acuma january 2015 pipeline

January • 2015

PIPELINEACUMA

MAGAZINE

U.S. Macro Outlook 2015:

Spirits UnleashedBy Mark Zandi n Page 30

© 2014 Arch Mortgage Insurance Company 169-01-15-CU

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January 2015 - PIPELINE 1

TaBle of conTenTs























2 CU Mortgage Lending, A real alternative for membersBy Bob Dorsa

4 In the Pipeline: Insights and Observations on CU Mortgage Lending4 Mortgage Insurers Start the New Year with New Master Policies By Arch Mortgage Insurance Company

6 ACUMA 2015 Annual Conference September 14-16, Bellagio Las Vegas

7 Saving for a Downpayment Takes Time and Sacrifice, but the Payoff Remains By Jessica Lautz

8 ACUMA’s Exhibit at the 2014 NAR By Bob Dorsa

10 Credit Union Uses eRegistry for eNotes to Bring 21st Century Efficiency to its Mortgage Process

13 ACUMA Sets new record for 2014 Annual Conference Attendance… By Bob Dorsa

18 ACUMA 2015 Real Estate Lending Workshops, Why Should You Attend? May 20-21, San Francisco – June 30-July1, Boston

20 Millennials: Challenge and Opportunity By Ann Clurman and Rob Callender

30 U.S. Macro Outlook 2015: Spirits UnleashedBy Mark Zandi

40 The Intricate Art of Today’s Mortgage UnderwritingBy Jerry DeMuth

46 The Infrastructure PredicamentBy Terry Wakefield

55 Market Share–Credit Unions Are Holding On! By Tracy Ashfield

PIPELINE - January 20152

As I watched the President’s State of the Union mes-sage this week he reminded us of the tough times our na-tion has endured the past few years. It is great news that our economy is back on track and the future is once again bright for many.

From our corner of the world, the recognition that Credit Unions are perhaps the only real alternative for con-sumers seeking competitive housing finance options.

Since ACUMA began in 1996 this has been a resil-ient theme propelling us forward. More and more Credit Unions have discovered that home loans are the key driver for financial security and member satisfaction. We have witnessed in the past decade our market share rise from a mere 2% at the beginning on this century to above 8% today and constantly rising to our 10 year goal to reach double digits by the end of next year.

While achieving goals are most important to business leaders, in the case of Credit Unions assisting borrowers with home loans speaks to the fundamental fabric of our busi-ness, dating back to our origins. The updated version would be instead of pooling funds in a single sponsor or affinity group, Credit Unions have found a real niche originating and more importantly servicing those loans in the communities in which they serve. This comment was echoed by the President of the NAR at ACUMA’s Fall Conference. Brown also reflected on the parallel in what Credit Unions do best to what REALTORS® do best, serve the com-munity in which they live, work and share.

We had many conversations this past year around the topic of working with Realtors. I content we may be over thinking this issue. If we just get back to basics we have more in common with Realtors than we know. Now is the real opportunity. We have an entire new generation of younger borrowers entering the home-buying marketplace. Many of these indi-viduals may not be that familiar with what Credit Unions offer. I see this as the perfect intro-duction. Working together with REALTORS® in your community you can provide valuable information and trust sought by just about every borrower. In return securing the loan will give your organization an opportunity to grow based on leveraging the business relationship with the borrower for additional CU products and services.

So the table is set. ACUMA works hard each every day to make this job a little easier. Whether exploring building relationships through the National Association of Realtors to providing outstanding education to learn from professional and peers alike those all impor-tant best practices to success. There are no shout cuts but we know our devoted professional real lending professional have a resiliency second to none. I look forward to speaking with many of you and seeing some you at our 2015 Educational events. It doesn’t get much better than this!

Respectfully,

Bob Dorsa,President/Founder

acUMa Pipeline is a publication of the american credit Union Mortgage as-sociation, Po Box 400955, las Vegas, nV 89140.

Bob McKayBaxter credit Union

chairman

Mark WilburnTruity credit Union

Vice chairman

Pam DavisDelta community cU

Treasurer

Barry StricklinTower fcUsecretary

John ReedMaine savings fcU

Director

Tim MislanskyWright-Patt credit Union

Director

Michael Patterson,financial Partners

credit Union Director

Bob DorsaPresident

The information and opinions pre-sented here should not be construed as a recommendation for any course of action regarding financial, legal or accounting matters by acUMa, The acUMa Pipeline or its authors.

© copyright 2014 by acUMa. all rights reserved.Printed in the Usa

CU Mortgage LendingA real alternative for members

froM The Desk of acUMa PresIDenT BoB Dorsa

PIPELINEACUMA

MAGAZINE

Join us Why should you join ACUMA? Because, just like you, we realize the importance of

CU mortgage lending to the future of the credit union movement. ACUMA is:

v an association whose only mission is CU mortgage lending with a membership made up exclusively of credit union professionals and their primary suppliers.

v dedicated to serving the mortgage needs of both current and prospective credit union members and their families.

v a committed advocate of CU mortgage lending constantly promoting the benefits of our programs and the value of membership.

v actively working to build relationships with REALTORS®, Home Builders and other influential housing affiliated groups.

v the single most powerful resource available when it comes to networking, relationship building and growing your market share.

Join us today at www.acuma.org

Pictured above: ACUMA President Bob Dorsa and Tracy Ashfield.


In the pIpelIne: InsIghts and observatIons on CU mortgage lendIng

The Great Recession launched an era of sweeping change for the mortgage lending industry – change that is still unfolding as we move into 2015.

Mortgage lenders, including credit unions, naturally felt the greatest im-pact as new regulations and safeguards were introduced to the home purchase process and mortgage finance system. However, private mortgage insurers (MIs) were also affected.

The cornerstone of any mortgage insurance business is the master policy, which specifies the responsibilities of both the insurer and the insured. In the wake of the housing meltdown, with its revelations that many insured loans had been underwritten incorrectly, Fannie Mae and Freddie Mac – the Government Sponsored Entities (GSEs) that purchase insured mortgages from lenders – and their regulator and conservator the Fed-eral Housing Finance Agency (FHFA), called for an overhaul of the private MIs’ master policies with the goal of stan-dardizing certain terms, including terms

related to when and for what reasons the mortgage insurers could rescind cover-age on a loan.

In late 2012, the GSEs, in conjunction with the FHFA, provided a framework for MIs to develop new master policies that would cover those loans purchased by the GSEs, with an emphasis on:n Standardizing certain terms from

policy to policy

n Introducing process transparency, particularly for claims

n Enhancing clarity of coverage

n Improving operational efficiencies

The MIs were required to draft and submit new master policies to the GSEs and the FHFA in early 2014. After the GSEs and FHFA approved the new mas-ter policies, the MIs submitted them to state regulators for approval. The GSEs targeted October 1, 2014, as the required effective date of the new master policies.

The MIs met the challenge and de-buted their new policies in October 2014. As we move into 2015, lenders may find that they benefit from the greater stan-dardization. The responsibilities of all parties to the transaction – the mortgage originator, the servicer, and the MI – are now clarified to a greater extent than ever before in the industry.

New OptiONs fOr rescissiON reliefReceiving particular scrutiny in the

development of the GSE framework was the issue of rescissions.

During the recession, mortgage in-surers rescinded coverage on a number of loans they discovered to contain fraud or to have been incorrectly underwrit-ten by the lender when originated and submitted for mortgage insurance. As

MI master policies varied among them-selves as to the valid conditions for re-scission, lenders found the language confusing and the differing standards relating to rescission frustrating. Rescis-sions rapidly became a major concern for mortgage originators, with broader implications for the industry as a whole.

The new master policies were writ-ten to more clearly define the circum-stances under which mortgage insur-ance must be retained on individual loans and when it may be rescinded. Following the GSE requirements, they include relief from rescissions on loans after 36 months, or after as little as 12 months provided that the loan files were fully reviewed by the MI company, and so long as the borrower has made timely loan payments.

With clearer expectations laid out for both parties in the updated policies, lenders can feel greater confidence in choosing MI as their preferred means to expand homeownership opportunities.

Mortgage Insurers Start the New Year with New Master PoliciesBy arch Mortgage Insurance company

The Great Recession

launched an era of sweeping change for the mortgage lending industry – change that is still

unfolding as we move into 2015.

The new master policies were

written to more clearly define the circumstances

under which mortgage

insurance must be retained

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inspiring environment

ACUMA 2015 AnnUAl ConferenCe

Every year ACUMA strives to make our annual conference the best ever. We do it by bringing

nationally known speakers, a program tailored precisely to your needs and state of the art

conference technology together into a seamless educational experience. Throw in an outstanding

venue, sumptuous dining and time to network with the best and brightest in the CU mortgage

industry and you have a one of a kind, can’t miss experience.

You can count on ACUMA to deliver an informative program designed to

meet the needs of todays CU mortgage lending professionals. Our program

features expanded networking opportunities, special interest breakout

sessions and general sessions featuring some of the brightest stars in

the industry What will we do to make

it better in 2015? Plan to join us again

September 14-16, at The Bellagio, Las

Vegas, and find out.

SepteMber 14-16, 2015, bellAgio, lAS VegAS

ViSit ACUMA.org for detAilS



Many economists have predicted this is the year of the return of the first-time home buyer. Last year, data collect-ed from the 2014 Profile of Home Buyers and Sellers reported the lowest level of first-time buyers since 1987—33 percent in 2014, vs. 30 percent in 1987. The his-torical norm of first-time home buyers among primary residence purchases is 40 percent. Market conditions such as low inventory, difficulty accessing cred-it, competition with investors, and diffi-culty saving for a downpayment all are factors for first-time home buyers.

The majority of home buyers use savings as a downpayment source—65 percent of all buyers (81 percent of first-time buyers, 57 percent of repeat buy-

ers). Using savings as a downpayment source has increased in prominence over the last 14 years as buyers are relying less frequently on the proceeds from the sale of their primary residence.

Saving for a home can take time for home buyers, Figure 1, Among recent home buyers, 37 percent saved for six months or less, 15 percent saved for six to 12 months, and 10 percent saved for 12 to 18 months. Home buyers often make sac-rifices on their path to homeownership. 72 percent cut spending on luxury or non-essential items, 56 percent cut spend-ing on entertainment, and 45 percent cut spending on clothes.

There is a light at the end of the tun-nel for those saving. Eighty-eight percent

of recent home buyers financed their home purchase. The typical downpay-ment was 10 percent for all buyers, but six percent for first-time home buyers and 13 percent for repeat home buyers.

The payoff for home buyers is worth it. Seventy-nine percent of recent buyers believe their home is a good financial in-vestment, and many believe it is a better financial investment then stocks. Aside from the financial investment, buyers were able to successfully complete their goal which was just to own a home of their own.

The complete report is available at: http://www.realtor.org/reports/high-lights-from-the-2014-profile-of-home-buyers-and-sellers.

Downpayment Sources Among Home Buyers 1997-2014Data from National Association of REALTORS® Profile of Home Buyers and Sellers 1997-2014

1997 2000 2003Savings NA 57% 49%Proceeds from sale of primary residence NA 35 37Gift from relative or friend NA 13 12Sale of stocks or bonds NA NA 6Equity from primary residence buyer continues to own NA NA NA401k/pension fund including a loan NA 5 5Loan from relative or friend NA 4 5Proceeds from sale of real estate other than primary residence NA NA NAInheritance NA 3 2Individual Retirement Account (IRA) NA 3 3Loan from financial institution NA 2 6Loan from financial institution other than a mortgage NA NA NASale of personal property NA 2 NALife insurance NA 1 NAInvestment property sales (1031 exchange) NA 2 NAEquity from refinanced investment property NA 1 NACredit from lease option to buy NA 1 NALoan or financial assistance through employer NA NA NALoan or financial assistance from source other than employer NA NA NAOther NA 8 6

NA=Not asked* Less than 1 percent

Length of Time Buyers Take to Save for a DownpaymentData from National Association of REALTORS® Profile of Home Buyers and Sellers 2014

6 months or less37%

6 to 12 months15%

12 to 18 months10%

18 to 24 months9%

24 months to 5 years16%

More than 5 years13%

Length of Time Buyers Take to Save for a DownpaymentFIGUrE 1 Saving foR a DoWn PayMenT

Source: National Association of REALTORS® Profile of Home Buyers and Sellers

DDownpayment Sources Among Home Buyers 1997-2014 1997 2000 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Savings NA 57% 49% 50% 50% 52% 56% 54% 66% 67% 65% 64% 65%Proceeds from sale of primary residence NA 35 37 43 44 43 34 23 22 26 25 31 33Gift from relative or friend NA 13 12 11 9 10 13 14 18 14 14 14 14Sale of stocks or bonds NA NA 6 6 7 8 8 6 7 10 8 9 9Equity from primary residence buyer continues to own NA NA NA NA 5 5 4 2 2 3 2 2 *401k/pension fund including a loan NA 5 5 5 4 4 5 5 7 8 9 8 9Loan from relative or friend NA 4 5 5 4 3 5 4 6 5 4 4 4Proceeds from sale of real estate other than primary residence NA NA NA NA 3 2 2 1 2 2 1 2 2Inheritance NA 3 2 3 2 3 4 3 4 5 4 4 4Individual Retirement Account (IRA) NA 3 3 2 2 2 3 2 3 4 5 4 3Loan from financial institution NA 2 6 NA NA NA NA NA NA NA NA NA NALoan from financial institution other than a mortgage NA NA NA 6 2 2 1 1 1 1 1 1 1Sale of personal property NA 2 NA NA 1 1 * * * * * * *Life insurance NA 1 NA NA 1 1 * * * * * * *Investment property sales (1031 exchange) NA 2 NA NA 1 1 * * * * * * *Loan or financial assistance through employer NA NA NA NA NA NA NA NA NA * 1 2 1Loan or financial assistance from source other than employer NA NA NA NA NA NA NA NA NA 2 2 * *Other NA 8 6 7 4 * 5 4 4 4 4 3.5 4NA=Not asked * Less than 1 percent Source: National Association of REALTORS® Profile of Home Buyers and Sellers 1997-2014

Saving for a Downpayment Takes Time and Sacrifice, but the Payoff RemainsJessica lautz, Director, survey research and communications, nar



ACUMA’s Exhibit at the 2014 NARBy Bob Dorsa

2014 marked the 12th anniversary for ACUMA exhibiting at the NAR (National Association of REALTORS®). This has become an annual event for us and our dedicated Credit Union sponsors. Over the years in addition to our exhibit we have participated in breakout sessions in 4 of those years. I am often asked what I gain from this experience and what can we expect for the future.

The NAR is America’s largest trade association with more than 1 million members. Their Annual Convention and Expo brings together the leading players in the housing industry, including the lenders. Since 2009 interest rates have dropped to historic levels coinciding with the Housing crash and Recession. During this time the housing industry and all its connected branches, have re-structured for the future. Fortunately ACUMA had been involved with the NAR since 2003 and established a sound foundation relative to Credit Unions’ emergence as a more viable alternative

to the major money center banks. We know credit unions have been the rock following long established safe and sound lending practices which date back decades. With little wavering the Credit Union system has quadrupled its market share in first mortgage lending over the past decade.

The Annual NAR event is the op-portunity to network with the best and brightest in Housing Finance as we proudly display the America’s Credit Union’s official industry logo, as our in-dustry’s representative for all to see. This was a strategic decision made in the very beginning. We determined a while ago we needed to get back to basics and pres-ent the Credit Union system in a much favorable light, particularly to the na-tion’s REALTORS®.

At our ACUMA 2014 Annual Con-ference we were fortunate to have the NAR’s President address our audience. Steve Brown spoke eloquently about the importance of community as one

of the pillars of our society. Having per-sonal business experience working with a Credit Union lender and seeing first hand the way his clients were treated resonated with Steve and his beliefs about his community. He spoke of prior relationships with lenders who had no vested interest in the location of the property, it was another file and maybe little more. My reason for referring to Steve Brown’s words is it relates directly to our presence at the NAR Exhibit.

Along with a group of devoted par-ticipants from our Sponsoring Credit Unions (The NAR is a weekend event each year in November) we stood not too far away from Wells Fargo in terms of physical location in the hall. We capital-ized on the opportunity to meet and greet professional REALTORS® and a wide ar-ray of professionals who work in and around the housing industry. We have thoroughly enjoyed meeting thousands of people during our tenure. Several years ago we developed a contest of sorts whereby we select willing convention goers who are both professional REAL-TORS® and current members of a Credit Union. We asked for a very short sound bite responding to the question of “what do they like about their Credit Union?” We have several dozen great video clips from recent years and a few incredible testimonials to several of our ACUMA members for the great job you do! I think many of you would suspect if I reported the first thing on the mind of these Cred-it Union member/REALTORS® was send-ing their clients or themselves for that matter over to their CU for their home

AcUMA MeMBer BeNefit NetwOrkiNg At the NAr

The 2014 America’s Credit Union was located near the entrance

Phil Reichers, PenFed, shares the CU Message



loan. You may not be surprised that their top responses include, “I like they know my name”, “it’s the least expensive car loan I could find” to “a great way for me to send money to my child at college (age reference) and perhaps one of the most recognizable features, “free checking ac-counts.” Once we cover the basics I have attempted to probe further to get to what we do every day, home loans. Many are tuned and some even have loans with their CU. Mostly HELOCs but a loan is a loan!

As those who know me can guess, I had to dig deeper. When I asked the question referring to first mortgage loans I would say 30% indicated they had a positive experience or funding. The bal-ance did not even realize their CU offered loans (in some cases people belonged to CUs not offering home loans) or they share many of the old time beliefs that the CU was ONLY available to certain people; CU staff do NOT work weekends (the time REALTORS® sit in Open Hous-es) or I have a great relationship with my Originators and no one from any Credit Union has ever visited our office.

Several of our Exhibiting sponsors got to meet REALTORS® face-to-face for the first time. I do actually have a few video clips of REALTORS® discussing their loan experience with one of our CUs on site. It was great to hear but there were far too few.

My feeling is this provides great in-sight to what Credit Unions need if you want to participate in the REALTOR® marketplace. We know sooner than later the Refi-mania will diminish. Competi-tion for Purchase money loans has al-ready increased and despite changing regulations it may be difficult getting applications in the future.

ACUMA has been focusing on these issues for the past few years. To some degree our increase in market share was due to refinance transactions, no REAL-TOR® and a relatively simplified transac-tion, in real estate lending terms. Each Credit Union needs to validate your Pur-chase money loan strategy. Starting with, do you have one? We have observed many successful internal programs and affiliations with their party marketing organizations. One of the key ingredients has to be the communication with the

REALTOR® or Broker. This will start with education and meeting in their offices and perhaps invited them to your office. You should be certain to have “the right person” engaged in the relationship from the start. You must decide who the right person is but remember in your analy-sis to evaluate your competition and de-termine what they are doing since they are likely competing for the same loans you are? Finally I feel very comfortable encouraging you to comb through your membership files. If we are able to find as many REALTORS® who are members of a Credit Union then I believe it is key for each credit union to know and establish contact with your member who is a RE-ALTOR®. Unfortunately I do NOT have the magic formula or wisdom how you do this but with Social Media and a local or community presence that should be a good starting point.

With recognition to all our ACUMA members who contributed to our NAR Sponsorship we thank you. ACUMA is pleased to facilitate this exhibit and put the Credit Union Brand on display. The fu-ture will indeed be chal-lenging. A new genera-tion of buyers with per-haps different lifestyle priorities has already made their voice heard in the marketplace. I for one still believe the strat-

egy to grow each Credit Union and focus on the future for millennial and even minority members is greatly improved working through the housing channel. I would be remiss if I did not add the fact originally offered 20 years and validated many times since then. When you have a home loan with a borrower, that borrower is likely to acquire between four and eight financial products from the financial in-stitution providing their home loan. I think we will need updated strategies to meet the needs of multiple demographic groups in the marketplace and if you have not yet started you have a lot of catching up to do.

I hope you got something out of all of this but in any case here are some images of our fabulous weekend last November. If you have a comment or a question, please do NOT hesitate to contact me at [email protected] or post a comment on our LinkedIn Group, ACUMA.

The America’s Credit Unions NAR Exhibit Staff

Great opportunities for networking with REALTORS® at the NAR



Credit Union Uses eRegistry for eNotes to Bring 21st Century Efficiency to its Mortgage Process

Technology creates much efficiency for us every day. We shop on line, depos-it a check simply by taking a photo of it and sending it via a mobile app, pay bills on line and even receive direct deposits electronically. Each of these processes simplifies our lives every day.

