders 2 players 5
5-8 players (Lenders
~240 players ~40 players ~25% market share
+ Large Retailers)
~10% market share ~15% market share
~10% market share
(Example: Costco,
Sam’s Club, Home
Depot partnering with
Less Agile one of the Big 4)
Specialized Large-Scale, Commodity Products
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
Copyright © 2014 Accenture All rights reserved.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
What Must Lenders Do
Leaders
TODAY to Succeed in the
3. “Era of Convergent
Continuous Disruption”?
innovation
Have the ideas, • Proactively invest in
vision and leadership
to proactively
initiatives that will build the
stay ahead of the market business rather than
reactively respond to
2. Agility 2. Year 2020 regulations, competitors and
Be able to seize opportunities Table Stakes industry changes
In times of change
• Become More Digital
• Be Customer-Driven • Fundamentally shift from a
• Fulfill Omni-Channel Potential (incl. social media)
• Manage the New Talent & Regulatory Dynamic product-oriented organization
• Employ Optimal and Flexible Financial Strategies to a customer-driven
1. Today’s organization
1. Optimization and simplification
Table Stakes
Be as efficient and effective as possible in current structure • Rebuild bank reputations
• Channel Fulfillment
• Streamline and Simplify The Business • Embrace and integrate new
• Manage Regulatory Requirements technologies, channels and
• Manage Enterprise Risk Management Regime strategies
• Create Capital and Funding Strategies
34
Copyright © 2014 Accenture All rights reserved.The US Mortgage Lender industry is managing a $18.5 trillion balance sheet.
US Household Balance Sheet – $US Billions
Residential Real Estate = $18,453
Mortgage Debt Outstanding = $9,868 Homeowner’s
Equity = $8,585
Agency Balance Sheet = Bank Balance Sheet = Non-Agency MBS = Other
= -$1 QoQ
$5,830 $2,957 $886 +$819 QoQ
-$9 YoY +$2,077
$195 YoY
Ginnie 1st Lien 2nd Lien Other* Prime Alt A Option Sub- Dramatic increases in home equity
GSE MBS = $4,490 MBS = = = = = = ARM Prime could support the issuance of
$1,340 $2,051 $748 $158 $188 $288 = $117 =$293 HELOCs, increase the amount of
loans able to refinance and
improve the mobility of
+4 QoQ +$ 18 -$17 -$22 -$2 -$12 -$11 -$7 -$8 homeowners.
-$102 YoY +$102 +$60 -$84 -$11 -$47 $56 -$25 -$46
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
Copyright © 2014 Accenture All rights reserved. 36As 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 Customer Satisfaction
Time in Days • The time from application to approval averages 17.8 On Scale of 1,000
65 days for Quicken Loans customers, which is 8.5 days 780
Cycle Time shorter than the industry average (26.3 days)
61.0
• In late 2011, CitiMortgage had been adding staff,
60 streamlining its processes in effort to cut its refinance
Customer
Satisfaction time from 77 days toHalf 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
Copyright © 2014 Accenture All rights reserved. 38Appendix
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 (non-
cash)
Total
1
Gain on Sale 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
Copyright © 2014 Accenture All rights reserved. 393.
Continuous
innovation
2. Agility
Additional information about each building block is available 1. Optimization and
simplification
in the provided links
Additional Information Business Technology
Continuous Innovation https://kxws.accenture.com/Repositories/C23/54/24/Acc http://www.accenture.com/us-en/Pages/insight-
enture_Banking_2016_v14_PRINT.pdf banking-technology-vision-reshaping-landscape-
http://www.accenture.com/us-en/Pages/insight-banking- summary.aspx
2012-revenue-growth-innovation-summary.aspx
Digital https://kxws.accenture.com/Repositories/C25/73/9/Accenture% https://kxws.accenture.com/Repositories/C23/82/64/12-
20Interactive_Banking_Social%20Engaging_Banking_3_14_13 1315_BankingCloud_v5.1_Final_May2012.pdf
.pdf https://kx.accenture.com/repositories/contributionform.as
https://kxws.accenture.com/Repositories/C25/17/54/Accenture px?path=C25/89/26&mode=read
%20Interactive_PoV_Banking_on_Digital_1_8_13.pdf
Customer Centricity https://kx.accenture.com/Repositories/ContributionForm.aspx?p http://www.accenture.com/us-en/Pages/insight-boosting-
ath=C26/36/72&mode=Read relevance-returns-digital-channel-banking-summary.aspx
Agility Omni-Channel https://kxws.accenture.com/Repositories/C23/54/24/Accenture_ http://www.accenture.com/us-en/Pages/insight-banking-
Banking_2016_v14_PRINT.pdf 2016-next-generation-banking-summary.aspx
Potential
New Talent Dynamic http://www.accenture.com/us-en/Pages/insight-going-above- http://www.accenture.com/us-en/Pages/insight-global-
beyond-banks-optimize-talent.aspx analytics-shortage-banking-summary.aspx
Optimal Financial http://www.accenture.com/us-en/Pages/insight-basel- http://www.accenture.com/us-en/Pages/insight-cfo-
consequences-summary.aspx catalyst-change.aspx
Strategies
Channel Fulfillment https://kxws.accenture.com/Repositories/C23/54/24/Accenture_ http://www.accenture.com/us-en/Pages/insight-power-
Banking_2016_v14_PRINT.pdf online-banking-channel-summary.aspx
Streamline & Simplify http://www.accenture.com/us-en/Pages/insight-banks-rise- https://kxws.accenture.com/Repositories/C25/99/9/WSS
global-transformation-challenge-summary.aspx 153_CoreBankingTop3Reasons7.pdf
http://www.accenture.com/us-en/Pages/insight-banking-2016- https://kxws.accenture.com/Repositories/C22/96/48/Win
next-generation-banking-summary.aspx 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-act- http://www.accenture.com/us-
Optimization & strategic-tactical-implications.aspx en/blogs/regulatory_insights_blog/archive/2011/11/16/inf
Simplification ormation-management-impacts-of-recent-financial-
regulation.aspx
Manage Enterprise http://www.accenture.com/us-en/Pages/insight-rethinking-risk- http://www.accenture.com/us-en/Pages/insight-acn-
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