1. MIS 3090: IT for Financial Services Real Estate and IT August 27, 2015

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3. August 27, 2015 3/37 Fannie Mae  Originally the Federal National Mortgage Association, founded by Congress in 1938 – part of FDR’s New Deal initiative  Buy mortgage loans from banks and other institutions and package them into mortgage-backed securities which they sell to investors  They independently provide mortgages to people with bad credit or mortgage with unusual criteria such as zero down payment or interest only loans  Traded on NYSE (Ticker: FNM)

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6. August 27, 2015 6/37 Freddie Mac  Federal Home Loan Mortgage Corporation  Competes with Fannie Mae  Also buys mortgages in the secondary market  They also provide mortgages to people with bad credit  Traded on NYSE (Ticker: FRE)

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8. August 27, 2015 8/37 Industry Background Real Estate Industry GDP, 1991 and 2001 * Note*:The real es tate industry includes all economic activity of owners, lessors, lessees, buyers, sellers, agents, and developers of real estate. Companies engaged primarily in the construction of buildings for sale (operative builders) are classified under the construction industry. Source:Bureau of Economic Analysis, U.S. Commerce Department Trillion GDP, 1991 and 2001 Contribution to Total GDP Percent Of Total +70%

9. August 27, 2015 9/37 New Home Sales New Home Unit Sales, 1968 to 2002* Source:U.S. Bureau of the Census, 2003 Thousands Annual Change, 1997 – 2002: 4.6% 0 600 1,200 68707274767880828486889092949698'00'02

10. August 27, 2015 10/37 Existing Home Sales Existing Home Unit Sales, 1968 to 2002* Source:National Association of Realtors, 2003 Thousands Annual Change, 1997 – 2002: 4.7% 0 3,000 6,000 68707274767880828486889092949698'00'02 Approx 4 times the rate of new homes

11. August 27, 2015 11/37 Declining Mortgage Rates Source:Freddie Mac, 2003 Mortgage Rates, 1984 to 2003 30-Year FRM 1-Year ARM 84 02928688909496980003

12. August 27, 2015 12/37 Supply of Homes Increased housing demand kept unsold home inventory at historically low levels. Source:National Association of Realtors; U.S. Bureau of Census, 2003 Month’s Supply of Existing and New Homes, 1991 to 2001 Existing Homes New Homes 4.6 4.1 8.9 8.1 Months Supply

13. August 27, 2015 13/37 Looking Forward … Future housing demand will also be influenced by the increased use of mortgage debt which was expected to continue to rise through 2010. Source:Federal Reserve Board, 2003 Single Family Debt-to-Value Ratios, 1952 to 2010e 2010e 1952 2000 1990 1980 19601970 Mortgage Home Value

14. August 27, 2015 14/37 U.S. Immigration Source:Bureau of Citizenship and Immigration Services Immigration to the U.S., 1950s – 1990s Million Immigration into the United States, which continued to grow, will have a significant impact on home ownership rates in the years to come...

15. August 27, 2015 15/37 Growth in Online Use Use of the Internet as an information source in buying a home increased significantly. Source: “2001 Realtors & The Web,” National Association of Realtors; 2003 National Association of Realtors Profile of Home Buyers and Seller; Harris Interactive; Kannon Analysis Penetration of Online Search in Home Purchases, 1995 - 2003 * Percent of Total PC Users PC Users Online Homebuyers Searching Online Percent of Total PC & Internet Penetration, U.S. Adults (18+)

16. August 27, 2015 16/37 Sources of Information Note (1) :Only of those homebuyers who used each source. Note (2) : Agents are licensed sales workers who provide their services to a real estate broker on a contractual basis. Brokers, on the other hand, are licensed business people who sell real estate owned by others. Brokers manage their own brokerage company, advertise properties, and handle other matters related to the business. Brokers manage and supervise agents. The term Realtor is a registered collective membership mark that identifies a real estate professional who is a member of the National Association of Realtors. Source:2003 National Association of Realtors Profile of Home Buyers and Sellers Usefulness of Information Sources, 2003 (1) (Top Box Response = Very Useful) Percent of Respondents (2) Where do homebuyers find their information?