In the mortgage industry, an eMort-gage happens when critical loan docu-mentation – specifically the promissory note, closing documents and security instrument, are created electronically, executed electronically, transferred elec-tronically and ultimately stored elec-tronically. MERS® eRegistry plays a major role in this process because it is the system of record that identifies who is in control of the eNote and where it is stored electronically. And, yes, this is reality and it is done every day.

To explore how eMortgages impact a credit union’s operations, its members and even investors, we spoke with Steve Wolf, System Administrator, Home Loans Department at Boeing Employees’ Credit Union (BECU). Mr. Wolf shared BECU’s experience using the MERS® eRegistry for eNotes. To provide some perspective on its mortgage operation, BECU originates more than $1 billion in mortgage loans per year and has more than 850,000 members.

Q: How did eNotes come to your atten-tion? What made you inclined to learn more?

A: In 2006, a goal at BECU was to elim-

inate paper from the beginning to the end of the mortgage loan process and

I was asked to explore eNotes. At that time, the credit union had a paperless ap-plication process, but we still used fold-ers for files, generated paper docs and sent document images that were printed on paper at closing. The vision was pa-perless from the application process to signing and funding the loan. We were successful in our vision and the first eS-igning occurred in October of 2007.

A big realization during this process is the benefit of data over paper—it re-duces our ecological footprint. There is less wasted paper, less toner usage and we experienced a reduction in courier and shipping costs; as well as a reduc-tion in our couriers’ carbon foot prints—this is big. In addition, the process was more efficient. There is no rekeying, re-sulting in greater accuracy. Once the data is there, it never has to be moved—it is just there. Paper can get lost or misfiled; eNotes provide for accurate data all the way through the process. While there have been hiccups with eNotes, we’ve al-ways been able to track them down and they contribute to better transparency and compliance tracking. It is a beauti-ful thing and it is now a true paperless process from beginning to end.

Q: How did employees like the new pro-cess?

A: There were early adopters who

embraced the change. Others focused on how it had always been done and it was a challenge for some employees. Ul-timately, they came around.

A big realization during this process

is the benefit of data over paper—

it reduces our ecological footprint.

There is less wasted paper, less toner usage and we experienced a

reduction in courier and shipping costs.

In addition, the process was more

efficient. There is no rekeying, resulting

in greater accuracy. Once the data is

there, it never has to be moved—it is

just there.



Q: We discussed the credit union’s ex-perience, what has the member experi-ence been with eClosings?

A: The member experience helped drive the process from the beginning. The electronic process is much sim-pler because it really only includes two signatures—a paper closing can be overwhelming and require signing be-tween 25 and 40 documents. Members benefit because of the speed of which closings can happen. Further, eNotes have made it easier for us to meet the Consumer Finance Protection Bureau‘s (CFPB) “Know Before You Owe” (KBYO) requirement that takes effect on August 1, 2015. This is a new requirement that borrowers have the opportunity to re-view their documents three days before a signing. eNotes put BECU ahead of the curve because this requirement is already met.

Q: I have heard you use the term “Cof-fee Shop Signing.” What does this mean?

A: Members like eNotes because a closing can occur in the comfort of their own home—or even at a coffee shop. A real benefit is that they are able to re-view documents before the signing. A closing can happen anywhere and docu-ments can be signed on a tablet. In the beginning, we incented members with a gift card to use eClosings, but that is no longer necessary. Members gravitate to-ward the eSignings on their own. eNotes provide efficiency, a quicker closing and there is no paper—it’s very cutting-edge.

Q: Do members have to use eNotes when refinancing or purchasing a home?

A: We give our members the option of an eNote process or the traditional paper based approach when they refinance or originate a home loan and the response has been favorable. In fact, 65 percent of our mortgage lending is refinances and of those refinances about 50 percent are eClosings. The reason the emphasis is primarily on refinances is because the

credit union does not direct the eSign-ing closing process on purchases, as it does with an eSigning closing on refi-nances. In most cases, realtors direct the selection of a closing agent on purchase transactions and many escrow compa-nies may not have the eSigning pad, tools and the training needed for eSign-ings, so it cannot be done. This is some-times a challenge. However, if all the par-ties have the right tools, eClosings can be used for home purchases.

Q: What has the investor response

been?

A: BECU primarily sells to Fannie Mae if it does not hold the loan in portfolio. Fannie Mae has been enthusiastic and helps drive the process. eNotes allow investors to receive loans faster, they can review them electronically and the credit union receives its funds faster because there is no shipping involved. Other investors beyond just Fannie Mae are beginning to see the benefits of the eNote process.

Q: What is different about servicing eNotes? Are there challenges?

A: We have not experienced any chal-lenges servicing eNotes—including with foreclosures or charge offs. They have been handled the same and have gone well during the past seven years since the inception of eNotes.

Q: When starting the eNote process, would you recommend using a trusted vendor or creating your own internal sys-tems to manage the process?

A: We rely on our vendor partners for the technology expertise. I cannot imagine creating this process from start to finish—just the technology required alone is intense. And, there are good solutions out there—take advantage of what’s available. I definitely recom-mend using a vendor to help establish the eNote process.

Q: In closing, is there anything you would like to add?

A: We love our eSigning process. This is how we became involved with MER-SCORP Holdings, Inc. and the MERS® eRegistry, and it has been a successful relationship.

2015UPCOMING EVENTS

You can count on ACUMA to provide an innovative program, unmatched networking and an outstanding venue.

Save the dates to join us in 2015!

ACUMA WORKSHOP Hilton Union Square Hotel

San Francisco, CAMay 20-21 2015.

ACUMA WORKSHOP Westin Copley Plaza

Boston, MA June 30-July 1, 2015

2015 AnnUAl COnFeRenCe

Bellagio las VegasSeptember 14-16, 2015

Visit acuma.org for more information

WIDEN YOUR OPPORTUNITIES

With a wider range of qualifying loan and property types, like second homes, you not only get happy members, you get the opportunity to close more loans. That’s a gimme for everyone.

TO LEARN MORE, VISIT UGCORP.COM OR CALL 877.642.4642.

LET PERFORMANCE PREMIUM® GIVE YOU TAP-INS, NOT SAND TRAPS.

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Last September, ACUMA reached a new milestone, bringing together nearly 400 mortgage banking professionals at our 18th Annual Conference. We have learned quite a lot in almost two de-cades. We take great pride that the pub-lic awareness of Credit Union mortgage lending is much higher than when we started in 1996.

One of the initial goals for ACUMA was to “increase the awareness” of Cred-it Union mortgage lending. We have watched our market share more than quadruple from a lack luster of 2% in the mid-90s to in excess of 8% today. I believe this achievement is nothing short of amazing and I would be the first one to say it is the resiliency and dedica-tion of a core group of progressive credit unions that has made it possible. CUs be-lieving in the value this important prod-uct provides to the overall growth and fi-nancial stability of the credit union over-all. ACUMA has grown to more than 260 of the nation’s leading mortgage lending CUs. We are still adding members as more and more credit unions figure out that without mortgage lending and all the related benefits, the future for their organization is bleak.

What does this have to do with last year’s record setting attendance? Yes, Las Vegas is an exciting venue for

an event. That said, I recall a comment made to me during our the conference by a speaker from outside our immedi-ate CU mortgage lending family. He was quite impressed that the majority of our conference participants attend and en-gage in the various breakout sessions. A testament to the high value of our educational sessions and Networking Receptions, as well as the dedication of our attendees.

So how was this year’s event differ-ent? When planning our 2014 Annual Conference we considered our agenda first. We looked at the critical topics and it was apparent that there were many, too many, and we only had 2 and ½ days. At that point we made a deci-sion to add additional workshops prior

to the formal start of our event, as many people like to arrive and enjoy Las Vegas prior to our event. We thought that some might be interested in getting right into it Monday morning, be-fore our official noon conference start. We were amazed, of the nearly 400 partici-

pants, more than 250 were in the hotel Sunday. This was great and that group got the additional pre-conference work-shops first thing Monday. These sessions were all great. One discussion session, Know-Before-You-Owe, comes to mind; also covered were Loan Servicing, and a growing focus on dealing with Millen-nials and borrowers with very different demographic characteristics than CUs are accustomed to. These sessions were strictly voluntary and just about all of the seats were full.

Next we headed to the formal pro-gram. Our first Keynote Speaker was Steve Farber. His message on Leader-ship was in step with our overall focus and was delivered with the right blend of enthusiasm and thought-provoking nuggets to get the audience stimulated. We then moved to our Day 1 Breakout sessions, Compliance, Working Through Complex Regulations with Kris Kully and The Future of Government Lending with Tim Rood. Once again full seating at both sessions.

After a brief break was the first of our two Receptions featuring our Con-ference Exhibitors. Their displays lined the perimeter of the beautiful Encore Ballroom. It is great to see hundreds of professional mortgage banking people

ACUMA Sets new record for 2014 Annual Conference Attendance…By Bob Dorsa

General Ballroom with more than 350 participants and 22 Exhibiting Sponsors.

Steve Farber - Discussing Leadership.



chatting each other up on the single focus of residential housing issues. I’m not really sure there is anything like it anywhere! After the networking many of our devoted sponsoring participants provided additional social activities for the evening. Fortunately, one commod-ity Las Vegas has in spades is hospital-ity in the form of restaurants, shows and fun things to do, other than gaming.

Day 2 began early with a great Break-fast Buffet for 300. Obviously there are still a few folks who need more sleep and/or a quick workout prior to begin-ning their day’s activities. We began the program with the nationally renowned Economist Dr. Mark Zandi. ACUMA first met Dr. Zandi a decade ago and his rise to national acclaim endears him to our cause. We often see Dr. Zandi on CNBC or CNN. He has shared his annual economic forecast with Pipeline readers each year since 2009. (See page 30 for his report on 2015) As always Zandi’s fore-cast was spot on and he possess both el-egance and charisma in his connection with ACUMA members. Following Dr. Zandi was a speaker best described as “truly talented and amazing.” Erik Wahl

is a former corporate executive who turned in his fountain pen for a paint brush. While delivering a very inspirational message Erik painted not one, but TWO, incredible pieces of art. He began with a tease and illustration describing how people are generally cau-tious about taking risks. The unexpected result of Erik’s time with ACUMA was that in addition to his message, we retained two beautiful pieces of original art. After the ses-sion we held a silent auction of one of Erik’s paintings. The winning bid was $2,000 with the proceeds going to the NAR’s Realtors Relief Founda-tion. Knowing how difficult it would be for anyone to follow Erik Wahl we then broke for another fantastic Buffet Lunch provided by the Encore.

Day 2 afternoon was de-voted to six breakout sessions. The topics featured panel

discussions addressing; Growing (creat-ing) ARM Loan products; Best Practices in Loan Participations and Loan Under-writing. Other breakout session topics covered, Construction Lending; Partner-ing and Working with REALTORS®; and a review of Reverse Mortgage Lending markets today. After several hours of in-tense education it was time for our Day 2 afternoon Wine & Cheese Reception.

Of all of the time our participants spend at our events the Networking Receptions generally rank among the most popular. Participants enjoyed the same dynamic atmosphere as the Day 1 reception. Again the evening was filled with more dinners and Vegas night-life enjoyment, which seems to be much more fun with friends and business partners.

All of that bring us to the finale, Day 3. We were fortunate to have as our Open-ing Speaker, Carrie Hunt, General Coun-sel and Sr. VP from NAFCU. It has been a longstanding goal of ACUMA to engage with our larger trade associations, particu-larly those focused on the legislative front. Carrie is well versed on all of the mort-gage lending related issues and delivered an astute update of what is and should be happening in the coming months.

Following Carrie, was the President of the National Association of REAL-

Stage filled with President’s

Dr. Mark Zandi.

Erik Wahl, Unbelievable.



TORS® (NAR), Steve Brown. Steve’s Real Estate Brokerage firm has a rela-tionship with a CUSO in Ohio. Steve has observed firsthand the difference between the “credit union” approach to loan origination and servicing versus the banking segment which has dominated for decades.

I was enthused by Steve’s views on the similarities between REALTORS® and Credit Unions. Both offer the very best service to their respective clients and a great deal of emphasis is placed on the community. I see this as a powerful message and perhaps a sign of how re-lationships in the housing marketplace are changing. Borrowers and consum-ers want to deal with lenders who care about the borrower’s needs. Brown em-phasized the importance of strengthen-ing this important benefit for borrowers as the competition for loans gets even tighter. Younger borrowers want to be engaged and involved in the transaction and success will be reserved for lenders subscribing to this value. It was also a great privilege to present Steve a check for $2,000, the proceeds of our day 1 auction, made to the REALTORS® Relief Foun-dation, which will help RE-ALTORS® in need. We re-tained one piece of art that we will auction in 2015 for another contribution to the foundation.

The final session of the morning was on the topic

of Qualified Mort-gages and prospects for the creation of a secondary mar-ket for selling Non-Qualified Mortgag-es. Speaking was Mitch Hochberg, a former attorney with CFPB. Mitch, along with his new firm, Fenway Summer, is very involved in address-ing the prospects of making this a part

of the mortgage banking industry and alleviating some issues already frustrat-ing some Credit Union lenders who are caught in the Non-QM world for loan ap-plications from longtime CU members.

After another sumptuous Buffet lunch it was off to the final two sessions in the afternoon. We began with a very inter-esting session presented by Karen Deis, a mortgage industry veteran who took the opportunity to review her best practices as it pertains to achieving success in mort-gage banking. Of particular interest were several examples of documents she still uses today with borrowers.

Our final session on Loan Origination featured two successful Loan Originator Sales Managers. Nanette Graviet and James Smith formed our panel with the incomparable Tracy Ashfield acting as moderator. Unfortunately, gone are the days of answering the phone and accept-ing applications from members or check-

ing with the online origination systems to see what’s new! In today’s world loan applicants are relatively hard to identify and fre-quently the origina-tor is immersed in intense competition for the loan. The panelists were quali-fied Originators and Managers and their Credit Unions rank high on the charts of Loan Originator production. Great information and even in the late af-ternoon on Day 3 still several hundred people in attendance. As ACUMA’s Presi-dent this is the best evidence I can see to validate the quality and appreciation of all of the hard work we put in to hosting this event.

As an added benefit, all of ACUMA’s members receive Podcast Digital Record-ings of each and every session. There was a huge amount of material presented. It would be an injustice to return to the Credit Union with just slide presenta-tions. Having the digital recordings sim-plifies sharing and networking within each of our member Credit Union’s or-ganizations, making it that much easier to spread the word. This is just another example of our continuing commitment

to provide as much value as possible to both those in at-tendance and to those back in the office.

Our 2015 Fall Annual Conference will be held at the Bellagio Resort and Ho-tel in Las Vegas beginning on September 14 and con-cluding on September 16, 2015. If you are NOT cur-rently a member and want information to join with us, please do NOT hesitate to contact me at [email protected].

‘

Tracy Ashfield - Co-Host of ACUMA’s Annual Conference.

Networking Lunch begins with the Buffet LIne.

Steve Brown - President of the NAR.

1st Mid America Credit Union, Bethalto, IL1st United Services Credit Union, Pleasanton, CA

A+ Federal Credit Union, Austin, TXABNB Federal Credit Union, Chesapeake, VA

Advantiis Credit Union, Milwaukee, ORAdvia Credit Union, Janesville, WI

Aerospace Federal Credit Union, El Segundo, CAAffinity Plus Federal Credit Union, St. Paul, MN

Air Academy Federal Credit Union, Colorado Springs, COAir Force Federal Credit Union, San Antonio, TX

Alaska USA Federal Credit Union, Anchorage, AKAlign Credit Union, Lowell, MA

Allegiance Credit Union, Oklahoma City, OKAlliance Credit Union, San Jose, CA

Alliant Credit Union, Chicago, ILAllSouth Federal Credit Union, Columbia, SC

Altra Federal Credit Union, LaCrosse, WIAmerChoice Federal Credit Union, Mechanicsburg, PAAmerica’s First Federal Credit Union, Birmingham, AL

American Airlines Emp. FCU, Fort Worth, TXAndrews Federal Credit Union, Suitland, MD

Anheuser-Busch Employees’ CU, St. Louis, MOArch Mortgage Insurance Company, Walnut Creek, CA

Arizona State Credit Union, Phoenix, AZArkansas Federal Credit Union, Jacksonville, AR

Atlantic Regional Federal Credit Union, Brunswick, MEBaxter Credit Union, Vernon Hills, IL

Bay Ridge FCU, Brooklyn, NYBayport Credit Union, Newport News, VA

BECU, Tukwila, WABellco Credit Union, Greenwood Village, CO

Bethpage FCU, Bethpage, NYBourns Employees FCU, Riverside, CACalifornia Credit Union, Glendale, CA

Campus USA Credit Union, Gainesville, FLCasco FCU, Gorham, ME

CBC Federal Credit Union, Oxnard, CACEFCU, Peoria, IL

Centris Federal Credit Union, Omaha, NECFE Federal Credit Union, Lake Mary, FL

Chevron Credit Union, Oakland, CACitadel Federal Credit Union, Exton, PACitizens First Credit Union, Oshkosh, WI

Coastal Federal Credit Union, Raleigh, NCCoastHills Federal Credit Union, Lompoc, CA

Colorado Credit Union, Littleton, COCommonwealth Credit Union, Frankfort, KY

Community CU of Florida, Rockledge, FLCommunity Financial, Plymouth, MI

Community First Credit Union, Appleton, WICommunity First CU of FL, Jacksonville, FL

Community Mortgage Funding, LLC, Pomona, CACommunity Resource Credit Union, Baytown, TX

CommunityAmerica Credit Union, Lenexa, KSCongressional FCU, Oakton, VA

Consumers Credit Union, Mundelein, ILConsumers Credit Union (MI), Oshyemo, MI

Coors Credit Union, Golden, COCoVantage Credit Union, Antigo, WI

Credit Union Oak Lawn, ILCredit Union Mortgage Association, Fairfax, VA

Credit Union of America, Wichita, KSCredit Union of Colorado, Denver, CO

Credit Union of Southern California, Brea, CACU Companies, New Brighton, MN

CU Home Mortgage Solutions, Seattle, WACU Mortgage Direct. LLC., Sioux Falls, SD

CUC Mortgage, Albany, NYCUMAnet, LLC, Basking Ridge, NJ

CUSO Mortgage (CA), Anaheim, CACUSO Mortgage Corp., Hampden, ME

Cyprus Federal Credit Union, West Jordan, UTDATCU, Denton, TX

Delta Community Credit Union, Atlanta, GADenali Alaskan FCU, Anchorage, AK

Desco Federal Credit Union, Ashland, LADesert Schools FCU, Phoenix, AZ

DFCU Financial, Dearborn, MIDigital Federal Credit Union, Marlboro, MA

Dupaco Community Credit Union, Dubuque, IADuPage Credit Union, Naperville, IL

Dupont Community Credit Union, Waynesboro, VAEastman Credit Union, Kingsport, TN

Educational Systems FCU, Greenbelt, MDEducators Credit Union, Racine, WI

EECU, Fort Worth, TX

Elevations Credit Union, Boulder, COEli Lily FCU, Indianapolis, IN

Empower Federal Credit Union, Syracuse, NYEnt Federal Credit Union, Colorado Springs, CO

Envision Credit Union, Tallahassee, FLFAA Credit Union, Oklahoma City, OKFairwinds Credit Union, Orlando, FLFibre Credit Union, Longview, WA

Financial Partners Credit Union, Downey, CAFirst Entertainment Credit Union, Hollywood, CA

First Heritage Financial, LLC, Phildelphia, PAFirst Light Federal Credit Union, El Paso, TXFirst New England FCU, East Hartford, CT

First Tech Credit Union, Beaverton, ORFive County Credit Union, Bath., MEFive Star Credit Union, Dothan, AL

Foothill Federal Credit Union, Arcadia, CAFORUM Credit Union, Fishers, IN

Fox Communities Credit Union, Appleton, WIFt. Knox Federal Credit Union, Radcliff, KY

Georgia United CU, Duluth, GAGesa Credit Union, Richland, WA

Golden 1 Credit Union, Sacramento, CAGreat Lakes Credit Union, Naperville, IL

Great River Federal Credit Union, St. Cloud, MNGrow Financial FCU, Tampa, FL

GTE Financial, Tampa, FLGuardian Credit Union, Montgomery, AL

Hapo Community Credit Union, Richland, WAHarborstone Credit Union, Tacoma, WAHeartland Credit Union , Springfield, ILHeartland Credit Union , Madison, WI

Hiway Federal Credit Union, St. Paul, MNHonda Federal Credit Union, Marysville, OH

Horizon Credit Union CUSO, LLC, Spokane Valley, WAHudson Valley FCU, Poughkeepsie, NYIC Federal Credit Union, Fitchnurg, MA

Idaho Central Credit Union, Chubbuck, IDIdeal Credit Union, Woodbury, MN

Jeanne D’Arc Credit Union, Lowell, MAJustice Federal Credit Union, Chantilly, VAKeesler Federal Credit Union, Biloxi, MS

Kern Schools FCU, Bakersfield, CA

We want to thank our over 300 members for the commitment they make to being

Member’s top choice for real estate loans.

