1. The Changing Landscape of Mortgage Servicing
Moderator: Sheryl Krocek, U.S. Bank
Panelists: Scott Schmitt, U.S. Bank
Ansel Caine, Caine Mitter
Friday, April 5th 2013

2. National HFA-MRB Servicers
The New MLS Landscape
How did we get here?
National HFA-MRB Servicers
Today / 2013

3. The New MLS Landscape Scary: Declining Servicing Values
How did we get here?
Scary: Declining Servicing Values
Scarier: Increasing Foreclosue and Repurchase Volume
Scariest: QM, QRM, Dodd-Frank and Basel III

4. GSE Guidelines and Repurchase Requests!
The Decision Makers!
OCC Regulations!
HUD
Regulations!
GSE Guidelines and Repurchase Requests! 4

5. Regulations
MDIA > Confirm early TIL disclosed to borrower 3 days from application, verify APR not increased greater than .125
RESPA > Confirm Initial and Final GFE
High Priced – FFIEC
Verify lock date, apr, and term which calculates rate spread of loan.
High Cost > Run multiple tests to ensure borrower fees not excessive
Regulations / Form Changes
Programs Changes
Credit Score / DTI Changes
TBA Programs

6. sk The fun never stops! Re-Purchase & MI Rescissions
Requirements of Dodd-Frank & Basil III
Changing Value of Servicing

7. Changing Servicing Values
Cost of Servicing
Loss Mitigation, Basel III, Dodd-Frank, etc…
Fixed vs. Market Adjusted
Ability to Adapt to Market

8. THE CHANGING LANDSCAPE FOR MORTGAGE SERVICING
SERVICING ADJUSTMENTS NEEDED FOR BEST EXECUTION AND TBA
Ansel Caine
Friday, April 5, 2013

9. Topics MBS Secondary Market / TBA Overview
Adjusting Servicing for Secondary Market Execution
Working with a Master Servicer for Best Execution

10. Traditional Mortgage Revenue Bond Model is Broken
30yr Traditional MRB (Non-AMT)
NIBP Bond
GNMA MBS
30yr Traditional MRB (AMT)
Traditional
Relationship
Inverted
Date of Lehman Bankruptcy %
Their product:
2% and 4% DPA product
4% DPA most loans, 0 points
Pay lenders = 205 (origination + service release)
GNMA I price
Points 0
DPA 4
Sale premium today – CASH mkt price
Mtge rate 4.50%
SRP = 1.87 (44bps svc fee)
DPA = -4
Lender fees = -2.05
Changes w prepayment speed?
4.05 – 12/8/9
Min of 10yr+.6 OR 4.05 – 9/15/10
Min of 10yr+.6 OR 3.61 – 12/31/10
End on 11/4/11
spread – 60 bps

11. MBS Secondary Market is Highly Liquid U.S Fixed Income Securities
Their product:
2% and 4% DPA product
4% DPA most loans, 0 points
Pay lenders = 205 (origination + service release)
GNMA I price
Points 0
DPA 4
Sale premium today – CASH mkt price
Mtge rate 4.50%
SRP = 1.87 (44bps svc fee)
DPA = -4
Lender fees = -2.05
Changes w prepayment speed?
4.05 – 12/8/9
Min of 10yr+.6 OR 4.05 – 9/15/10
Min of 10yr+.6 OR 3.61 – 12/31/10
End on 11/4/11
spread – 60 bps

12. MBS Secondary Market Sale Economics
Liquidity and transparency of MBS market allows for daily rate setting
MBS sale example – Assumes government loan with 3.75% mortgage, no points and 3.0% down payment assistance
GNMA sale price (1)
107.0
Less cost of GNMA (2)
Value of Servicing (3)
Net income
2.9
As of April 2, 2013
Purchase price of mortgage loan, down payment assistance, origination fees and service release premiums, if appropriate
Present value of 0.19% servicing cash flows at 250% PSA and 5% discount rate
MBS Secondary Market Allows HFA to Continue Programs