17. August 27, 2015 17/37 Information Sought Online When going online, the majority of home buyers searched primarily for information on properties for sale. Source:2003 National Association of Realtors Profile of Home Buyers and Seller Type of Information Sought Online, 2003 Percent of Respondents

18. August 27, 2015 18/37 Value of Online Features Features valued most highly by home buyers searching online were photos and detailed property information. Source:2003 National Association of Realtors Profile of Home Buyers and Seller Value of Online Features, 2003 Percent of Respondents Enter Google Maps…

19. August 27, 2015 19/37 Jay Burnham 123 Main Street Coldwell Banker (Example) Multiple Photos Finance Tools Easy ways to contact me for more information Extensive Details Save to your profile Coldwell Banker Residential Brokerage 54 Dodge Street Beverly, MA 01915 Call me direct: (978) 233-2828

20. August 27, 2015 20/37 Websites Used Source:2003 National Association of Realtors Profile of Home Buyers and Sellers Websites Used As Information Source, 2003 Percent of Respondents www.bostoncondos.com

21. August 27, 2015 21/37 Key Online Competitors … Top Real Estate and Rental Sites, March 2003 Source:Nielsen/Net Ratings, 2003 Time Spent On Site 32 minutes 7 minutes 5 minutes 8 minutes 22 minutes 5 minutes 14 minutes 9 minutes 14 minutes 9 minutes Unique Audience 4,583,000 3,611,000 1,175,000 1,091,000 979,000 767,000 730,000 688,000 567,000 469,000 Brand/Channel Realtor.com Homestore.com HomeGain.com Yahoo! Real Estate Century 21 RE/MAX Coldwell Banker Apartments.com Rent.com ZipRealty

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27. August 27, 2015 27/37 Business Model (Homegain)  HomeGain charged Realtors $29.95 month to subscribe to the site.  Members receive an average of 30 real-time buyer and seller leads per month.  Leads include such information as address of home for sale, number of bedrooms and bathrooms, approximate total square footage, property type (for example, single family detached), and desired selling price.  Realtors also pay a referral fee to HomeGain if the lead results in a closing. The referral fee is 25% of the gross commission. Note*:Assumes two sides to the transaction and a total commission rate of 6%. Realtor’s commission is before any broker’s split of the commission, if applicable. Source:Company articles and web site, 2003 Example of Referral Fee * For example, Realtor receives 3% gross commission on a $150,000 sale Realtor’s gross commission ($150,000 x 3%) $4,500 Referral Fee to HomeGain ($4,500 x 25%) $1,125 Realtor's commission ($4,500 - $1,125)$3,375

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29. August 27, 2015 29/37 Real Estate Broker Commissions The Bureau of Economic Analysis estimated that real estate commissions reached over $67 billion in 2002. The average commission charged on home transactions dropped to 5.12% in 2002 from 5.48% in 2001 Estimate of Real Estate Sales Commissions, 1997 to 2002e* Note*:Assumes a constant commission rate of 6%. Source:U.S. Bureau of Economic Analysis Estimates, 2003 In Billions Annual Change = 10%

30. August 27, 2015 30/37 Disintermediation Potential The potential disintermediation of newspapers is foreshadowed by brokers’ investments to build their presence online. Internet Presence of Real Estate Brokers, 2000 and 2002 Percent Of Brokers Source:The 2001 National Association of Realtors Member Profile; The 2003 National Association of Realtors Member Profile

31. August 27, 2015 31/37 Website Activity 52% of brokers with websites reported getting at least eleven online inquiries in 2002, but. 70% of then said that no more than 10% of their total business came from their websites. Website Activity of Real Estate Brokers, 2002 Percent Of Brokers Source:The 2003 National Association of Realtors Member Profile Brokers by Website Inquires Number of Inquiries Percent Of Brokers Percent of Business From Website Percent of Business Generated by Website

32. August 27, 2015 32/37 For Sale by Owner The primary reason cited by sellers for selling direct or FSBO was their desire not to pay agents’ commissions, though a large number also knew their buyer directly. Source:2003 National Association of Realtors Profile of Home Buyers and Sellers Most Important Reason For Selling Home As FSBO, 2003 FSBO 14% Real Estate Agent 83% Home- buying Company 1% Other 2% Method Used to Sell Home Reasons for FSBO Percent of Respondents

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35. August 27, 2015 35/37 For Next Class…  Guest speaker, Mr. Rick Burke from Commerce Bank  Read − Internet Customer Acquisition Strategy at Bankinter − Case questions will be posted shortly

36. August 27, 2015 36/37 QUESTIONS? ???

37. August 27, 2015 37/37 THANKS!! GO CATS!!