THANK YOU

Kinecta Federal Credit Union, Manhattan Beach, CAKnoxville TVA Employees CU, Knoxville, TN

Lafayette Federal Credit Union, West Kensington, MDLake Michigan Credit Union, Grand Rapids, MI

Landmark Credit Union, New Berlin, WILangley Federal Credit Union, Newport News, VA

Leominster Credit Union, Leominster, MALocal Government Federal Credit Union, Raleigh, NC

Lockheed GA Empls FCU, Marietta, GALos Angeles Firemen’s Credit Union, Los Angeles, CA

Los Angeles Police Federal Credit Union, Van Nuys, CAMaine Savings FCU, Hampden, ME

MECU, Schaumburg, ILMember First Mortgage, LLC, Grand Rapids, MI

Members Choice Credit Union, Houston, TXMembers Mortgage Services, Hutchinson, KS

Merck Sharp & Dohme Federal CU, Chalfont, PAMeritrust Credit Union, Wichita, KS

Meriwest Mortgage Company, San Jose, CAMerrimack Valley Federal CU, Lawrence, MA

Metro 1st Mortgage, Omaha, NEMetropolitan Credit Union, Chelsea, MA

Michigan Community Credit Union, Jackson, MIMichigan Schools & Government CU, Clinton Township, MI

Mill City Credit Union, Minnetonka, MNMissoula Federal Credit Union, Missoula, MT

Mortgage Lending Services, LLC, Plymouth, MNMountain America Credit Union, West Jordan, UT

Municipal Credit Union, New York, NYmyCUmortgage, Beavercreek, OH

NASA Federal Credit Union, Upper Marlboro, MDNavy Federal Credit Union, Merrifield, VA

Neighboorhood Mortgage Solutions, Frankenmuth, MINeighbors Credit Union, Saint Peters, MO

NorthCountry FCU, Burlington, VTNorthern Federal Credit Union, Watertown, NYNorthwest Federal Credit Union, Herndon, VA

Numerica Credit Union, Spokane, WAOcean Communities FCU, Biddeford, ME

Oklahoma Central Credit Union, Tulsa, OKOrange County’s Credit Union, Santa Ana, CA

Oregon State Credit Union, Corvallis, ORORNL Federal Credit Union, Oak Ridge, TN

Pacific Credit Union, Fullerton, CA

Park View Federal Credit Union, Harrisonburg, VAPartners Federal Credit Union, Lake Buena Vista, FL

Patelco Credit Union, Citrus Heights, CAPen Air Federal Credit Union, Pensacola, FL

Pentagon Federal Credit Union, Alexandria, VAPhiladelphia Federal Credit Union, Philadelphia, PA

Piedmont Advantage Credit Union, Winston-Salem, NCPima Federal Credit Union, Tucson, AZ

Police & Fire Federal Credit Union, Philadelphia, PAPolish & Slavic FCU, Brooklyn, NY

Premier America Credit Union, Chatsworth, CAPremier Source Credit Union, E. Longmeadow, MA

Professional FCU, Ft. Wayne, INProMedica FCU, Toledo, OH

Purdue Employees Federal Credit Union, Lafayette, INQualstar Credit Union, Redmond, WA

Randolph-Brooks FCU, Universal City, TXRed Canoe Credit Union, Longview, WA

Red Crown Credit Union, Tulsa., OKRedstone Federal Credit Union, Huntsville, AL

Redwood Credit Union, Santa Rosa, CARiver Region Credit Union, Jefferson City, MO

Robins Federal Credit Union, Warner Robins, GARogue Federal Credit Union, Medford, OR

Royal Credit Union, Eau Claire, WISan Antonio Credit Union, San Antonio, TX

San Diego County Credit Union, San Diego, CASchools First FCU, Santa Ana, CA

Scott Credit Union, Edwardsville, ILSeasons Federal Credit Union, Middletown, CT

Seattle Metropolitan CU, Seattle, WASECU, Lintchicum, MD

Security Service Federal Credit Union, San Antonio, TXService Credit Union, Portsmouth, NH

Sharonview FCU, Ft. Mill, SCShell FCU, Deer Park, TX

Silver State Schools Mortgage Co., Las Vegas, NVSIU Credit Union, Carbondale, IL

Smart Financial Credit Union, Houston, TXSouth Carolina Federal Credit Union, N. Charleston, SC

Southwest Airlines FCU, Dallas, TXSpirit of Alaska FCU, Fairbanks, AK

Spokane Teachers Credit Union, Spokane, WA

St. Helens Community Credit Union, St. Helens, ORStanford Federal Credit Union, Palo Alto, CA

Summit Credit Union, Madison, WISuncoast Credit Union, Tampa, FL

Sunmark Federal Credit Union, Latham, NYTeachers Credit Union, South Bend, INTechnology Credit Union, San Jose, CA

Tennessee Valley Federal Credit Union, Chattanooga, TNTexas Dow Employees Credit Union, Lake Jackson, TX

Three Rivers FCU, Ft. Wayne, INTinker Credit Union, Tinker AFB, OK

Tower Federal Credit Union, Laurel, MDTown and Country Credit Union, Minot, ND

Travis Credit Union, Vacaville, CATropical Financial Credit Union, Miramar, FL

Tru Home Solutions, Lenexa, KSTruChoice FCU, Portland, ME

Truity Federal Credit Union, Bartlesville, OKTruliant Federal Credit Union, Winston-Salem, NC

Tulsa Federal Credit Union, Tulsa, OKTwin Star Credit Union, Lacey, WAUncle Credit Union, Livermore, CA

United Heritage Credit Union, Austin, TXUnited Nations Federal Credit Union, Long Island City, NY

Unitus Community Credit Union, Portland, ORUniversity FCU RE Services, Austin, TX

University Federal Credit Union, Austin, TXUniversity of Iowa Community CU, Iowa City, IA

University of VA Community CU, Charlottsville, VAURW Community FCU, Danville, VAUSC Credit Union, Los Angeles, CA

USF Federal Credit Union, Tampa, FLUW Credit Union, Madison, WI

Vantage West Credit Union, Tucson, AZVeridian Credit Union, Waterloo, IA

Virginia Credit Union, Inc., Richmond, VAVystar Credit Union, Jacksonville, FLWashington State ECU, Olympia, WA

Weokie Credit Union, Oklahoma City, OKWestconsin Credit Union, Menomonie, WI

Westerra Credit Union, Denver, COWhatcom Educational Credit Union, Bellingham, WA

Wright-Patt Credit Union, Beavercreek, OHXceed Federal Credit Union, El Segundo, CA

Accenutre Mortgage Cadence, Denver., COAdvantage Credit, Inc., Evergreen, CO

American Reporting Company, Lynwood, WAAmeriCU Mortgage Company, Troy, MI

Black Knight Financial Services, Inc., Jacksonville, FLBOK Financial Correspondent Mortgage Serv, Tulsa, OK

Cartus Corporation, Irving, TXCORELogic, San Francisco, CACredit Plus, Inc, Salisbury, MD

CU Appraisal Services, Fairborn, OHCU Members Mortgage, Dallas, TX

CU Partners, Santa Ana, CACU Realty Services, Castaic, CA

CUNA Mutual Group, Milwaukee, WID+H, Mequon, WI

DGU Insurance Associates, Inc., Greensboro, NCDovenmuehle Mortgage, Inc., Lake Zurich, ILEquifax Mortgage Solutions, Scottsdale, AZ

Essent Guaranty, Inc., Radnor, PA

Affiliated Organizations

Fannie Mae, Washington, DCFederal Home Loan Bank of Chicago, Chicago, IL

FICS, Addison, TXFirst American, Santa Ana, CA

Freddie Mac, McLean, VAGenworth Financial, Raliegh, NCGuild Mortgage, San Diego, CA

Intuvo, Santa Cruz, CAInvestors Title Company, Glendale, CA

Kroll Factual Data, Loveland, COLaw Offices of Morton W. Baird, II P.C., San Antonio, TX

LenderLive Network, Inc., Glendale, COLendingQB, Costa Mesa, CA

MERSCorp, Holdings, Inc., Reston, VAMGIC, Milwaukee, WI

MIAC Analytics, New York, NYMidwest Loan Services, Inc., Madison, WI

Mortgage Harmony Corp., McLean, VA

MortgageFlex Systems, Inc., Jacksonville, FLNational Closing Solutions, Roseville, CA

National Mortgage Insurance Co., Emeryville, CAOptimalblue, Plano, TX

PHH Mortgage, Mt. Laurel, NJPrime Alliance Servicing by Cenlar, Ewing, NJ

Quicken Loans Mortgage Services, Charlotte, NCRadian Guaranty Inc., Philadelphia, PA

Secondary Marketing Resources, Wellesley, MASWBC, San Antonio, TX

The Property Sciences Group, Pleasant Hill, CAThe Quality Control Center, West Palm Beach, FL

The Stone Hill Group, Atlanta, GAUnited Guaranty/AIG, Greensboro, NC

Urban Lending Solutions, Inc., Broomfield, COValue Check, Highlands Ranch, CO

vanWagenen Financial Services, Eden Prairie, MNVeros, Santa Ana, CA


In the pIpelIne: InsIghts and observatIons on CU mortgage lendIngAcUMA MeMBer BeNefit DiscOUNteD/priOrity registrAtiON

The mortgage lending world is continuing to evolve. And the pace is quickening. To stay on top of develop-ments requires tons of information to be processed from diverse areas.

Attending one of ACUMA’s Real Estate Lending Workshops will arm you with the latest informa-tion on all relevant fronts—purchase money strat-egies, regulatory/compliance changes, and opera-tional best practices.

We’ll bring you face-to-face with top industry experts for panel discussions and featured speakers sharing in-depth information on the topics that are important to you.

You’ll have a chance to ask questions and get the best advice for your credit union or CUSO, helping you offer new and existing members the best mort-gage options in your own market.

Can you afford not to attend one of these ACUMA workshop in 2015? We’ll bring together the important topics and experts—providing a high value education in just two days. Make plans now to participate and apply the knowledge gained to your own operation.

2015 ACUMA Real Estate Lending Workshops

Why Should You Attend?

May 20-21Hilton San francisco Union Square

San francisco, Ca

June 30 – July 1The Westin Copley Place

Boston, Ma



Program HighlightsThis year’s workshops bring together some of the

best credit union leaders and industry experts for fo-cused discussions on the real estate lending topics you want to know more about.

gOiNg BeyOND the regUlAtiONsAmanda phillips, Accenture

This program goes well beyond the regulations. We will explore the operational and business model impact of the CFPB’s current regs as well as those yet to be in effect. Our focus will be on how to be compliant while developing best practices for efficiency and member sat-isfaction. We know that it’s not easy!

We’ll also have a bonus segment! “When is an appli-cation an application?” Reg’s B, C, X and Z all have their own definitions of what is an “application” and what the proper course of action is for HMDA, Adverse Ac-tion, Disclosures etc. This bonus segment will help un-ravel one of mortgage banking’s muddiest mysteries and make sure you’re not caught at audit time!

tAkiNg the Mystery OUt Of the fhlBDavid feldhaus, fhlB

This session will show you what the FHLB can do to support your real estate lending strategy. We know it’s confusing, not all the banks operate with the same products and services. We’ll show you how they func-tion as a GSE, an investor, a lender and a partner. No matter where you are we’ll give you a road map to their membership requirements and solutions.

servicer OversightJohn Burnett - san francisco / shuaib hassan - Boston, phoenix collateral Advisors (

Are you worried that you have all your bases covered and are complying with the GSE’s and the CFPB? Are you using a sub-servicer and worry you aren’t “oversee-ing” everything you should be watching? Do you fear a servicing audit? This educational seminar will show you what the difference is between auditing and oversight. We’ll review the oversight requirements to remain in regulatory compliance while maximizing servicing per-formance and ROI.

the teN Biggest MistAkes lOAN Officers MAke?Brian sacks

We’ll show you the answers and give you a chance to stump one of the Top LO’s with your toughest Realtor objections, Member challenges and so on. We’ll put this “Top Gun” LO in the hot seat and you’ll learn from a pro!

Visit acumacommunity.org/workshop/ for details

The Westin Copley Place, Boston, MA

Hilton San Francisco Union Square, San Francisco, CA


Feature article

Millennials: Challenge and Opportunity

by ann clurman and rob callender


Millennials: Challenge and OppOrtunity

You only have to read the headlines to know that

the worst economic downturn in more than seven decades disproportionately

affected Millennials. The effects are oft-repeated and a bit ominous: This is

a group of late starters and inexperienced entry-level employees hamstrung

by a dearth of jobs during the downturn. As signs point to renewed economic

vigor in the broader economy, these individuals remain far more likely to be

unemployed, underemployed and loaded with debt than any other generation.

78% of Millennials agree:

“These days, you don’t need to own a home to have a

good life.”

Source: The Futures Company

Many Millenials are “starting slowly and earning less, often taking jobs for low pay or accepting unpaid internships just to get a foot in the door.

One-third are living with parents or are financially dependent on them. (Source: usatoday.com, 3.14)

myCUmortgage® is a wholly-owned CUSO of Wright-Patt Credit Union. ©2012 NMLS# 565434

Redefining your mortgage experience.

A favorable time or occasion when all parties involved in the mortgage process experience success.

As a CUSO, myCUmortgage shares the Credit Union philosophy. We understand that when credit unions work through a collaborative cooperative, it creates a winning environment for everyone. You’ll benefit from increased member savings, expanded product offerings (FHA and VA loans)

and credit union profitablility... just to name a few.

Cooportunitynoun [koh-op-er-too-ni-tee]

Find out how we help make Credit Unions GREAT real estate lenders!

877-912-8009 | www.myCUmortgage.com



Businesses everywhere are strug-gling to understand what role Mil-lennials play in their mid- to long-term strategies. It’s a particularly vexing question for bankers, given

that Millennials, at present, aren’t “easy money” for the financial services sector. As we’ll discuss within this report, Millen-nials remain financially constrained and not a little wary of the financial system’s machinations. They tend to be less inter-ested in old-line banking standbys such as brick-and-mortar branches staffed by tellers, often preferring mobile solutions that many organizations are only now be-ginning to prioritize. These problems are widespread, but they’re particularly acute for credit unions.

Although credit unions could (and should) benefit from the recognition that they’re not like traditional banks, most Millennials aren’t aware of these distinc-tions. Even more problematically, many don’t have more than a tangential under-standing of what it means to belong to a credit union. That’s a problem, but perhaps not an insurmountable one. As we’ll discuss extensively in this article, Millennials are open—even eager—to reinvent the status quo. If credit unions can posi-tion themselves as the natural alternative to a suspect system, they can seize the mantle of disruptive innovator rather than also-ran.

revisiON AND reiNveNtiONMillennials’ attitudes have shifted broadly as they respond

to a reality that’s substantially at odds with the one they were raised to expect. For example, while homeownership is still an aspiration for many Millennials, it is by no means the perva-sive and collective dream characteristic of previous genera-tions. Lack of funds (as we will see later) is only one player shaping this mindset. Lifestyle preferences, personal lifestage timetables, new notions of success and more, all play a role in making home ownership less relevant at this time in their lives.

Still, all the pundit doomsaying so prevalent in discussions about this gener-ation misses an important reality: Genera-tions typically build on their predecessors’ discoveries and advances. In particular, Millennials tended to be shrewder, more confident consumers than Gen Xers of the same age. And the younger cohort’s market savvy seems to have extended beyond simple purchase transactions. While it’s popular to bemoan Millennials as a drifting, listless, instant-gratification generation, a study by the St. Louis Fed pokes some holes in that stereotype. (For those unwilling to wade through 26 pages of Fed-speak, The Atlantic has a shorter, more accessible distillation.

In brief, although the study shows that Millennials are less likely than their older peers to own assets such as homes and stocks, we view this finding as a natural and expected function of their lifestage (young adults) and not their cohort (Mil-lennials). In fact, comparing young adults in 2013 against those in 1989, the study

finds that significantly more Millennial young adults own their own home or an investment account—such as a 401(k) or an IRA—than did their Boomer/Xer forebears. Likewise, although young-adult stock ownership was much lower in 2013 than in 2001, 2013 levels were nonetheless higher than in 1989.

And while net worth (in 2013 dollars) declined from 1989 to 2013, levels of credit-card and automobile debt declined, as well. We see this as an encouraging sign that Millennials are responding rationally to their present reality and positioning themselves for the future.

The finding that young-adult homeownership is higher than in 1989 feels especially counterintuitive given all the hand-wringing over Millennial ownership rates. And it’s true that many Millennials are single and childless, so owning a home (while perhaps vaguely aspirational in some way) is not mean-ingful to them as a place to raise a family. More young people than ever before feel they can live without home ownership: They just don’t need it right now, and as they learn to live with-out a home, it’s possible many will never come to see it as a

61% of Millennials say

“it’s your responsibility to

stand up for beliefs even if they are

unpopular.”


“Compared with young adults in 1989, young adults in 2013 were more likely to own homes, stocks, and retirement accounts. Moreover, young adults in 2013 were less

likely to have high debt payment burdens than older adults, young adults in 1989, and young adults in 2001,” the study found. and the median value of bank accounts,

retirement portfolios, and stocks held by young Americans were equal or higher than the value of the same holdings for young americans in 1989.” (The atlantic)



must-have priority. However, bar-

ring continued or increased job inse-curity or financial instability, we expect many Millennials to take more con-crete steps toward homeownership in coming years. In fact, 80 percent of Mil-lennial homeowners also feel that owning a home is one of their proudest accomplish-ments. (Source: The Futures Company)

Like it or not, Mil-lennials are the fu-ture. It’s up to you to begin to understand this cohort – and to make your best case to them. Insights and timely perspec-tives on a generation’

thinking can help ensure that businesses are not operating under a set of incomplete or outdated assumptions as they

cultivate consumers in their marketing communications and product and service offerings. Generation matters.

geNerAtiON MAttersA generation is a group of people who grew up and came

of age together, linked through the shared life experiences of their formative years. Economic conditions, pop culture, world events, politics, technology, heroes and villains, are all examples of collective experiences that set the tone for a generation, give it direction, provide it with a sense of what’s possible, what’s valuable and what life skills are needed. While there will be a diversity of opinions in any group, a generational cohort will show a distinctive mix of core attitudes and values that affect ev-erything from saving and spending orientation to career choice and work style to media and communication behaviors, etc.

Businesses whose core constituency is defined at least in part by lifestage or living situation must recognize and respond to “generational change-overs”; age alone does not provide insights as to how consumers choose to fulfill the needs and necessities of lifestage. Generation does. Most Matures lived at home until marriage. Boomers added a stop along the way between childhood home and married home, flocking to apart-ment living and roommates (not to mention orange crates-as-bookcases!). Today, Millennials continue to upend traditional lifestage-based assumptions about rites of passage and all sorts of ownership aspirations.

67% of Millennials agree

“nowadays we are free to shape our own identities

and transform ourselves in any way we want.”


Matures: 1945 and prior

Baby Boomers: 1946-1964

Generation X: 1965-1978

Millennials: 1979-1996

Centennials: 1997-present

Each generation has a broad brush

personality that brings different priorities,

perceptions, talents and styles to the

societal conditions common to all cohorts.

These acculturation biases withstand the

test of time.

SIDEBAR: The generations with birth years and pics

Matures: 1945 and prior

Baby Boomers: 1946-1964

Generation X: 1965-1978

Millennials: 1979-1996

Centennials: 1997-present

Meet the Millennials

Quick Facts

According to the U.S. Census Bureau’s Statistical Abstract of the United States: 2012, just over 69 million babies were born between 1979 and 1996. Although this population rate put them second to Baby Boomers in terms of generation size, the aging Boomer cohort will imminently make way for Millennials’ emergence as the most economically and culturally important cohort in the United States.