13. Origination Period Creates Interest Rate Risk
GNMA PRICE
Market
Risk
MBS Secondary Market Allows HFA to Continue Programs
DAY 1:
RATE IS
LOCKED
DAY 45: LOAN CLOSES
DAY 60:
LOAN IS
PURCHASED
DAY 75:
LOAN IS
POOLED
DAY 90:
MBS IS DELIVERED
ORIGINATION
WAREHOUSE

14. Selling TBA Forward Hedges Market Risk
GNMA PRICE
HFA sells TBA and locks in price
Market Risk
Eliminated
MBS Secondary Market Allows HFA to Continue Programs
DAY 1:
RATE IS
LOCKED
DAY 45: LOAN CLOSES
DAY 60:
LOAN IS
PURCHASED
DAY 75:
LOAN IS
POOLED
DAY 90:
MBS IS DELIVERED
ORIGINATION
WAREHOUSE

15. TBA Allows HFA to Sell MBS Forward
What is TBA?
TBA is an agreement to deliver an Agency MBS on an agreed upon future date for an agreed upon price
Why is it called TBA?
In a TBA trade, only price, settlement date, type, amount and interest rate are specified; all other characteristics are “To Be Announced”
How does TBA trade?
Most major broker/dealer firms have a mortgage desk that will bid on standard TBA
Most trades are done on a competitive basis

16. Adjusting Servicing for Secondary Market Sales
MBSs trade best when the pass-through rate is a multiple of 0.50%
Flexible servicing fees allows for the creation of MBS on the half coupon, even if mortgage rates are not
Sample servicing fees for various government loan rates
0.315%
Servicing
3.875%
FHA Mortgage
3.500%
GNMA
0.060%
Guarantee Fee
Mortgage rate
4.000
3.875
3.750
3.625
3.500
Servicing fee
0.440
0.315
0.190
0.565
Guarantee fee
0.060
Pass through rate
3.000

17. Servicing Fee Affects Overall MBS Value
Mortgage Rate
3.250
3.375
3.500
3.625
3.750
3.875
4.000
4.125
4.250
4.375
4.500
Servicing Fee
0.190
0.315
0.440
0.565
Pass-Through
3.000
*Servicing Value calculated at
250% PSA and 5% discount rate

18. Composition of MBS Affects Value and Financing Options
TBA eligibility
Mortgage Revenue Bond eligibility
Investors “pay up” for certain MBS characteristics, including:
Maximum loan balance
CRA credit
LTV
FICO
Issuance date
Example of pay-ups for low loan balance pools:
Pool Type
Pool Amount
Maximum
Loan Balance
Winning Bid
GNMA I 4.00%
1,645,279
83,460
110.94
2,081,961
103,981
110.75
1,728,763
137,071
110.59
1,077,594
173,764
110.41

19. Sample Monthly Cycle for Creating Pools for TBA
April S M T W F 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Sample April calendar:
April 3: Cut off for loan purchases
April 4: Pool optimization determined
April 10: Notification of delivery published
April 15: HFA purchases MBSs
April 16: HFA notifies TBA counterparty of delivery
April 18: TBA trade is settled

20. Caine Mitter & Associates Incorporated 279 Fifth Avenue Fourth Floor
Ansel Caine
Caine Mitter & Associates Incorporated
(212)
279 Fifth Avenue Fourth Floor
New York, NY 10016

21. TBA Issues for Servicers
Multiple Pricing Options
Frequent Price Adjustments
Delivery timelines
Loan Lock Extensions

22. TBA – Multiple SRP’s Note Rate 3.500% 3.625% 3.750% 3.875% G-Fee
Sample Ginnie Mae
Note Rate
3.500%
3.625%
3.750%
3.875%
G-Fee
0.060%
Servicing Fee
0.440%
0.565%
0.190%
0.315%
Pass-Thru
3.000%

23. Challenges
Current
&
Future