FIGUrE 1 Defining THe geneRaTionS



Meet the MilleNNiAlsQUick fActsn According to the U.S. Census Bureau’s Statistical Abstract

of the United States: 2012, just over 69 million babies were born between 1979 and 1996. Although this population rate put them second to Baby Boomers in terms of genera-tion size, the aging Boomer cohort will imminently make way for Millennials’ emergence as the most economically and culturally important cohort in the United States.

n 42% are married or part of an unmarried couple living to-gether; 55% have never been married

n 36% are parents (compared to 78% of Xers, 79% of Boomers)

n Millennials are the last majority Non-Hispanic White gen-eration, 41% of Millennials are Hispanic, African Ameri-can, or Asian American

BUBBle, BUBBle, BUst AND strUggleThe formative experience of the Millennial generation has

been one of ups and downs, highs and lows, leaps forward and big stumbles backward. This generation grew up through two bubbles, two busts, two wars and two centuries. They see new possibilities, new approaches to success and new ways of liv-ing that are seemingly arriving daily. Globalization and cultur-al diversity have created a cross-pollination of ideas that they are eager to soak up.

DrilliNg DOwN: A vAlUes rOADMApCapturing the marketplace potential of Millennials re-

quires an up-to-date understanding of the unique characteris-tics and qualities the generation brings to lifestyle choices and marketplace decisions.

AN experieNce Of AUthOrship: Emboldened by a keen sense of importance (both at the in-

dividual and generational levels) and an unprecedented level of technology-proficiency, Millennials have always been invested in defining their own dreams, inventing their own solutions

and asserting their will in the market-place. Remember, the generation-defining individualism of Baby Boomers has hardly waned and Boom-ers, in turn, have not raised their Millennial children to be any less individualistic. In fact, Millennials grew up in a world of unprece-dented self-invention, a world in which they have had the power and control needed to participate in the cre-ation (and the mean-ing) of all sorts of op-tions—from blogging, to creating your own running shoes to vot-ing someone “off the island.”

A DeMAND fOr AUtheNticity:

Millennials prize and practice being true to themselves—and they are happy to let others be true to themselves as well. Millennials appreciate clarity and take pride in their ability to see through hype and exaggeration.

expectAtiONs Of AUtONOMy:

Millennials relish independence, express comfort with do-ing things ‘my own way,’ regardless of how others approach life, and are more likely to try new things. Millennials’ individ-uality coexists alongside a powerful team ethos characteristic of this generation. Millennials are just fine standing out within the crowd.

67% of Millennials say it is important that

others see them as someone who can

always see through exaggeration

and hype.


It’s often a matter of what we call “Immediascene™-- large proportions of Millennials report exploiting their smartphones in retail settings. This opinion dominion creates a sense among Millennials that “I’m always everywhere with everyone,” fueling a belief that their purchases—blessed by friends and fellow

shoppers—are both savvy and socially secure.



little AppreciAtiON fOr cUstOM AND cONveNtiON:

Social conven-tions and hierarchies have little intrinsic value to Millenni-als. This is perhaps most visible in the way Millennials ap-proach their journey through life: the Millennial trajectory through life is by de-sire and will, rather than adherence to traditional linear life stages. Greater flex-ibility in expectations and life choices with fewer constraints on personal iden-tity means that many Millennials are reject-ing pre-designed and narrowly defined roadmaps to their future, with many delaying their transi-tion into the typical notion of adulthood.

As discussed earlier, Millennial priorities are—at least pres-ently—depressing homeownership numbers. This is a tangible marketplace expression of Millennials’ reluctance to blindly

follow established conventions. Two long-term trends, both growing for decades and now at unprecedented levels among young people today, are pushing hard against Millennials be-coming homeowners. Simply put, my-life-my-way Millenni-als aren’t facing the same lifestyle needs as prior generations at their age. One of these trends is the age of first marriage: young people today are not only marrying later, they at marry-ing at record later ages. The average age of first marriage has been rising ever since it bottomed out with Baby Boomers who married in their very early twenties. In fact, only 26 percent of 18- to 32-year-olds are married today, compared to 48 percent back in 1980 when the Boomers were that age.

The other of these two long-term trends is the age at which women first have children. As with marriage, it is at a later age than ever—just shy of 26 years old today, and first births among women in their late thirties and early forties are on an upward trend and are occurring in record numbers.

pAssiON pOiNts: Believing “stuff weighs you down,” many Millennials are

more drawn to contentedness “my way” than they are to cash, cars and castles. Under Millennials’ watch, cars went from an avatar of youthful freedom to a costly burden.

Technology is a well-known passion point for the Millen-nials. As digital trailblazers, Millennials grew up using tech-nology fluidly and fluently. Millennials made the digital world their own, they mapped it and they helped establish the rules.

It’s not an exaggeration to say that technology is the new status symbol for many Millennials, replacing such bedrock as-pects of life as clothes and automobiles. In fact, as John Morris, a retail analyst at BMO Capital Markets lamented about the falling demand for clothes, “You try to get them talking about what’s the next look, what they’re excited about purchasing in

Millennials:

Prefer a life that’s exciting but not

secure or stable: 35%

Prefer a life that’s secure and stable but not exciting:

65%


narrowly defined roadmaps to their future, with many delaying their

transition into the typical notion of adulthood.

As discussed earlier, Millennial priorities are—at least presently—

depressing homeownership numbers. This is a tangible marketplace

expression of Millennials’ reluctance to blindly follow established

conventions. Two long-term trends, both growing for decades and now

at unprecedented levels among young people today, are pushing hard

against Millennials becoming homeowners. Simply put, my-life-my-way

Millennials aren’t facing the same lifestyle needs as prior generations at

their age. One of these trends is the age of first marriage: young people

today are not only marrying later, they at marrying at record later ages.

The average age of first marriage has been rising ever since it bottomed

out with Baby Boomers who married in their very early twenties. In

fact, only 26 percent of 18- to 32-year-olds are married today,

compared to 48 percent back in 1980 when the Boomers were that age.

FIGUrE 2 a leSS STRUCTUReD PaTH THRoUgH life



apparel, and the conversation always circles back to the iPhone 6,” he said. “You get them talking about crop tops, you get a nice little debate about high-waist going, but the conversation keeps shifting back.”

Among MillennialsI could not get by without my cellphone/smartphone 62%

I would like to be able to make payments by 52%scanning my smartphone

I would rather communicate via text message than talk on 56%my cell phone/smartphone

Interested in a wearable device that records video of 45%your every waking moment

Looking at digital uptake within financial services, the chart below shows that young, high-net-worth investors often prefer digital to direct contact with their advisors.

A New reAlity: cONfiDeNce teMpereD By reAlity AND hArDship: Shaped by Boomer (aka helicopter) parents and an educa-

tion system obsessed with protecting, guiding and instilling self-esteem, Millennials grew up extremely ambitious, with an unshakeable confidence that they would get where they wanted to go quickly and easily thanks to the various personal strengths that made them each unique and special.

Now, careening from the longest peacetime economic ex-pansion in history to the worst economic downturn in seventy-five years, pummeled by a challenging job market, and faced with ongoing changes to the fabric of society, the way Millen-nials look at life has been fundamentally altered. Their over-confidence has been forcibly removed, their sanguine sense of security has morphed into a heightened awareness of risk, their youthful boldness has mellowed into an outlook that has dialed down the daring and keyed up the caution.

Even as the economy continues to improve, this altered mindset still prevails. Asked whether they’d prefer a life of dull stability or exciting volatility, more Millennials say they’re con-tent with a happy humdrum.

stresseD AND self-AwAre: Stress continues to come at people of all ages from all direc-

tions. The average person is confounded by negative as well as positive triggers: they’re bombarded by choices yet intrigued by options, too many to-dos, too little trust. Stress, of course, is a risk factor for both anxiety and depression, leading to a new urgency inspiring more conversation about—and response to—mental illnesses and disorders.

Millennials are by no means immune from rising emotional and mental health problems. The American Psychological Asso-ciation’s “Stress in America” report found that the gap between adults who say stress management is important and those who say they manage their stress effectively is widest among Millen-nials. Nineteen percent of Millennials say they have been told they’re suffering from depression, compared to 12% of Boom-ers and 11% of Matures. (Source: The American Psychological Association, 2013). And In the fall of 2010, the annual UCLA Freshman Study found an all-time low of 52% rated their emo-tional health in either ‘the highest 10 percent or ‘above average.’” (Source: The Freshman Study, conducted annually since 1966 by the Higher Education Research Institute at UCLA)

“There’s a lot of evidence that millennials don’t drive as much—or care as much for cars in general—as previous generations their own age did. They’re less likely

to get driver’s licenses. They tend to take fewer car trips, and when they do, those trips are shorter. They’re also more likely than older generations to get around by

alternative means: by foot, by bike, or by transit.” (Source: washingtonpost.com/blogs, 2014)

<40

40-49

60-69

50-59

Total

20.2%

24.0%

38.2%

32%

30.7%

29.1%

24.8%

21.7%

22.9%

23.7%

Digital contact Direct contact Note: top-3 box on a 10-point scale; *with $1+ million in investable assetsSource: Acpgermini and RBC Wealth Management, 2013 WorldWealth Report, June 5, 2013

168595 www.emarketer.com

High Net Worth Individuals* Worldwide Who Prefer Direct vs. Digital Interaction with Wealth Managers, by Age, March 2013% of respondents in each group



sUccess recAliBrAteD: In the face of new-

found difficulties and a road ahead that was clearly less straightfor-ward than they’d been led to expect, Millen-nials did not flounder long. Rather, they gathered their wits and began tackling the uncertainty they faced. In true Mil-lennial fashion, the transformation was quick and dramatic. A generation regrouped with a new mantra: Don’t abandon expec-tations for success; cope and reconstruct.

Success by coping is about succeeding by trying; what con-stitutes success is ef-fort, perseverance and adaptability, rather than fortune. In other words, grit, not get; playing the game is more significant than winning or losing.

Success by re-constructing is about measuring happiness less by its market value and more by the meaning behind it. Be creative: play the hand you are dealt to

make something that fits your lifestyle. Be adaptable: never forget that flexibility trumps planning in an uncertain world.

Significantly, as they worked through revising their expec-tations, Millennials set about paying down revolving debt at rate no one thought possible. In fact, today debt is now a major factor shaping Millennials’ view of success.

“eArlier” fiNANciAl sAvvy: “A January 2014 survey of U.S. investors by UBS

Wealth Management found that Millennials’ risk toler-ance was more closely aligned with seniors who lived through the Great Depression than Gen X or Boomer generations.” (eMarketer, February 2014, Digital Inves-tors: Drawing From a Portfolio of Growing Online and Mobile Options)

Today, more consumers are feeling an urgent need to build financial capabilities from a younger age. Needless to say, young people have shifted their financial expectations and strategies based on what they saw happen during the Great Recession and its aftermath. We can expect this to translate to a proactive approach to retirement planning and saving.

Ann Clurman is an Executive Vice-President at The Futures Company. Described by US News and World Report magazine as “one of the best researchers and generation-watchers,” Ann is a nationally recognized authority and lecturer on American con-sumers. She is the co-author of Generation Ageless: How Baby Boomers Are Changing the Way We Live Today…And They’re Just Getting Started (2007) and Rocking the Ages, The Yankelov-ich Report on Generational Marketing (1997). Ann is also co-author of Coming to Concurrence: Addressable Attitudes and the New Model for Marketing Productivity (2004), excerpts of which have been published in BrandWeek and DIRECT.

Rob Callender is Director of Youth Insights for The Futures Company and, in that capacity, serves as the company’s Youth Global Knowledge Lead. During Rob’s 15 years at The Futures Company, he’s appeared in such news outlets as the Associated Press, Mashable, USA Today, NPR, the Wall Street Journal, CNN, Hollywood Reporter and Billboard, among others.

ABOUt the fUtUres cOMpANyThe Futures Company is an award-winning, global strategic

insight and innovation consultancy. Unparalleled global exper-tise in foresight and futures enables The Futures Company to unlock new sources of growth through a range of subscription services and research and consulting solutions. The Futures Company was formed through the integration of The Henley Centre, HeadlightVision, Yankelovich and most recently, TRU.

The Futures Company is a Kantar company within WPP with teams in Europe, North America, Latin America and Asia.

www.thefuturescompany.com Follow The Futures Com-pany on Twitter @FuturesCo and Facebook.

What matters most on the dating scene today? According to The New York Times, an increasing number of daters today are placing priority not on looks, shared

interests or intention of starting a family, but on the prospective partner’s credit score. Sites like www.creditscoredating.com give prospective dates insight into “the only grade that matters after you graduate.” (Source: The new york Times, 12.12)


being debt free: is a sign of success and

accomplishment.

43% of Millennials say they

are “very/fairly” worried about

getting out of debt.


their debt level is ruining the quality

of their life.




a Millennial guide to lifeDeveloping winning strategies around Millennials requires understanding their expectations, ambitions and life skills. Here’s a sum-up to get you on your way.

MillennialS…..

Expect to live their lives in constant, even relentless transition, defined by technology and connections

Relish the possibility of and satisfaction of reimagining everything

Are determined to live life on their own terms and timeframes, often ignoring traditional milestones (e.g., home ownership)

Know the future will be challenging and that they will have to work harder to succeed than ever before

appreciate the virtue of having a back-up plan for inevitable glitches and setbacks

View debt as a paramount factor in their personal sense of accomplishment

need flexibility and the ability to co-create from the marketplace

Are accustomed to a heightened state of security and risk

Expect to have conversations with brands, often in real time

Value brands and institutions that stay true to their essence

Evaluate organizations on their degree of authenticity, integrity, and good corporate citizenship


Feature article


U.S. Macro oUtlook 2015

Moody’s Analytics U.S. Macro Forecast for 2015

n Growth should accelerate in 2015 as higher wages spur more spending, construction and investment.

n The sharp fall in oil prices will slow energy production but still be a net gain for the economy.

n How fast the Federal Reserve raises interest rates, and how markets respond when they do, will be key to the coming year’s economic story.

n As more millennials begin forming households, housing demand and construction will take off.

n The aging population and a slower pace of technological change could weigh on the economy’s long-term potential.

n Problems in Europe and China have the potential to hinder the u.S. expansion in 2015.

U.S. Macro Outlook 2015:

Spirits UnleashedBy Mark Zandi

n

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In general, 2014 was a good year for the U.S. economy, and 2015 should be even better.

The most encouraging development of the past year was the rapid decline in joblessness. At the current pace of job growth, the economy is fast approaching full em-

ployment. The next critical step in the economy’s return to full health is a meaningful acceleration in wage growth, which ap-pears imminent.

Most surprising has been the recent slide in oil prices, which, if sustained, will provide a significant boost to growth. The U.S. produces a lot more oil than it used to because of the shale revo-lution, and falling prices will take a toll on future energy develop-ment, but the country is still a significant net consumer of oil. As consumers put less of what they earn into their gasoline tanks, therefore, the holiday shopping will receive a lift.

Arguably the biggest disappointment in 2014 was the sideways housing market. The surge in mortgage rates in late 2013 and tight mortgage credit hurt home sales and construc-tion. But mortgage rates have receded and the credit spigot has begun to open. Many millennials who have delayed form-ing households will begin to do so soon as the job market im-proves, moreover, making housing a more significant source of growth.

the feD fActOrThis highlights a key threat to the economy in the coming

year; namely, the chance that the Federal Reserve will begin to raise interest rates. The Fed needs to engineer short- and long-term rates higher, consistent with the improving job market, in a way that keeps the housing recovery on track. Policymakers have all the tools they need and have gained valuable experi-ence in communicating with financial markets.

Yet the process of normalizing monetary policy may not be as graceful as we hope.

The U.S. is also vulnerable to a softer global economy. With the euro zone and Japan flirt-ing with recession, and China’s growth steadily throttling back, the U.S. trade situation will erode. This will be made worse by the recent surge in the value of the dollar, which is sure to continue. If conditions don’t get any worse overseas, the U.S. re-covery should hold firm. This is a big if.

weAker pOteNtiAlThe other developing con-

cern is the U.S. economy’s weak potential growth rate. Underly-ing labor-force and productivity growth remains disappointing. Their weakness will help re-turn the economy to full employment more quickly, but if they do not improve growth will be weaker over the longer term. A persistently low rate of new business formation, which is the fodder for innovation and productivity gains, adds to worries.

However, it is premature to conclude that the economy’s supply side won’t come back to life as full employment ap-proaches. The U.S. has a surfeit of potential workers who stepped out of the job market during the tough times; some of them will step back in as wage growth and job opportunities return. Business formation and investment should also recover as the psychological shadow of the Great Recession fades and risk-taking revives.

wAge resUrrectiONA key missing ingredient to a stronger

economy has been real wage growth. Despite the increasingly robust job creation, the econ-omy is still climbing out of the deep hole cre-ated by the Great Recession. Unemployment and underemployment are now falling fast, but there is still slack in the labor market equal to approximately 1.25% of the labor force.

At the current underlying pace of job growth—about 225,000 per month—this slack will be absorbed by mid-2016, assuming stable labor force participation. If participation picks up as disenfranchised workers come back into the labor force, the economy will return to full employment by the end of 2016.

Although full employment is still some distance away, wage growth should soon pick up. Data indicate it already has begun to do so. For much of the recovery, wages have grown only about 2% per year, the rate of inflation. This means workers have not been

U.S. Macro Outlook 2015: Spirits UnleashedU.S. Macro Outlook 2015: Spirits Unleashed By Mark ZandiBy Mark Zandi DECEMBER 12, 2014DECEMBER 12, 2014

View the View the Moody's Analytics U.S. Macro ForecastMoody's Analytics U.S. Macro Forecast..

Growth should accelerate in 2015 as higher wages spur more spending, construction and investment. Growth should accelerate in 2015 as higher wages spur more spending, construction and investment.

The sharp fall in oil prices will slow energy production but still be a net gain for the economy. The sharp fall in oil prices will slow energy production but still be a net gain for the economy.

How fast the Federal Reserve raises interest rates, and how markets respond when they do, will be key to the coming year's economic How fast the Federal Reserve raises interest rates, and how markets respond when they do, will be key to the coming year's economic story. story.

As more millennials begin forming households, housing demand and construction will take o�. As more millennials begin forming households, housing demand and construction will take o�.

The aging population and a slower pace of technological change could weigh on the economy's longThe aging population and a slower pace of technological change could weigh on the economy's long--term potential. term potential.

Problems in Europe and China have the potential to hinder the U.S. expansion in 2015. Problems in Europe and China have the potential to hinder the U.S. expansion in 2015.

In general, 2014 was a good year for the U.S. economy, and 2015 should be even better.In general, 2014 was a good year for the U.S. economy, and 2015 should be even better.

The most encouraging development of the past year was the rapid decline in joblessness. At the current pace of job growth, the economy is The most encouraging development of the past year was the rapid decline in joblessness. At the current pace of job growth, the economy is fast approaching full employment. The next critical step in the economyfast approaching full employment. The next critical step in the economy’’s return to full health is a meaningful acceleration in wage growth, s return to full health is a meaningful acceleration in wage growth, which appears imminent.which appears imminent.

Most surprising has been the recent slide in oil prices, which, if sustained, will provide a signi�cant boost to growth. The U.S. produces a lot Most surprising has been the recent slide in oil prices, which, if sustained, will provide a signi�cant boost to growth. The U.S. produces a lot more oil than it used to because of the shale revolution, and falling prices will take a toll on future energy development, but the country is more oil than it used to because of the shale revolution, and falling prices will take a toll on future energy development, but the country is still a signi�cant net consumer of oil. As consumers put less of what they earn into their gasoline tanks, therefore, the holiday shopping will still a signi�cant net consumer of oil. As consumers put less of what they earn into their gasoline tanks, therefore, the holiday shopping will receive a lift.receive a lift.

Arguably the biggest disappointment in 2014 was the sideways housing market. The surge in mortgage rates in late 2013 and tight Arguably the biggest disappointment in 2014 was the sideways housing market. The surge in mortgage rates in late 2013 and tight mortgage credit hurt home sales and construction. But mortgage rates have receded and the credit spigot has begun to open. Many mortgage credit hurt home sales and construction. But mortgage rates have receded and the credit spigot has begun to open. Many millennials who have delayed forming households will begin to do so soon as the job market improves, moreover, making housing a more millennials who have delayed forming households will begin to do so soon as the job market improves, moreover, making housing a more signi�cant source of growth.signi�cant source of growth.

The Fed factor

This highlights a key threat to the economy in the coming year; namely, the chance that the Federal Reserve will begin to raise interest rates. This highlights a key threat to the economy in the coming year; namely, the chance that the Federal Reserve will begin to raise interest rates. The Fed needs to engineer shortThe Fed needs to engineer short-- and long and long--term rates higher, consistent with the improving job market, in a way that keeps the housing term rates higher, consistent with the improving job market, in a way that keeps the housing recovery on track. Policymakers have all the tools they need and have gained valuable experience in communicating with �nancial markets. recovery on track. Policymakers have all the tools they need and have gained valuable experience in communicating with �nancial markets.

Dismal Scientist

MOODY'S ANALYTICS / Dismal Scientist / Copyright© 2014 / www.dismal.com 1 / 8

%4

3

2

119F18F17F16F15F14131211 20F10

9

8

7

6

5

4

10

Sources: FDIC, Moody’s Analytics

Unemployment rate (R) ▪▪▪▪ Real GDP growth (L)

n

Apartment construction is already the

bright spot in the housing market, and it is sure to

get brighter.

FIGUrE 1 BeTTeR eConoMiC TiMeS aHeaD



rewarded for increases in productivity, and is why the profit share of national income has risen to a record high.

As the economy reaches full employ-ment, pay should grow fast enough to cover both inflation and productivity gains. As-suming underlying productivity growth is near 1.5% per year, nominal annual wage growth should steadily accelerate to 3.5% over the next two years.

speND versUs sAveEvidence is mounting that this anticipat-

ed acceleration has begun. Wage growth as measured by the employment cost index, the most comprehensive and consistent measure of compensation, hit bottom at 1.5% three years ago. Growth is now definitively above 2%, and the trend lines look good. Wages as measured by data from human-resource com-pany ADP tell an even more positive story.

Stronger wage growth will support stronger consumer spending as long as consumers don’t save it all. Given the wealth effects powered by record stock prices and better hous-ing values, saving rates should, if anything, decline. Easier credit and more relaxed consumer attitudes toward borrowing also point to lower saving and greater spending.

Higher wages should also boost consumer sentiment. Per-ceptions about the economy have been lackluster despite the better job market. Americans judge the economy based on whether their pay is rising faster than inflation, and whether this year’s average pay increase was bigger than last year’s. This has not been the case until now. Improved moods among

consumers could mean more purchases of big-ticket items such as vehicles, whose sales are already back to prerecession levels because of lower gas prices and easy credit. Next could be houses, sales of which have been flat since mortgage rates jumped more than a year ago.

eNergy sUrpriseFurther boosting both consumer spirits and the economy’s

prospects is the surprising slide in oil prices. At near $60 per barrel, crude prices have fallen about 40% since summer. If sustained, lower prices will lift global real GDP growth rates in 2015 by more than half a percentage point, and just under

that in the U.S.Saudi Arabia is crucial to where oil prices

are headed next. The Saudis’ decision not to scale back production to offset supply growth in the U.S. and elsewhere was the proximate cause for the plunge in prices. Softer global demand growth and a robust dollar also contributed, but if Saudi Arabia had reined in production as it has in times past, prices would have held firm.

The Saudis appear to believe that the global surfeit of oil is here to stay and the bur-den of balancing supply and demand must be shared more broadly. They can financially ab-sorb the fall in revenue, at least for a while, given the savings they built when prices were high. A lower global oil price also likely fits their geopolitical strategy. Saudi Arabia’s ad-versaries—Iran, Russia, and the insurgency calling itself the Islamic State—are all suffer-ing badly from the lower prices.

Yet the process of normalizing monetary policy may not be as graceful as we hope.Yet the process of normalizing monetary policy may not be as graceful as we hope.

The U.S. is also vulnerable to a softer global economy. With the euro zone and Japan �irting with recession, and ChinaThe U.S. is also vulnerable to a softer global economy. With the euro zone and Japan �irting with recession, and China’’s growth steadily s growth steadily throttling back, the U.S. trade situation will erode. This will be made worse by the recent surge in the value of the dollar, which is sure to throttling back, the U.S. trade situation will erode. This will be made worse by the recent surge in the value of the dollar, which is sure to continue. If conditions doncontinue. If conditions don’’t get any worse overseas, the U.S. recovery should hold �rm. This is a big if.t get any worse overseas, the U.S. recovery should hold �rm. This is a big if.

Weaker potential

The other developing concern is the U.S. economyThe other developing concern is the U.S. economy’’s weak potential growth rate. Underlying labors weak potential growth rate. Underlying labor--force and productivity growth remains force and productivity growth remains disappointing. Their weakness will help return the economy to full employment more quickly, but if they do not improve growth will be disappointing. Their weakness will help return the economy to full employment more quickly, but if they do not improve growth will be weaker over the longer term. A persistently low rate of new business formation, which is the fodder for innovation and productivity gains, weaker over the longer term. A persistently low rate of new business formation, which is the fodder for innovation and productivity gains, adds to worries.adds to worries.

However, it is premature to conclude that the economyHowever, it is premature to conclude that the economy’’s supply side wons supply side won’’t come back to life as full employment approaches. The U.S. has a t come back to life as full employment approaches. The U.S. has a surfeit of potential workers who stepped out of the job market during the tough times; some of them will step back in as wage growth and surfeit of potential workers who stepped out of the job market during the tough times; some of them will step back in as wage growth and job opportunities return. Business formation and investment should also recover as the psychological shadow of the Great Recession fades job opportunities return. Business formation and investment should also recover as the psychological shadow of the Great Recession fades and riskand risk--taking revives.taking revives.

Wage resurrection

A key missing ingredient to a stronger economy has been real wage growth. Despite the increasingly robust job creation, the economy is still A key missing ingredient to a stronger economy has been real wage growth. Despite the increasingly robust job creation, the economy is still climbing out of the deep hole created by the Great Recession. Unemployment and underemployment are now falling fast, but there is still climbing out of the deep hole created by the Great Recession. Unemployment and underemployment are now falling fast, but there is still slack in the labor market equal to approximately 1.25% of the labor force.slack in the labor market equal to approximately 1.25% of the labor force.

At the current underlying pace of job growthAt the current underlying pace of job growth——about 225,000 per monthabout 225,000 per month——this slack will be absorbed by midthis slack will be absorbed by mid--2016, assuming stable labor 2016, assuming stable labor force participation. If participation picks up as disenfranchised workers come back into the labor force, the economy will return to full force participation. If participation picks up as disenfranchised workers come back into the labor force, the economy will return to full employment by the end of 2016.employment by the end of 2016.

Although full employment is still some distance away, wage growth should soon pick up. Data indicate it already has begun to do so. For Although full employment is still some distance away, wage growth should soon pick up. Data indicate it already has begun to do so. For much of the recovery, wages have grown only about 2% per year, the rate of in�ation. This means workers have not been rewarded for much of the recovery, wages have grown only about 2% per year, the rate of in�ation. This means workers have not been rewarded for increases in productivity, and is why the pro�t share of national income has risen to a record high.increases in productivity, and is why the pro�t share of national income has risen to a record high.

As the economy reaches full employment, pay should grow fast enough to cover both in�ation and productivity gains. Assuming underlying As the economy reaches full employment, pay should grow fast enough to cover both in�ation and productivity gains. Assuming underlying productivity growth is near 1.5% per year, nominal annual wage growth should steadily accelerate to 3.5% over the next two years.productivity growth is near 1.5% per year, nominal annual wage growth should steadily accelerate to 3.5% over the next two years.

Spend versus save

Evidence is mounting that this anticipated acceleration has begun. Wage growth as measured by the employment cost index, the most Evidence is mounting that this anticipated acceleration has begun. Wage growth as measured by the employment cost index, the most comprehensive and consistent measure of compensation, hit bottom at 1.5% three years ago. Growth is now de�nitively above 2%, and the comprehensive and consistent measure of compensation, hit bottom at 1.5% three years ago. Growth is now de�nitively above 2%, and the

Dismal Scientist


4.0

3.5

3.0

2.5

2.0

1.5

1.00 654321 7

Y-axis=Employment cost indexprivate wage and salary, % change yr. ago, 2-qtr lead

X-axis=Unemployedper job opening, #

Current

2001 Q1 to current

Sources: BLS, Moody’s Analytics

trend lines look good. Wages as measured by data from humantrend lines look good. Wages as measured by data from human--resource company ADP tell an even more positive story.resource company ADP tell an even more positive story.

Stronger wage growth will support stronger consumer spending as long as consumers donStronger wage growth will support stronger consumer spending as long as consumers don’’t save it all. Given the wealth e�ects powered by t save it all. Given the wealth e�ects powered by record stock prices and better housing values, saving rates should, if anything, decline. Easier credit and more relaxed consumer attitudes record stock prices and better housing values, saving rates should, if anything, decline. Easier credit and more relaxed consumer attitudes toward borrowing also point to lower saving and greater spending.toward borrowing also point to lower saving and greater spending.

Higher wages should also boost consumer sentiment. Perceptions about the economy have been lackluster despite the better job market. Higher wages should also boost consumer sentiment. Perceptions about the economy have been lackluster despite the better job market. Americans judge the economy based on whether their pay is rising faster than in�ation, and whether this yearAmericans judge the economy based on whether their pay is rising faster than in�ation, and whether this year’’s average pay increase was s average pay increase was bigger than last yearbigger than last year’’s. This has not been the case until now. Improved moods among consumers could mean more purchases of bigs. This has not been the case until now. Improved moods among consumers could mean more purchases of big--ticket ticket items such as vehicles, whose sales are already back to prerecession levels because of lower gas prices and easy credit. Next could be houses, items such as vehicles, whose sales are already back to prerecession levels because of lower gas prices and easy credit. Next could be houses, sales of which have been �at since mortgage rates jumped more than a year ago.sales of which have been �at since mortgage rates jumped more than a year ago.

Energy surprise

Further boosting both consumer spirits and the economyFurther boosting both consumer spirits and the economy’’s prospects is the surprising slide in oil prices. At near $60 per barrel, crude prices s prospects is the surprising slide in oil prices. At near $60 per barrel, crude prices have fallen about 40% since summer. If sustained, lower prices will lift global real GDP growth rates in 2015 by more than half a percentage have fallen about 40% since summer. If sustained, lower prices will lift global real GDP growth rates in 2015 by more than half a percentage point, and just under that in the U.S.point, and just under that in the U.S.

Saudi Arabia is crucial to where oil prices are headed next. The SaudisSaudi Arabia is crucial to where oil prices are headed next. The Saudis’ ’ decision not to scale back production to o�set supply growth in the decision not to scale back production to o�set supply growth in the U.S. and elsewhere was the proximate cause for the plunge in prices. Softer global demand growth and a robust dollar also contributed, but if U.S. and elsewhere was the proximate cause for the plunge in prices. Softer global demand growth and a robust dollar also contributed, but if Saudi Arabia had reined in production as it has in times past, prices would have held �rm.Saudi Arabia had reined in production as it has in times past, prices would have held �rm.

The Saudis appear to believe that the global surfeit of oil is here to stay and the burden of balancing supply and demand must be shared The Saudis appear to believe that the global surfeit of oil is here to stay and the burden of balancing supply and demand must be shared more broadly. They can �nancially absorb the fall in revenue, at least for a while, given the savings they built when prices were high. A lower more broadly. They can �nancially absorb the fall in revenue, at least for a while, given the savings they built when prices were high. A lower global oil price also likely �ts their geopolitical strategy. Saudi Arabiaglobal oil price also likely �ts their geopolitical strategy. Saudi Arabia’’s adversariess adversaries——Iran, Russia, and the insurgency calling itself the Islamic Iran, Russia, and the insurgency calling itself the Islamic StateState——are all su�ering badly from the lower prices.are all su�ering badly from the lower prices.

Bottom of the barrel?

We believe oil is close to a bottom, and will slowly climb back to $100 per barrel over the next three years. Lower prices will eventually force We believe oil is close to a bottom, and will slowly climb back to $100 per barrel over the next three years. Lower prices will eventually force cuts in production, mostly where costs are high, such as the North Sea and the Arctic, but even investment in lowcuts in production, mostly where costs are high, such as the North Sea and the Arctic, but even investment in low--cost U.S. shale production cost U.S. shale production will weaken. Lower prices will also prop up oil demandwill weaken. Lower prices will also prop up oil demand——possibly faster than expected, judging from a recent surge in sales of gaspossibly faster than expected, judging from a recent surge in sales of gas--guzzling guzzling SUVs.SUVs.

The principal economic bene�ciaries of this will be consumers, who will enjoy what amounts to a meaningful tax cut. In the U.S., this is The principal economic bene�ciaries of this will be consumers, who will enjoy what amounts to a meaningful tax cut. In the U.S., this is expected to equal close to $100 billion in 2015, or 0.6% of income. Global oilexpected to equal close to $100 billion in 2015, or 0.6% of income. Global oil--related investment and production will be hurt, but U.S. shale related investment and production will be hurt, but U.S. shale producers, whose average breakproducers, whose average break--even cost is closer to $60 per barrel, should do relatively well. On net, the oil price decline is expected to lift even cost is closer to $60 per barrel, should do relatively well. On net, the oil price decline is expected to lift U.S. GDP growth next year by 0.4 percentage point.U.S. GDP growth next year by 0.4 percentage point.

Dismal Scientist


-1.2Source: Moody’s Analytics

IndiaTurkeyJapanChina

Euro zoneGlobal

U.S.U.K.

CanadaNorway

Russia

Based on WTI of $70per barrel in 2015

0.40.20.0-0.2-0.4-0.6-0.8-1.0 0.80.6 1.0

% change in 2015 real GDP due to lower oil prices

FIGUrE 3 gloBal eConoMy geTS an eneRgy BooST

FIGUrE 2 Wage gRoWTH SeT To aCCeleRaTe



BOttOM Of the BArrel?We believe oil is close to a bottom, and will slowly climb

back to $100 per barrel over the next three years. Lower prices will eventually force cuts in production, mostly where costs are high, such as the North Sea and the Arctic, but even investment in low-cost U.S. shale production will weaken. Lower prices will also prop up oil demand—possibly faster than expected, judging from a recent surge in sales of gas-guzzling SUVs.

The principal economic beneficiaries of this will be con-sumers, who will enjoy what amounts to a meaningful tax cut. In the U.S., this is expected to equal close to $100 billion in 2015, or 0.6% of income. Global oil-related investment and pro-duction will be hurt, but U.S. shale producers, whose average break-even cost is closer to $60 per barrel, should do relatively welt. On net, the oil price decline is expected to lift U.S. GDP growth next year by 0.4 percentage point.

hOpes fOr hOUsiNgHousings recovery has been disappointing, but that is

expected to change in 2015. While home sales, construction, prices and rents have come a long way since the housing bust ended three years ago, the market is far from normal, at least in terms of sales and construction. House prices and rents are now roughly consistent with household incomes, but sales are still almost 15% below what would be considered typical, and housing starts are off by one-third.

Housing has been held back by a combination of factors. The heretofore tough job market has been hard on millenni-als, who have been slow to form households. There are more than 3 million more 18 to 34 year-olds living with their parents today than there were prior to the recession. Many of these twenty- and early-thirty-somethings will form households and move into apartments as the job market tightens. Apartment construction is already the bright spot in the housing market, and it is sure to get brighter.

Tight mortgage credit com-bined with a previous jump in mortgage rates significantly crimped first-time homebuyers. The lack of first-timers makes it difficult for trade-up buyers to sell their homes, ultimately hurt-ing sales of new homes and sin-gle-family construction.

This too should change soon. Mortgage finance giants Fannie Mae and Freddie Mac recently signaled a greater willingness to lend by lowering their mini-mum down payment require-ment from 5% to 3%. They have also relaxed the representations and warranties they require on the loans they buy. This should ease lenders’ concerns about be-ing forced to buy back loans that eventually get into trouble, thus encouraging more new lending.

Housing starts are expected to ramp up from just over 1 million units this year to nearly 2 million units in 2017. This is much more than the estimated 1.7 million units required to meet demand in a typical year, and reflects the unleashing of pent-up demand by those millennial households.

The increased construction also represents a lot more jobs. All the current slack in the labor market will be absorbed by stronger housing construction.

iNterest rAte riskForecasting interest rates is generally foolhardy, but a

quickly improving economy makes it prudent to prepare for higher rates over the next several years. If ev-erything sticks roughly to script, the Federal Reserve will normalize short- and long-term rates as the job market tightens. More jobs and stronger wage growth will trump the ill effects of higher rates on the housing market and broader economy.

When the economy is healthy, the fed-eral funds rate should be approximately 4% and the 10-year Treasury yield closer to 5%. While much improved from recent years, the U.S. economy is far from healthy. Full employment is still in the distance, infla-tion remains stubbornly below the Federal Reserve’s target, and the financial system is adjusting to stiffer regulatory requirements and increasingly tough capital and liquid-ity standards. The Fed’s balance sheet is also bloated with Treasury and mortgage securi-ties following several rounds of quantitative easing. This will put downward pressure on

Hopes for housing

HousingHousing’’s recovery has been disappointing, but that is expected to change in 2015. While home sales, construction, prices and rents have s recovery has been disappointing, but that is expected to change in 2015. While home sales, construction, prices and rents have come a long way since the housing bust ended three years ago, the market is far from normal, at least in terms of sales and construction. come a long way since the housing bust ended three years ago, the market is far from normal, at least in terms of sales and construction. House prices and rents are now roughly consistent with household incomes, but sales are still almost 15% below what would be considered House prices and rents are now roughly consistent with household incomes, but sales are still almost 15% below what would be considered typical, and housing starts are o� by onetypical, and housing starts are o� by one--third.third.

Housing has been held back by a combination of factors. The heretofore tough job market has been hard on millennials, who have been slow Housing has been held back by a combination of factors. The heretofore tough job market has been hard on millennials, who have been slow to form households. There are more than 3 million more 18to form households. There are more than 3 million more 18-- to 34 to 34--yearyear--olds living with their parents today than there were prior to the olds living with their parents today than there were prior to the recession. Many of these twentyrecession. Many of these twenty-- and early and early--thirtythirty--somethings will form households and move into apartments as the job market tightens. somethings will form households and move into apartments as the job market tightens. Apartment construction is already the bright spot in the housing market, and it is sure to get brighter.Apartment construction is already the bright spot in the housing market, and it is sure to get brighter.

Tight mortgage credit combined with a previous jump in mortgage rates signi�cantly crimped �rstTight mortgage credit combined with a previous jump in mortgage rates signi�cantly crimped �rst--time homebuyers. The lack of �rsttime homebuyers. The lack of �rst--timers timers makes it di�cult for trademakes it di�cult for trade--up buyers to sell their homes, ultimately hurting sales of new homes and singleup buyers to sell their homes, ultimately hurting sales of new homes and single--family construction.family construction.

This too should change soon. Mortgage �nance giants Fannie Mae and Freddie Mac recently signaled a greater willingness to lend by This too should change soon. Mortgage �nance giants Fannie Mae and Freddie Mac recently signaled a greater willingness to lend by lowering their minimum down payment requirement from 5% to 3%. They have also relaxed the representations and warranties they lowering their minimum down payment requirement from 5% to 3%. They have also relaxed the representations and warranties they require on the loans they buy. This should ease lendersrequire on the loans they buy. This should ease lenders’ ’ concerns about being forced to buy back loans that eventually get into trouble, thus concerns about being forced to buy back loans that eventually get into trouble, thus encouraging more new lending.encouraging more new lending.

Housing starts are expected to ramp up from just over 1 million units this year to nearly 2 million units in 2017. This is much more than the Housing starts are expected to ramp up from just over 1 million units this year to nearly 2 million units in 2017. This is much more than the estimated 1.7 million units required to meet demand in a typical year, and re�ects the unleashing of pentestimated 1.7 million units required to meet demand in a typical year, and re�ects the unleashing of pent--up demand by those millennial up demand by those millennial households.households.

The increased construction also represents a lot more jobs. All the current slack in the labor market will be absorbed by stronger housing The increased construction also represents a lot more jobs. All the current slack in the labor market will be absorbed by stronger housing construction.construction.

Interest rate risk

Forecasting interest rates is generally foolhardy, but a quickly improving economy makes it prudent to prepare for higher rates over the next Forecasting interest rates is generally foolhardy, but a quickly improving economy makes it prudent to prepare for higher rates over the next several years. If everything sticks roughly to script, the Federal Reserve will normalize shortseveral years. If everything sticks roughly to script, the Federal Reserve will normalize short-- and long and long--term rates as the job market tightens. term rates as the job market tightens. More jobs and stronger wage growth will trump the ill e�ects of higher rates on the housing market and broader economy.More jobs and stronger wage growth will trump the ill e�ects of higher rates on the housing market and broader economy.

When the economy is healthy, the federal funds rate should be approximately 4% and the 10When the economy is healthy, the federal funds rate should be approximately 4% and the 10--year Treasury yield closer to 5%. While much year Treasury yield closer to 5%. While much improved from recent years, the U.S. economy is far from healthy. Full employment is still in the distance, in�ation remains stubbornly improved from recent years, the U.S. economy is far from healthy. Full employment is still in the distance, in�ation remains stubbornly below the Federal Reservebelow the Federal Reserve’’s target, and the �nancial system is adjusting to sti�er regulatory requirements and increasingly tough capital and s target, and the �nancial system is adjusting to sti�er regulatory requirements and increasingly tough capital and liquidity standards. The Fedliquidity standards. The Fed’’s balance sheet is also bloated with Treasury and mortgage securities following several rounds of quantitative s balance sheet is also bloated with Treasury and mortgage securities following several rounds of quantitative easing. This will put downward pressure on longeasing. This will put downward pressure on long--term rates until these securities mature, which could take until the 2020s.term rates until these securities mature, which could take until the 2020s.

Dismal Scientist


700+ 660-699 620-659 <620100

0

908070605040302010

05 06 07 08 09 10 11 1312 14

% of originations by vintage of credit score

Sources: Equifax, Moody’s Analytics

The most encouraging

development of the past year was the rapid decline in joblessness. At the current pace of job growth, the economy is fast approaching full

employment.

FIGUrE 4 MoRTgage lenDing STanDaRDS ReMain TigHT



long-term rates until these securities mature, which could take until the 2020s.

All this suggests that the Fed’s normalization of interest rates should occur slowly. Policymakers will begin raising short-term rates in mid- 2015, but rates won’t approach 4% until early 2018. The 10-year Treasury yield, currently near 2.25%, won’t make it back to 5% on a consistent basis for the foreseeable future.

But bond traders are notoriously fickle, and they may not follow the Fed’s script. This could be seen in the summer of 2013, when then-Fed Chairman Ben Bernanke began talking about ending QE. Traders thought Bernanke was signaling an imminent rise in short-term rates, and they sold bonds. Long-term rates jumped.

iNvestOr NervesFed officials moved quickly

to calm traders’ nerves, and bond yields have since receded, but the housing market was hurt badly. Emerging economies that rely on foreign bond investors to fund large current account deficits, such as Brazil, India, South Africa and Turkey, are still struggling with the aftermath of that spike in rates.

Another similarly debilitating surge in long-term rates seems less likely given their decline this year, but it can’t be dismissed. As the economy approaches full employment, wage growth picks up and the first Fed rate hike ap-

proaches, bond investors may panic again. They may fear that the Fed will be forced to raise short-term rates more aggressively to contain inflation. Housing and the global economy would be hurt, posing a threat to our sanguine outlook.

Given the surprising decline in long-term rates this year, it is also worth considering that they may remain lower longer than anticipated. With the Bank of Japan aggres-sively buying bonds and the European Cen-tral Bank likely to step up its own bond pur-chases, U.S. long-term rates could also be held down. Stiffer bank liquidity requirements, which require large multinational banks to hold larger and more liquid bond portfolios, may also contribute. Lower than expected long-term rates would be a plus for housing and economic growth.

OverseAs trOUBleThe U.S. economy is less sensitive than most to changes in

global conditions, but it isn’t immune. And there is plenty of trouble overseas. With the value of the dollar surging, the U.S. trade balance is sure to deteriorate. Global trade, which to date hasn’t been a factor in the U.S. recovery, will soon become a meaningful drag.

Most worrisome are the euro zone’s travails. The single-currency region is flirting with another recession, and its un-employment is already painfully high. Political fissures are widening in nearly all the euro zone’s member countries. Eu-ro-skeptic political parties with mixed commitments to meet-ing their nations’ debt obligations are gaining strength. If one of these parties appears set to gain control of a government, global investors could again question the European resolve to keep the euro zone together. Another round of financial tur-moil would ensue.

the ecB steps iNThe European Central Bank is expected to forestall such a

scenario. The ECB has ramped up its bond-buying program in recent months by purchasing covered bonds and asset-backed securities. This won’t be enough, however, and the ECB will next buy supranational European bonds, such as those issued by the European Investment Bank. It will be politically harder for the ECB to buy individual nations’ sovereign bonds, but it is increasingly likely to do so. While the economic stimulus won’t be as large as those provided by quantitative easing in the U.S. and U.K., it could still help by lowering the euro’s value and countering deflation fears.

It is a stretch to think the ECB’s actions can jump-start the euro zone economy. That requires broad economic and fiscal reform, particularly in France and Italy. It is also reasonable to worry the ECB won’t do enough to head off another European debt crisis. That would be a problem for the U.S.

All this suggests that the FedAll this suggests that the Fed’’s normalization of interest rates should occur slowly. Policymakers will begin raising shorts normalization of interest rates should occur slowly. Policymakers will begin raising short--term rates in midterm rates in mid--2015, but rates won2015, but rates won’’t approach 4% until early 2018. The 10t approach 4% until early 2018. The 10--year Treasury yield, currently near 2.25%, wonyear Treasury yield, currently near 2.25%, won’’t make it back to 5% on a t make it back to 5% on a consistent basis for the foreseeable future.consistent basis for the foreseeable future.

But bond traders are notoriously �ckle, and they may not follow the FedBut bond traders are notoriously �ckle, and they may not follow the Fed’’s script. This could be seen in the summer of 2013, when thens script. This could be seen in the summer of 2013, when then--Fed Fed Chairman Ben Bernanke began talking about ending QE. Traders thought Bernanke was signaling an imminent rise in shortChairman Ben Bernanke began talking about ending QE. Traders thought Bernanke was signaling an imminent rise in short--term rates, and term rates, and they sold bonds. Longthey sold bonds. Long--term rates jumped.term rates jumped.

Investor nerves

Fed o�cials moved quickly to calm tradersFed o�cials moved quickly to calm traders’ ’ nerves, and bond yields have since receded, but the housing market was hurt badly. Emerging nerves, and bond yields have since receded, but the housing market was hurt badly. Emerging economies that rely on foreign bond investors to fund large current account de�cits, such as Brazil, India, South Africa and Turkey, are still economies that rely on foreign bond investors to fund large current account de�cits, such as Brazil, India, South Africa and Turkey, are still struggling with the aftermath of that spike in rates.struggling with the aftermath of that spike in rates.

Another similarly debilitating surge in longAnother similarly debilitating surge in long--term rates seems less likely given their decline this year, but it canterm rates seems less likely given their decline this year, but it can’’t be dismissed. As the economy t be dismissed. As the economy approaches full employment, wage growth picks up and the �rst Fed rate hike approaches, bond investors may panic again. They may fear approaches full employment, wage growth picks up and the �rst Fed rate hike approaches, bond investors may panic again. They may fear that the Fed will be forced to raise shortthat the Fed will be forced to raise short--term rates more aggressively to contain in�ation. Housing and the global economy would be hurt, term rates more aggressively to contain in�ation. Housing and the global economy would be hurt, posing a threat to our sanguine outlook.posing a threat to our sanguine outlook.

Given the surprising decline in longGiven the surprising decline in long--term rates this year, it is also worth considering that they may remain lower longer than anticipated. term rates this year, it is also worth considering that they may remain lower longer than anticipated. With the Bank of Japan aggressively buying bonds and the European Central Bank likely to step up its own bond purchases, U.S. longWith the Bank of Japan aggressively buying bonds and the European Central Bank likely to step up its own bond purchases, U.S. long--term term rates could also be held down. Sti�er bank liquidity requirements, which require large multinational banks to hold larger and more liquid rates could also be held down. Sti�er bank liquidity requirements, which require large multinational banks to hold larger and more liquid bond portfolios, may also contribute. Lower than expected longbond portfolios, may also contribute. Lower than expected long--term rates would be a plus for housing and economic growth.term rates would be a plus for housing and economic growth.

Overseas trouble

The U.S. economy is less sensitive than most to changes in global conditions, but it isnThe U.S. economy is less sensitive than most to changes in global conditions, but it isn’’t immune. And there is plenty of trouble overseas. t immune. And there is plenty of trouble overseas. With the value of the dollar surging, the U.S. trade balance is sure to deteriorate. Global trade, which to date hasnWith the value of the dollar surging, the U.S. trade balance is sure to deteriorate. Global trade, which to date hasn’’t been a factor in the U.S. t been a factor in the U.S. recovery, will soon become a meaningful drag.recovery, will soon become a meaningful drag.

Most worrisome are the euro zoneMost worrisome are the euro zone’’s travails. The singles travails. The single--currency region is �irting with another recession, and its unemployment is already currency region is �irting with another recession, and its unemployment is already painfully high. Political �ssures are widening in nearly all the euro zonepainfully high. Political �ssures are widening in nearly all the euro zone’’s member countries. Euros member countries. Euro--skeptic political parties with mixed skeptic political parties with mixed commitments to meeting their nationscommitments to meeting their nations’ ’ debt obligations are gaining strength. If one of these parties appears set to gain control of a debt obligations are gaining strength. If one of these parties appears set to gain control of a government, global investors could again question the European resolve to keep the euro zone together. Another round of �nancial turmoil government, global investors could again question the European resolve to keep the euro zone together. Another round of �nancial turmoil would ensue.would ensue.

The ECB steps in

Dismal Scientist


Assets held outright on the Fed’s balance sheet, $ bil

Source: Moody’s Analytics

Forecast

06 2221201918171615141312111 0090807 23

500

4,0003,5003,0002,5002,0001,5001,000

4,500

0

Euro-skeptic political parties

with mixed commitments

to meeting their nations’ debt

obligations are gaining strength.

FIGUrE 5 SloW exiT By THe feD

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grOwth AND risk iN chiNAChina’s struggles to hit its own economic

growth targets poses another threat. Chinese policymakers recognize they have significant structural problems, and have been willing to give up some growth to address them. Most notably, Chinese real estate markets are overbuilt, and speculation has been rampant. Many state-owned enterprises are unproduc-tive. Corruption is endemic and environmen-tal degradation epic.

Most disconcerting, leverage has soared in China, comparable to other countries that have suffered severe financial crises. Much of this debt is held by local governments and financial institutions that have financed the runaway real estate activity.

Each time reform efforts have hit growth too hard, however, Chinese officials have eased up and provided monetary and fiscal stimuli. Most re-cently, the Chinese central bank surprised financial markets by cutting rates. China’s growth slowdown hasn’t been pain-less, but so far it has been well-managed. That China’s financial system is relatively closed and authorities are able to quickly change policy has helped.

pUtiN’s chOicesStill, balancing reform and growth isn’t easy, and China’s

managers may stumble. It wouldn’t take much of a misstep to undermine already- reeling global commodity markets, weak-en fragile emerging economies, and upset financial markets. The U.S. economy wouldn’t survive this storm unscathed.

Russia’s economic problems are by themselves not a rea-son to worry, but the pressure they put on Russian President Vladimir Putin could be. Sharply lower oil prices, Western eco-nomic sanctions due to Russia’s incursion into Ukraine, and the collapsing ruble and resulting higher inflation and interest rates are suffocating Russia’s economy. The government’s fis-cal situation is also rapidly eroding. How Putin will respond to this is difficult to forecast. It is equally easy to imagine him

reining in his adventurism or ramping it up. His choices could have large implications for global and U.S. economic growth.

whAt’s the U.s. pOteNtiAl?As the U.S. economy approach-

es full employment, attention will shift to the economy’s weak po-tential growth rate—the pace at which the economy can consis-tently grow without generating inflationary pressures. Since the Great Recession, the economy’s es-

timated potential has been a dismal 1.3% per year. This reflects both lackluster labor productivity growth of 1%, and paltry labor force gains weighed down by falling participation.

A poor potential growth rate has allowed slack in the la-bor market to be absorbed more quickly. But once full employ-ment is achieved, unless potential picks up, economic growth will slow sharply. This will hurt living standards, particularly for lower-income households, and undermine the government’s precarious fiscal situation.

The fall in potential growth rates was in part anticipated. The large baby-boom cohort has begun to retire in recent years, reducing labor force participation. More than half the decline in participation since the recession hit is attributable to retiring boomers. Some of the slowdown is likely temporary, related to the recession and its fallout. Fewer job opportunities have also contributed to lower participation and less foreign immigration, which is important to the growth of the working-age population.

shADOws Of the recessiONLagging productivity growth is also probably partly cycli-

cal, reflecting the dark psychological shadow of the recession and uncertainty created by political brinkmanship in Washing-ton. Businesses have been especially nervous, reluctant to use the cash they have built up during the recovery to expand and fund more investment. Entrepreneurs have also been under-standably wary about starting businesses.

Growth potential is thus expected to revive as the recession fades and full employment approaches. Some signs indicate this may be occurring, as labor force participation has stabilized over the past year despite continued boomer retirements. For-eign immigration should rebound with the better job market, and business confidence and investment have recently been much better. Over the next five years, potential growth should rise to 2.25% per year, equal to 0.75% labor force growth plus 1.5% productivity growth.

The European Central Bank is expected to forestall such a scenario. The ECB has ramped up its bondThe European Central Bank is expected to forestall such a scenario. The ECB has ramped up its bond--buying program in recent months by buying program in recent months by purchasing covered bonds and assetpurchasing covered bonds and asset--backed securities. This wonbacked securities. This won’’t be enough, however, and the ECB will next buy supranational European t be enough, however, and the ECB will next buy supranational European bonds, such as those issued by the European Investment Bank. It will be politically harder for the ECB to buy individual nationsbonds, such as those issued by the European Investment Bank. It will be politically harder for the ECB to buy individual nations’ ’ sovereign sovereign bonds, but it is increasingly likely to do so. While the economic stimulus wonbonds, but it is increasingly likely to do so. While the economic stimulus won’’t be as large as those provided by quantitative easing in the U.S. t be as large as those provided by quantitative easing in the U.S. and U.K., it could still help by lowering the euroand U.K., it could still help by lowering the euro’’s value and countering de�ation fears.s value and countering de�ation fears.

It is a stretch to think the ECBIt is a stretch to think the ECB’’s actions can jumps actions can jump--start the euro zone economy. That requires broad economic and �scal reform, particularly start the euro zone economy. That requires broad economic and �scal reform, particularly in France and Italy. It is also reasonable to worry the ECB wonin France and Italy. It is also reasonable to worry the ECB won’’t do enough to head o� another European debt crisis. That would be a t do enough to head o� another European debt crisis. That would be a problem for the U.S.problem for the U.S.

Growth and risk in China

ChinaChina’’s struggles to hit its own economic growth targets poses another threat. Chinese policymakers recognize they have signi�cant s struggles to hit its own economic growth targets poses another threat. Chinese policymakers recognize they have signi�cant structural problems, and have been willing to give up some growth to address them. Most notably, Chinese real estate markets are structural problems, and have been willing to give up some growth to address them. Most notably, Chinese real estate markets are overbuilt, and speculation has been rampant. Many stateoverbuilt, and speculation has been rampant. Many state--owned enterprises are unproductive. Corruption is endemic and environmental owned enterprises are unproductive. Corruption is endemic and environmental degradation epic.degradation epic.

Most disconcerting, leverage has soared in China, comparable to other countries that have su�ered severe �nancial crises. Much of this debt Most disconcerting, leverage has soared in China, comparable to other countries that have su�ered severe �nancial crises. Much of this debt is held by local governments and �nancial institutions that have �nanced the runaway real estate activity.is held by local governments and �nancial institutions that have �nanced the runaway real estate activity.

Each time reform e�orts have hit growth too hard, however, Chinese o�cials have eased up and provided monetary and �scal stimuli. Most Each time reform e�orts have hit growth too hard, however, Chinese o�cials have eased up and provided monetary and �scal stimuli. Most recently, the Chinese central bank surprised �nancial markets by cutting rates. Chinarecently, the Chinese central bank surprised �nancial markets by cutting rates. China’’s growth slowdown hasns growth slowdown hasn’’t been painless, but so far it has t been painless, but so far it has been wellbeen well--managed. That Chinamanaged. That China’’s �nancial system is relatively closed and authorities are able to quickly change policy has helped.s �nancial system is relatively closed and authorities are able to quickly change policy has helped.

Putin's choices

Still, balancing reform and growth isnStill, balancing reform and growth isn’’t easy, and Chinat easy, and China’’s managers may stumble. It wouldns managers may stumble. It wouldn’’t take much of a misstep to undermine alreadyt take much of a misstep to undermine already--reeling global commodity markets, weaken fragile emerging economies, and upset �nancial markets. The U.S. economy wouldnreeling global commodity markets, weaken fragile emerging economies, and upset �nancial markets. The U.S. economy wouldn’’t survive this t survive this storm unscathed.storm unscathed.

RussiaRussia’’s economic problems are by themselves not a reason to worry, but the pressure they put on Russian President Vladimir Putin could s economic problems are by themselves not a reason to worry, but the pressure they put on Russian President Vladimir Putin could be. Sharply lower oil prices, Western economic sanctions due to Russiabe. Sharply lower oil prices, Western economic sanctions due to Russia’’s incursion into Ukraine, and the collapsing ruble and resulting higher s incursion into Ukraine, and the collapsing ruble and resulting higher in�ation and interest rates are su�ocating Russiain�ation and interest rates are su�ocating Russia’’s economy. The governments economy. The government’’s �scal situation is also rapidly eroding. How Putin will respond s �scal situation is also rapidly eroding. How Putin will respond to this is di�cult to forecast. It is equally easy to imagine him reining in his adventurism or ramping it up. His choices could have large to this is di�cult to forecast. It is equally easy to imagine him reining in his adventurism or ramping it up. His choices could have large implications for global and U.S. economic growth.implications for global and U.S. economic growth.

What ’s the U.S. potential?

As the U.S. economy approaches full employment, attention will shift to the economyAs the U.S. economy approaches full employment, attention will shift to the economy’’s weak potential growth rates weak potential growth rate——the pace at which the the pace at which the

Dismal Scientist


Gross debt as a % of GDP 5 yrs before �nancial crisis

Sources: Various government sourcse, Moody’s Analytics

24pp

32pp 13pp

38pp

43pp

275

175200225

125150

250

100China

(2009-13)S. Korea

(1994-98)Japan

(1986-90)U.K.

(2003-07)U.S.

(2003-07)

Despite these reasonable

concerns, betting against the

American economy remains a bad

strategy.

FIGUrE 6 oMinoUS eCHoeS in CHina’S DeBT gRoWTH



strUctUrAl risksHowever, there is a meaningful risk that this is overly opti-

mistic. Structural impediments to labor force and productivity growth may not quickly recede. Workers who stepped out of the job market during the tough times may not return, at least not to the degree hoped for. Their skills and marketability may have eroded so significantly that they are unable to find suit-able work.

The animal spirits that drive business formation and in-vestment could also remain bottled up. An aging population may prove more of a brake on risk-taking than thought. En-trepreneurs tend to start companies in their thirties, and there is a dearth of thirty-somethings. An even more disconcerting possibility is a downshift in the pace of technological change. Perhaps technologies such as 3D manufacturing, drones and DNA sequencing don’t stack up to the productivity-enhancing power of the internet, which fueled growth in the 1990s and early 2000s.

DON’t Bet AgAiNst the U.s.Despite these reasonable concerns, betting against the

American economy remains a bad strategy. The U.S. has clearly had a difficult run over the past 15 years, and has been scarred by terrorism, wars and technology and housing bub-bles. Lower- and middle-income households have seen living standards decline. But the bad times are likely ending. Many of the economic wrongs have been righted. Households have deleveraged, the financial system has recapitalized, and U.S. businesses have reduced their cost structures and are highly competitive. Serious problems remain and politics complicate our ability to address them. But if history is any guide, we will.

ABOUt MOODy’s ANAlytics ecONOMic & cONsUMer creDit ANAlyticsMoody’s Analytics helps capital markets and credit risk

management professionals worldwide respond to an evolving marketplace with confidence. Through its team of economists, Moody’s Analytics is a leading independent provider of data, analysis, modeling and forecasts on national and regional economies, financial markets, and credit risk.

Moody’s Analytics tracks and analyzes trends in consumer credit and spending, output and income, mortgage activity,

population, central bank behav-ior, and prices. Our customized models, concise and timely re-ports, and one of the largest as-sembled financial, economic and demographic databases support firms and policymakers in stra-tegic planning, product and sales forecasting, credit risk and sensi-tivity management, and invest-ment research. Our customers in-clude multinational corporations, governments at all levels, central banks and financial regulators, retailers, mutual funds, financial institutions, utilities, residential and commercial real estate firms, insurance companies, and profes-sional investors.

Our web and print periodi-cals and special publications cover every U.S. state and metro-politan area; countries throughout Europe, Asia and the Ameri-cas; and the world’s major cities, plus the U.S. housing market and other industries. From our offices in the U.S., the United Kingdom, and Australia, we provide up-to-the-minute report-ing and analysis on the world’s major economies.

Moody’s Analytics added Economy.com to its portfolio in 2005. Its economics and consumer credit analytics arm is based in West Chester PA, a suburb of Philadelphia, with of-fices in London, Prague, and Sydney. More information is avail-able at www.economy.com.

© 2014. Moody’s Analytics, Inc. and/or its licensors and affiliates (together, Moody’s’). All rights reserved. ALL INFOR-MA’ ON CONTAINED HEREIN IS PROTECTED BY COPY-RIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINAT-ED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSE-QUENT USE FOR ANY PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHAT-SOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by Moody’s from sources believed by it to be accurate and reliable, Because of the possibil-ity of human and mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. Under no circumstances shall Moody’s have any liability to any person or entity for (a) any iOS,S or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of Moody’s or any of its directors, officers, employees or, agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if Moody’s is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The financial reporting, analysis, projec-tions, observations, and other information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell, or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH OPINION OR INFORMATION 1S GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

The next critical step in the

economy’s return to full health is a meaningful

acceleration in wage growth


Feature article

The Intricate Art of Today’s Mortgage Underwriting

By Jerry DeMuth

New scoring models, more experienced underwriters and more manual decision

making are all part of today’s landscape for underwriters.


The InTrIcaTe arT of Today’s MorTgage UnderwrITIng

Mortgage underwriting continues to change. Once

too loose, then perhaps too tight, it now may be

inching back closer to middle ground. n But there’s

also little doubt, in most cases, that the underwriting

process is being done more thoroughly, with many

more steps required of the underwriters themselves.

This is especially the case as more underwriting is

done at least partly manually. And FICO® scores

by themselves are becoming less determinative.

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“Over the last two years, underwriting has definitely changed from what it was five or 10 years ago, with all the QM [qualified mortgage] restrictions [around] the ability to repay. That’s where a lot has hap-pened,’ says Donald J. Frommeyer, a loan originator

at Mortgage Services III LLC (MSI), Indianapolis, and chief ex-ecutive officer and immediate past president of the National Association of Mortgage Brokers (NAMB), Washington, D.C.

“But for the most part, I don’t know if underwriting has got-ten better or worse-but it’s gotten different,” says Frommeyer.

“Now, some lenders spend a lot of time wanting to look more at bank statements, wanting to know more about em-ployment. It’s just a difference in the lender. I still think they’re making good aggressive decisions on underwriting. But they’re all striving for that ability to repay and making sure customers fall within the guidelines.”

“Just like anything, there’s a pendulum,” explains Mat Ish-bia, vice president, marketing, at Troy, Michigan—based Unit-ed Wholesale Mortgage. “It [underwriting] was way too loose, and some rules and regulations were put in place and under-writers put some overlays and protective things in place. . . . Now it’s coming back to the middle, where it should be, where it’s a little more reasonable.”

Underwriting, with increased emphasis on borrower cred-itworthiness, often is no longer being left solely to automated underwriting (AU) systems, even when conventional mort-gages are being underwritten. There’s increased use of manual underwriting, something that the Federal Housing Administra-tion (FHA) has increasingly pushed, including when Depart-ment of Housing and Urban Development—approved (HUD-approved) housing counseling is tapped by FHA borrowers.

“Our message to lenders is that they absolutely ought to consider whether a borrower has undergone housing counsel-ing, because everybody knows, and we’ve done studies on this-borrowers that take advantage of housing counseling perform much better than those who do not,” says FHA spokesperson Brian Sullivan in an interview with Mortgage Banking.

“From a risk perspective, that’s a good thing,” he says. “How-ever, we wouldn’t go so far as to say that housing counseling in and of itself would overcome financial material deficiencies in a loan application. Whether or not it makes a difference in saying yes or no to these loan applications would be judged on a case-by-case basis, applying our new manual underwriting standards.”

Sullivan adds, “Broadly speaking, housing counseling is relevant but it may not necessarily overcome material deficien-cies in the application.”

“There’s been a lot of sloppy underwriting,” maintains Kyle G. Schultz, vice president of mortgage operations at Irving, Texas—based zIngenuity Inc., which provides contract under-writing, underwriting training, underwriting-hiring advice and other services to smaller lenders.

“Underwriters lost their responsibility in the underwriting process. I think that everyone was relying on inputting data into automated underwriting systems without a complete un-derstanding of why they needed to keep validating it.”

whAt MAkes A gOOD UNDerwriter?“From what we’re seeing in terms of underwriter applica-

tions, the people we’re coming across who are applying [for jobs] really don’t have the depth of experience we’re looking for. Underwriters who were really just junior underwriters and were only part of the process are the ones kind of getting weeded out,” he says.

They may have been called underwriters, but they really were nothing more than “income-verification clerks,” he says.

When seeking out underwriters for zIngenuity’s clients, Schultz explains, he seeks candidates with a range of experi-ence with different loan types and different lender types, be-cause “quality is really driven by where people worked and whether they’ve seen lots of different types of loans,” he says.

“There’s a stratification process that’s going on,” Schultz says. “Lenders are being more focused on who they’re letting do the more complex work, but at the same time there’s prob-ably a leveraging up with talent and getting poor performers out of the process based on quality results.”

In the struggle to find underwriters who have been trained to understand specific types of loans, whether conventional or specialties such as self-employed borrowers, mortgage brokers now look to specific mortgage companies or specific under-writers within a company for placing their loans.

“There are certain lenders we know that understand our sophisticated borrowers. They have some flexibility and under-stand complex borrowers,” says Gloria Schulman, founder of Beverly Hills, California—based CenTek Capital Group, which specializes in jumbo loans to self-employed borrowers.

Also, at these firms, she says, “Some underwriters are more sophisticated than others.” And it is to these specific underwriters that CenTek’s loan pack-ages are sent.

Frommeyer says he chooses lenders based on what their underwriters do par-ticularly well.

“We have certain companies that do VAs [Department of Veterans Affairs loans] really well, certain companies that do FHAs really well and certain compa-nies that do conventional business re-ally well,” he points out, noting that this means underwriters at these companies are experienced at underwriting those loan types.

Still other companies and their under-writers are especially good at handling mortgages for first-time homebuyers, which often requires finding alternative credit, he adds.

Sending loans to the appropriate companies and their underwriters is a better and more successful option than sending all your loans to the same com-pany, Frommeyer makes clear.

Underwriting, with increased emphasis

on borrower creditworthiness, often is no longer being left solely to AU systems, even when conventional

mortgages are being underwritten.



DiffereNt ApprOAches fOr DiffereNt leNDer typesThe approaches and methodologies used by underwriters

vary by the type of lender, explains Tisha D. Hartman, director of real estate lending at KeyPoint Credit Union, Santa Clara, Cal-ifornia, and former senior forensic underwriter at zIngenuity.

The most conservative and stringent are the lenders that cater solely to the wholesale market, she says. While they may have a particular investor that has closed out a loan niche for them, the methodology behind the underwriting that goes into each decision is going to be a lot more strict, she explains.

At the opposite end of the spectrum, the lenders showing the most flexibility, she says, are the large banks and credit unions that are going to park some of their loans in their portfolios.

Schultz says the level of understanding required of under-writers who handle such complex loans as jumbos and those made to self-employed borrowers is “critical and [it] really de-mands more time and demands a better-quality individual do-ing that work.”

Wells Fargo Home Mortgage, Des Moines, Iowa, recognized the different skill sets required for underwriting complex port-folio loans, 30 percent of which are non-QM, and for underwrit-ing QM agency, FHA and VA loans, when it established separate underwriting teams for each in the third quarter of 2013.

“It’s a very separate group of underwriters that underwrite only portfolio loans and are located in only six locations across the country,” says Allyson Knudsen, Wells Fargo’s executive vice president and head of underwriting and production risk management, who is based in Minneapolis. “And we actu-ally have a process where we have a panel review. Loans are brought to the panel to talk about why you would or would not want to put the loan on the balance sheet.”

QM teams are also based in those six locations as well as in 11 QM-only underwriting locations, she says, and all their loans are manually underwritten after automated engines pro-vide credit and ratio risk assessments.

In having two separate teams, Wells Fargo saw the difficul-ty of keeping up with the ever-changing underwriting knowledge required of each, even for conventional loans, she explains.

“Because agencies change their guidelines every day, those underwrit-ers have to keep up with all the agency changes, and all the FHA and VA chang-es,” Knudsen says. “So as clarifications, et cetera, are sent out, we want people to be able to absorb all that change. Same thing on the portfolio side: That they have expertise and judgment regarding our policies. In today’s environment, it’s [asking] a lot for somebody to wear multiple hats. We believe we’ll have bet-ter execution across both if we separate them out.”

The portfolio team has more flexibility in documentation requirements and the judgments they can make on such things

as child support, alimony and percentage of income available for mortgage payments, Knudsen says.

gOiNg BeyOND creDit scOresUnderwriting today requires obtaining and understanding

more information about borrowers or, as some players describe it, more research and analysis.

Wells Fargo Home Mortgage no longer simply takes the middle of the three FICO scores, according to Knudsen.

“Today we use credit reports for our lending, and analyze and leverage those credit reports as opposed to just the score,” she explains.

“The report tells you some things the score doesn’t. We re-ally looked at lowering our FICOs in a couple areas and then leveraging our underwriters’ expertise to underwrite the credit that’s on the credit report, because there are things you can determine today [about] why a score might be low. We want to make sure we’re making a good decision and extending our credit to creditworthy borrowers even if [that borrower] might have a lower credit score.”

KeyPoint Credit Union’s Hartman says that as an under-writer, she has deviated many times from “what would be the standard protocol, because I have a greater understanding of what’s behind the numbers and I can make an argument and present that to the end investor or to the agency and get them to buy off on it because I understand the methodology. So it’s not always just about filling in the box-it’s about really under-standing what you’re looking at and how that layers into the rest of the file.”

Underwriting, especially manual underwriting, needs to be seen as both a science, with its guidelines and technology, and as an art as you “extract a lot of information about a person’s lifestyle and turn that into something meaningful and then make a business lending decision,” Hartman points out.

Whether underwriters are using an automated underwrit-ing system or doing manual underwriting “makes a big differ-ence, because sometimes something doesn’t make sense on paper but when you get the story, it does [make sense],” says Sharmen Lane, director of education and a senior underwriting instructor at Loan Officer School, New York.

“It’s almost like underwriters and loan officers need to be private investigators today,” says Lane. “It’s all about research. Everybody back in the day [before AU] used to do this.”

She adds, “So sometimes if a loan makes good sense and you can back it up with documentation but it doesn’t quite fit the box exactly perfect,” you still may be able sell that loan.

prOpeNsity tO pAyJon R. Daurio, chairman and chief executive officer of Nik-

kael Capital Corporation, Tustin, California, a new company that is targeting credit-scarred, low-FICO borrowers for refi-nance loans, says his company is ignoring FICO scores. Instead, after determining sufficient net disposable income, he says that Nikkael will look at propensity to pay, which, he main-tains, many people have ignored.

“It’s almost like underwriters

and loan officers need to be private

investigators today,” says Lane.



“What is in the borrower’s history that indicates that they have a propensity to make the payments? There are some peo-ple that have the ability to make the payment but then they’ll decide not to make the payment,” he says.

“We look at what caused the late payments. What actually is the borrower’s story? And what actually happened in ensur-ing that that life event is unlikely to occur again or has been resolved? The only way to determine this is with manual un-derwriting,” Daurio says.

His past experiences during a 20-year career, he adds, showed that “FICO was not a good indicator of whether a bor-rower was a good credit risk.” As a result, he says, “I think peo-ple are getting more comfortable with making loans to people who have hiccups in their credit.”

San Jose, California—based FICO has been actively mak-ing changes to its FICO scoring processes, beginning with the launch of FICO Score 8 in 2009. On Aug. 7, 2014, it announced that medical debts would be accounted for separately under the new FICO Score 9, differentiating medical from non-med-ical collection-agency accounts in order to be more predictive of a consumer’s likelihood to repay a debt.

Broker Frommeyer says that medical debt has been a prob-lem he has encountered with some borrowers with lower cred-it scores. “I think [with FICO] looking at it differently is going to help a lot,” he predicts.

Adoption, however, is likely to be slow.

ADOptiNg New scOriNg MODelsFreddie Mac, which does accept such newer models from

the credit repositories as Equifax Beacon 5.0, Experian/Fair Isaac Risk Model V2 and TransUnion FICO Risk Score (Classic) 04–two of which are required for all manually underwritten mort-gages–is currently analyzing the impact of FICO 8 but has not begun on FICO 9, according to spokesman Brad German.

“Retooling the mortgage industry around a reformulated credit score is a complex undertaking,” German points out, with all the players having to analyze any new score’s impact on their systems, operations and ability to evaluate and price risk.

But many lenders and their underwriters, as well as the agencies and FHA and VA, already have begun to look differ-ently at medical debt.

Houston-based BBVA Compass Bank, for example, uses “the guidelines for medical collections debt that have been set by such specific investors as Fannie Mae, FHA and VA, and consider the overall scope of the borrower’s credit profile,” ac-cording to Elliot Salzman, senior vice president and director of consumer policy and underwriting for BBVA Compass.

The bank also has made changes in its underwriting in or-der to follow QM guidelines, he says.

“We now follow Appendix Q for all QM originations, with government-sponsored enterprise [GSE] and/or government products as an exception,” Salzman explains.

“We’ve also developed a broad portfolio of non-QM prod-ucts. Additionally, we minimized the overlay on our FHA prod-uct, lowering our minimum score requirement to 580,” he says.

A continuing underwriting issue, particularly with FHA mortgages, is the use of overlays.

the issUe Of OverlAysKeyPoint Credit Union’s Hartman

says overlays that establish higher stan-dards is one way for lenders to protect themselves from buybacks, should un-derwriting turn out to be inadequate. Overlays, she says, also provide more flexibility as to what investors loans can be sold.

“I think most lenders reacted [to the housing market collapse] by tightening lending standards and implementing significant overlays,” says BBVA Com-pass’ Salzman. “Since then, the industry has seen an easing of both, particularly with FHA loans.”

Yet he admits that BBVA Compass “does have minimal overlays in our Federal Housing Administration products. They play an essential role in helping the bank mitigate po-tential risk.”

But because these overlays, like the bank’s loan guidelines, are proprietary, Salzman says he cannot provide specifics.

Wells Fargo, says Knudsen, used credit overlays back when it required higher credit scores for conventional mortgages. Now, she notes, “We are looking at all our overlays as a matter of course” to make sure the company provides “access to credit for all customers that are credit-ready.”

That overlays might restrict loans to borrowers on the ba-sis of race or national origin is a concern for FHA, says FHA spokesperson Sullivan. “These credit overlays might rise to un-fair lending practices,” he points out.

“We’re trying to encourage lenders to move away from all these credit overlays, like a credit score higher than what our standards call for, that they’re tacking on,” he says.

“Even with our backing of the mortgage, lenders still may be reluctant,” Sullivan admits. “We’re trying to get them to overcome their shyness and get back to lending to these credit-qualified borrowers.”

“Underwriting is going to be a constantly evolving thing for our world as we keep learning more about consumer be-haviors and patterns and things like that,” says Hartman. “It’s going to be a continuing, ongoing evolutionary process for all lenders.”

Jerry DeMuth is a Chicago-based freelance writer. He can be reached at demuth933 @earthlink. net.

Copyright 2014 Mortgage Banking(R) Magazine & Mort-gage Bankers Association, All Rights Reserved., Reprinted with permission

Keypoint Credit Union’s Hartman says overlays that

establish higher standards is one way for lenders

to protect themselves from

buybacks.


Feature article

The Infrastructure Predicament

By Terry Wakefield


The InfrasTrucTure PredIcamenT

Panic is setting in! In my 40 years in the residential

mortgage business, I have never witnessed a higher level

of frustration and concern by C-level executives who run

U.S. mortgage companies. This article provides a replay

of a recent series of conference calls I have had with a

number of chief executive officers who are very concerned

about the state of the operational infrastructure that

supports their respective businesses.

These calls have been condensed to a three-way

WebExTM conversation involving myself (Terry) and

fictional CEOs Drew Smart and Bill Legacy. As Frank

Webb, star of the old TV series Dragnet (now I am really

dating myself) would say, the names (except mine) have

been changed to protect the innocent.

Here’s a three-way

conversation about how the

origination business can

be reimagined with the help of technology and better business

process management.

TECHnOLOGy aPPLIED TO BuSInESS

The first rule of any technology used in a business is that automation applied to an efficient operation will

magnify efficiency.

The second is that automation applied to an inefficient operation will magnify the inefficiency.

n Bill Gates n



Bill Legacy: Thanks for arranging this call, Terry. Drew, how are you doing?

Drew Smart: Thanks for asking, but I have had better days. I just finished a board meeting, and my team and I were grilled about the explosion in our mortgage loan production expenses, the reduction in our transaction velocity and the mediocre cus-tomer service surveys we’ve gotten back from our borrowers over the past year. In our defense, my chief operating officer presented a series of figures that I’ll share with you. Can you see my screen?

Bill Legacy and Terry Wakefield (simultaneously): Yeah, we see it.

Drew Smart: Here’s Figure 1, average loan origination and production expense.

One of our key directors runs a business that manufactures wireless office equipment. When he saw this figure, he literally screamed: “How can any industry survive a cost increase of

that magnitude? If my math is correct, costs have increased by nearly 230 percent since 2004. This is lunacy!”

We pointed out the impact of reduced production volume, escalating costs associated with the regulatory environment, and our existing infrastructure’s dependence on humans to or-chestrate work that leads to a very expensive hiring-and-firing cycle to adjust to volume cyclicality. He was not impressed and said, “We have a structural problem that needs to be addressed-or we should consider getting out of this business!”

Reluctantly, we moved on to Figure 2–average days to close.

Another one of our directors runs a logistics company that provides consulting services to local companies with large vehicle fleets. He’s a little more even-tempered, and asked if we had statistics that track our transaction velocity, or average time to close, going back 10 years. Fortunately, we were pre-pared for that question.

$8,000

$7,000

$6,000

$5,000

$4,000

$3,000

$2,000

$1,000

$0

4.0%

4.5%

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0%

2004

2005

2006

2007

2008

2009

2010

2011

-Q4

2011

-Q3

2011

-Q2

2011

-Q1

2012

-Q1

2012

-Q2

2012

-Q3

2012

-Q4

2013

-Q1

2013

-Q2

2013

-Q3

2013

-Q4

2014

-Q1

2014

-Q2

Avg. Production Expense ($)Avg. Production Expense (% of Loan Balance)

Sources: Mortgage Bankers Association (MBA), Federal Housing Finance Agency (FHFA)

Avg.

Prod

uctio

n Exp

ense

($)

Avg. Production Expense (% of Loan Balance)

FIGURE 1 AVERAGE LOAN ORIGINATION AND PRODUCTION EXPENSE IN DOLLARS AND AS A PERCENTAGE OF AVERAGE BALANCE

FIGURE 2 TRANSACTION VELOCITY HAS EXTENDED TO ABOUT 40 DAYS,ADVERSELY IMPACTING REVENUE

FIGURE 3 INFRASTRUCTURE COLLAPSE

Avg. Avg. Jan Feb Mar Apr 2012 2013 2014 2014 2014 2014Re�nance 49 45 44 40 37 37Purchase 46 45 47 42 41 40All 48 46 45 41 40 39

Source: Ellie Mae Origination Insight Report, Sept. 2013 Sources: MBA’s Q2 2014 Quarterly Mortgage Bankers Performance Report, The Wake�eld Company

Average Days to CloseTotal loan production expenses (per loan) $6,932Origination expense at 1% and assumes an ($2500)average loan ammount of $250,000Loan production personnel expense $4,423Loan production direct labor expense at 60% $2,659



From 2003 through 2009, our trans-action velocity averaged 15 days from application to closing for refinance trans-actions and 24 days for purchase money transactions. After a few seconds of si-lence, he asked if we understood the im-pact of transaction velocity on revenue and customer service.

Our chief financial officer responded that the current, much slower transac-tion velocity has reduced our annual per-transaction revenue by approximately 50 percent. The director sat stunned.

Another director asked how this re-duction in transaction velocity impacted our customers’ perception of our service levels. I produced a report that showed only 60 percent of borrowers we gave mortgages to within the last 12 months re-sponded that they would come back to us for their next mortgage. The board chair-man and founder of our firm rose to his feet and barked in his Southern drawl, “Houston, we have a problem.”

Bill Legacy: Drew, I hate to admit it, but the declining prof-it-I mean, growing losses- in our mortgage operation caused a similar experience at our board meeting two weeks ago. I did not present the same slides that you did, but I was told to have a plan in place to restore profitability to the mortgage opera-tion within the next six weeks or the topic is going to shift to exiting the mortgage business.

It didn’t help that I had to report we had just finalized a set-tlement in the amount of $220 million with the Federal Hous-ing Finance Agency [FHFA] for mortgages delivered to Fannie Mae in the period of 2005 to 2008.

Our chairman remarked we are now officially a member of the “club” that has paid over $120 billion–and rising–in buy-backs, legal fees, settlements and fines to various regulators and secondary market investors. He asked if this is the end of our exposure. I could not reassure him.

Terry Wakefield: Bill and Drew, I can assure you that you are not alone. We hear stories like yours every day. Some ex-ecutives blame the Consumer Financial Protection Bureau [CFPB] and/or FHFA. Some blame the inevitability of volume cyclicality. Others blame government policies that encouraged the extension of credit to people who could not possibly repay their mortgages. Others blame greedy loan officers and unscru-pulous third-party loan originators.

There is no question that the subprime crisis was fed by a chain of greed that permeated the entire spectrum of mortgage lending and servicing, but playing the blame game ignores the real problem.

Drew, your director is correct. The mortgage industry has a structural problem that relates directly to outdated operational infrastructure. Fortunately, a small but growing number of lenders are facing facts and admitting that their current infra-structure is to blame and must be reconfigured if they are go-ing to prosper in this business.

Bill Legacy: Terry, I agree with you-but every time we explore options, we are faced with evaluating the capabilities of the traditional loan origination system [LOS] vendor community. Something is missing. What is it?

Drew Smart: Ditto. Where can we turn?

Terry Wakefield: Before we go down that path, let me take control of the We-bEx and show you Figure 3-the infrastruc-ture collapse.

This dives a little deeper into Drew’s first figure. Like Drew, we subscribe to the Mortgage Bankers Association’s [MBA’s] Quarterly Mortgage Bankers Performance Report.

Historically, loan production direct la-bor expense represents approximately 60 percent of loan production expense. But, in first-quarter 2014, the industry reached

a historic high of $3,315 per closed loan. In second-quarter 2014 things improved, but loan production direct labor costs remain over $2,600 per closed loan.

This stunning statistic points to the industry’s fundamen-tal infrastructure problem. Humans continue to orchestrate the work. Since 2003, we have conducted detailed process architecture analysis in 34 different loan production environ-ments representing all channels of origination. While there is a perception that individual lenders have some form of ‘secret sauce’ that drives their respective loan production environ-ments, our experience demonstrates just the opposite.

All lenders preform the same tasks, but not necessarily in the same order or by workers with the same titles. Lets face it–for the past several years, more than 90 percent of all mort-gages have been purchased or securitized by government-spon-sored enterprises [GSEs] Fannie Mae, Freddie Mac or insured by the Federal Housing Administration [FHA]. So, if 90 percent end up with the GSEs or FHA, one would think that a common manufacturing process would exist to produce mortgages in the United States, and that platform would significantly reduce production costs over time.

Bill Legacy: Terry, I think I know where you are headed. A few weeks ago, I had a three-hour meeting with our COO, and we met informally with 20 of our most experienced loan production personnel. They were honored we would take time to have a frank discussion on how they did their jobs and what we could do to make them more effective.

After an hour or so, light bulbs started going on. It was clear that each of these capable individuals had their own workarounds to overcome the deficiencies of the systems they use to produce loans. These workarounds take the form of Post-it® notes on computer screens, notebooks in desk drawers or, worst of all, memorized tasks that reside in their respective minds. We have 220 people in this particular production envi-ronment. I finally asked the audience: “Do we have 220 differ-ent processes in place?” They all agreed.

“The mortgage industry has a

structural problem that relates directly

to an outdated operational

infrastructure.”

Terry Wakefield



Terry Wakefield: Bingo! Bill, you just hit the nail squarely on the head. How is it possible to control costs, ensure compli-ance and deliver great customer service when you have 220 undocumented and unsanctioned processes in place? It’s im-possible.

Drew Smart: Terry, you and I have had this discussion before. Lenders do not think of themselves as manufacturers. We tend to obsess over the complexities of mortgage lending rather than focusing on the common attributes of loan produc-tion. We’re always emphasizing increased market share and topline revenue growth. It sounds like we need to shift greater fo-cus to process definition and technology that can execute a uniform, well-defined process.

Terry Wakefield: Let me offer a relevant quote from Bill Gates here. He said, “The first rule of any technology used in a business is that automation applied to an efficient operation will magnify efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.”

That absolutely nails it. I cannot recount how many times we have witnessed lenders applying technology to an ineffi-cient process. The outcome is as predictable as Gates’ quote-inefficiency magnified.

Bill Legacy: OK, I am not going to quibble with Bill Gates. But I have six weeks to convince my board that we should stay in the mortgage business. Let’s talk about an action plan that will make the case resonate.

Terry Wakefield: The first thing to do is to use proven tools to define the current state in your loan production environ-ment. You’re already off to a good start based on your three-hour meeting. I would involve those 20 people you have al-ready gathered and break them into their respective functional divisions of labor. Interview them to find out; 1) the names of the tasks currently performed; 2) who performs the task; 3) when pipeline fallout occurs; 4) how frequently the task oc-curs; 5) the calculation of adjusted task time to the fraction of a minute; and 6) the calculation of task cost to the penny.

My guess is that after three to four weeks, you will have concurrence from these 20 people that there are currently 300 to 350 different tasks taking place in the current state. These tasks result in a direct labor cost of approximately $2,600 per closed loan.

Once current-state definition is completed, you will have a valuable baseline of direct labor cost data that you can use to conduct return on investment [ROI] analysis on the technology investments necessary to achieve an optimized state.

Drew Smart: Terry, I am confident that we already have a good handle on our loan production direct labor cost. Our cur-rent direct labor loan production expense is right around $2,800 per closed loan. Can we bypass this first step and move on?

Terry Wakefield: Sure. Each time we have analyzed a loan production environment, we have stored the output into

what we refer to as the INPLOREtm Task Level Database. INPLORE now contains detailed information on more than 3,700 specific loan origination and production tasks. Using INPLORE in collaboration with your production managers and su-pervisors, it is possible to create what we refer to as an optimized production time summary [OPTS]. It is critical that senior compliance personnel are involved in this effort to ensure that the OPTS output rep-resents a compliant, optimized produc-tion environment.Documenting the optimized state focuses on three objectives:c Removing non-value-added activities. We often hear frustration regarding work-ers checking and rechecking the work per-formed by others.

c Improving workflow, consolidating job functions and elimi-nating functional divisions of labor. Functional divisions of labor create expensive bottlenecks in cyclical industries like mortgage lending.c Defining tasks that can be automated through deployment of software components not available in traditional loan origi-nation systems.Definition of an optimized process includes task level metrics similar to those used to define the current state. That is, the OPTS describes: the human or system that performs the task; the impact of fallout; task frequency; adjusted task time; and adjusted task cost.

Upon completion of process optimization, the number of tasks performed in the loan production environment is typi-cally reduced to a range of 110 to 130 tasks-down from 300 to 350 in the current state. Of those 110 to 130 tasks, somewhere between 40 percent and 50 percent are automated, meaning that the task count performed by humans is reduced from 300 to 350 down to 55 to 78 tasks. Direct labor production costs are reduced to a range of $550 to $650 per closed loan, depending on the production channel.

Drew, in your case this would produce a savings of $2,150 to $2,250 per closed loan. So, if you are closing 20,000 loans per year, you will realize direct labor cost savings of more than $40 million annually.

Drew Smart: You definitely have my attention.Bill Legacy: Mine, too. So, how does this process architec-

ture optimization work translate to automation?Terry Wakefield: That’s the $64,000 question. Once the op-

timized state is defined at the task level, it must be thoroughly documented at a step level. Think of tasks as defining what work must be performed and steps as describing how each task is performed. Documenting step-level descriptions of task performance is hard and unglamorous work.

Bill Legacy: How is this possible, given the variability that surfaces as loans are produced?

Terry Wakefield: That’s a great question, Bill. Task-level detail addresses this variability by defining required tasks

“How is it possible to control costs,

ensure compliance and deliver great customer service

when you have 220 undocumented

and unsanctioned processes in place?”

Wakefield



that apply to all loans and random tasks that occur on an unscheduled basis or are required based on loan-specific circum-stances. Variability is a reality in most manufacturing processes. The next time you’re on the freeway, focus on the vari-ability of cars you see. Managing this vari-ability requires human definition of an optimized manufacturing process and a heavy dependence on technology.

Bill, to answer your question about au-tomation, think of task-level detail as the sheet music that allows best-of-breed tech-nology components to automate work or-chestration and eliminate human interfer-ence with the optimized process. Because task-level detail defines the optimized process down to the step level, it also serves as the training manual for new employees and those who want to improve their value to the enterprise by learning cross-functional skills. Thus, task-level detail ensures that there is no disconnect from what workers learn and how they actually perform their work tasks.

Bill Legacy: So, task-level detail is the “code” that drives software performance. What are these software components that are not typically imbedded in an LOS?

Terry Wakefield: Before I describe those software compo-nents, let me emphasize that current LOSes do perform many functions very well. They have solid product and pricing en-gines, most are effectively integrated with settlement services providers and documentation preparation firms, and they can all ingest output from point-of-sale systems used by loan originators. So, I am not suggesting that you replace your LOS. However, the LOS needs to be demoted in importance so that the software components I am about to describe enable auto-mated work orchestration.

Drew Smart: I am happy to hear that, because we just spent a lot of money changing our LOS.

Bill Legacy: We did the same last year-and to be honest, we have not experienced the productivity gains we expected.

Terry Wakefield: Bill, we hear your message from a lot of lenders. Getting back to Bill Gates, no technology will improve an inefficient process.

Bill Legacy: So, let’s talk specifics.Terry Wakefield: Before I describe these software compo-

nents, I should mention that they are all commercially avail-able and have proven their value in many industries. Inexplica-bly, they are not prevalent in the mortgage industry.

The first of these is business rules management software [BRMS]. Traditionally, business rules have been hard-coded di-rectly into applications, like an LOS. Business logic is the most volatile aspect of a business application; however, the pains of maintaining rules in application code have become more obvious and significant as the pace of business demands more agility. Agility requires that you externalize business rules logic and manage this logic in a way that is easy to build and easy to integrate as decision services while still meeting your enter-prise performance and scalability demands.

Drew Smart: The last word I would use to describe our loan production envi-ronment is agile. We are very dependent on our LOS vendor to effectuate change, and it costs us a lot of money. Have you had direct experience using business rules management software?

Terry Wakefield: We recently com-pleted a project for a retail mortgage lend-er to build a prototype with one of our business partners. In a matter of days, one of our senior process architects authored hundreds of rules to automate dozens of mundane tasks contained in task-level de-tail. No programmers were required-just a gifted process architect with an intuitive

understanding of business logic as defined in task-level detail.Bill Legacy: I get the concept of extracting business logic

from a hard-coded application. In fact, our head of IT met with a BRMS vendor at the last MBA technology conference, and he was impressed. Let’s hear more.

Terry Wakefield: The next software component is busi-ness process management software [BPMS]. All commercially available BPMS vendors deploy process-mapping tools to cre-ate process maps that drive automated work orchestration.

Going back to the prototype project, we took six tasks in task-level detail and used a leading BPMS vendor’s process-mapping tool to create a process map for each of the six tasks. Using easy-to-use click, drag and drop functionality, the same process architect I referred to earlier completed the six process maps in two days. Again, no programmers involved.

Drew Smart: What do you mean by automated work or-chestration?

Terry Wakefield: Simply stated, BPMS pushes work tasks to the right worker at the right time. Workers do not request tasks; tasks are pushed to workers as the BPMS engine deter-mines when a task needs to be performed. Each time a task is pushed to a worker, the worker’s performance is monitored in real time per the metrics in the OPTS and task-level detail. If a worker has not performed a specific task in a while and is unsure of the steps to follow, each task pushed to a worker is accompanied by a link to that task’s task-level detail. So, there is only one source that guides each worker’s performance-the BPMS process maps that emanate from task-level detail. If a task is not in task-level detail, it cannot exist in the production environment.

Bill Legacy: So, the problem of having 220 different pro-cesses disappears?

Terry Wakefield: Exactly, Bill-but let me go further. As certain tasks designated by compliance or management are performed, BPMS triggers automated internal and/or exter-nal communication through a set of management-prescribed alerts, escalations and scripted messages. The time-stamping of tasks, the tracking of worker performance and the monitoring of task outcome creates an audit trail of all task performance in the production environment. This level of auditability is pre-cisely what the industry needs in order to proactively respond

“The LOS needs to be demoted

in importance so that the software

components...enable automated work orchestration.”

Wakefield



to the demands of the CFPB and other regulatory agencies.Drew Smart: We have our first CFPB exam in two months,

and we are more than a little nervous.Terry Wakefield: That’s a good segue to the third critical

software component- enterprise content management soft-ware [ECMS]. To deal with the avalanche of paper received from external sources and produced internally, we advocate establishing a document management center [DMC]. It would focus on digitizing all data received from external sources us-ing ECMS and depositing all digitized data in a borrower- spe-cific virtual loan file.

Based on our experience, there are approximately 4,000 discrete data elements in a closed loan file. Advances in ECMS have made it possible to extract those 4,000 discrete data ele-ments from the documents they reside on, and deposit those data elements into the virtual loan file along with an image of all external and internally produced documents.

Bill Legacy: Wait a minute. Are you suggesting that we process all of our loan transactions electronically? Is that even legally possible?

Terry Wakefield: E-SIGN [Electronic Signatures in Global and National Commerce Act] legislation enacted in 2000 per-mits a lender to conduct a mortgage transaction in a purely electronic fashion, provided that the borrower consents. The way communication patterns are changing, I am convinced that a growing percentage of borrowers will consent to an elec-tronic transaction versus the painful fulfillment experience that currently plagues the industry.

Drew Smart: So, we may need two fulfillment environ-ments-one that caters to borrowers who consent to an electron-ic transaction and another for those who don’t.

Terry Wakefield: You’re right, but I would look at it with a different twist. You already have the non-electronic environ-ment. Why not launch a greenfield project to build the elec-tronic environment, and expand it as more borrowers consent? You can control the expansion of the electronic environment by inviting borrowers as electronic capacity scales. I’d bet that within three years, you’ll be processing more loans in the elec-tronic environment than in the current one.

Bill Legacy: Terry, I have to get to another meeting in 15 minutes. Can we wrap this up?

Terry Wakefield: Sure, Bill. Let me conclude.Assuming the borrower consents to an electronic mort-

gage process, let’s look at the consequences. The DMC’s role in digitizing all external documentation received from the bor-rower, and storing the images and extracted relevant data from those images in a borrower-specific virtual loan file, prevents any paper from entering the loan production environment and enables a paperless workflow. Production workers have access only to the virtual loan file as tasks are pushed to them. BPMS provides access to only that segment of the virtual loan file that is relevant to the task the worker receives.

Best-of-breed ECMS continually populates the virtual loan file with images and data extracted from external documents and all documents produced internally during the loan pro-duction process. BPMS continually updates the virtual loan file with data on worker task performance.

So, in concert with BPMS, ECMS en-ables a borrower-specific virtual loan file that includes an audit trail of-c all of the approximately 4,000 dis-

crete data elements aggregated dur-ing the loan origination and produc-tion process;

c the performance of all tasks con-tained in a task-level detail, including the system or worker who performed the task, task duration, task cost, task outcome and task- specific alerts, esca-lations and messages;

c all internal and external communica-tion, including voice, email, text mes-sages and social media interactions that occurred during the loan origina-tion and production process;

c all documents received from the bor-rower and other external sources, and all documents produced internally, including federal and state-specific disclosures and time stamps of when all documents were delivered to the bor-rower; and

c all secondary market transaction documentation and, if you also service loans, all loan servicing and loss-mitigation transaction data.

Basically, the virtual loan file provides 100 percent data transparency of the entire loan life cycle. This is profound compared with today’s environment, where loan-level data is trapped in myriad systems and databases.

Now, the coup de grâce. The virtual loan file allows sec-ondary market investors to conduct their quality control of loans prior to the funding of the loan by the lender, basically eliminating buyback exposure. The tension between mortgage lenders and secondary market investors is totally unconstruc-tive and has imposed an expense of more than $120 billion on the residential mortgage industry. The technology exists to dissipate this tension and re-establish trust through the deploy-ment of best-of-breed technology.

Drew Smart: Pardon my skepticism, but do you have any additional information you can send me and our COO that goes into greater detail? If you do, and it validates this call, we’ll want to meet with you soon.

Bill Legacy: Terry, send it to me as well.Terry Wakefield: I’ll send you both a PowerPointTM deck

later today. Thanks for your time today. I really appreciate it.

Terry Wakefield is chief executive officer of The Wakefield Company LLC, Mequon, Wisconsin. He can be reached at [email protected].

Copyright 2014 Mortgage Banking(R) Magazine & Mort-gage Bankers Association, All Rights Reserved., Reprinted with permission

“The tension between mortgage

lenders and secondary market lenders is totally

unconstructive and has imposed an expense of more than $120 billion on the residential

mortgage industry.” Wakefield

710 South Ash Street | Suite 200 | Glendale, Colorado 80246 | 800.891.2281 | www.lenderlive.com

Outsource Services • Correspondent Lending • Document Services Settlement Services • Loan Servicing • Due Diligence

Get out of mortgage hassles

ACUMA_8.5x11_Light_bulb_12-23-14.indd 1 12/24/14 8:47 AM


Market Share

This time last year I talked about mortgage loan market share for credit unions and the pride that went with seeing it climb to 6.5% at the end of third quarter 2013. The question I posed is, would credit unions be able to hold on to that share in 2014? We knew we wouldn’t be riding the refinance wave, and the share would instead have to be earned with purchase loans.

Well, it feels great to be here in January 2015 and know the share didn’t just stay stable, it grew. As of third quarter 2014, credit union market share had grown to 8%.

Impressive. And the credit goes to all the lenders who devel-oped purchase money business plans. For some it was a focus on professional development: recruiting sales leaders and creat-ing compensation plans that motivated folks to get out there and ask for the business. For others it was creating niche prod-ucts designed to help first-time homebuyers achieve their dream of home ownership. I also watched credit unions tighten their belts and work to develop operational efficiencies to ensure they could offer competitive pricing. Many used a combination. One thing for sure: lenders networked, rallied together and stay de-termined to be their members’ choice for home loans.

As you review the Top 300 ranking report and historic share, take a look at how the share of ARM loans has increased in 2014. It hasn’t topped 15% since 2006, when I suspect the increase was driven by interest rates.

What is at work this time? I believe much of current ARM lending involves loans that don’t meet the Qualified Mortgage requirements. We continue to hear that most credit unions are committed to making non-QM loans, but the absence of a secondary market causes liquidity concerns. I have seen some amazing niche ARM products this year. Kudos to the credit unions working hard to meet the needs of members that might otherwise fall outside the QM box!

I suspect in the near future we won’t have to speculate about non-QM statistics. Why? Today the NCUA 5300 call report is noticeably silent on the topic of QMs. My guess is, before too long we’ll see Schedule A amended to address non-QM lending. More to report, yes, but if the reporting require-ments change, we may have more than anecdotal information on non-QM lending. Stay tuned.

Market Share–

Credit Unions Are Holding On! Tracy ashfield

9%

8%

7%

6%

5%

4%

3%

2%

1%

0%

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

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2005

2006

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Sep 2

014

creDit UNiON 1st MOrtgAge MArket shAres 1989 - 2014


Market Share

creDit UNiON 1st MOrtgAge MArket shAres DetAil 1989 - 2014 CU Share Credit Union 1st Mortgages Total U.S. Residential (MBA) of Total U.S. Year $ Granted (Blns) % ARMs # Granted (000’s) Average Mort Orig (Blns) Originations 1989 6.4 107 59,813 453 1.41%

1990 6.2 100 62,000 458 1.35%

1991 7.5 118 63,559 562 1.33%

1992 16.5 236 69,915 894 1.85%

1993 19.5 281 69,395 1,020 1.91%

1994 13.3 204 65,292 769 1.73%

1995 10.00 149 67,204 639 1.56%

1996 15.60 207 75,508 785 1.99%

1997 17.30 216 80,056 834 2.07%

1998 31.90 360 88,734 1,656 1.93%

1999 28.00 308 91,027 1,379 2.03%

2000 20.60 216 95,415 1,139 1.81%

2001 46.60 421 110,794 2,243 2.08%

2002 62.30 523 119,187 2,852 2.18%

2003 88.23 18.37% 719 122,666 3,810 2.32%

2004 57.20 16.55% 422 135,501 2,772 2.06%

2005 60.44 14.79% 408 148,309 3,027 2.00%

2006 54.44 15.16% 360 151,425 2,726 2.00%

2007 60.31 12.54% 363 166,163 2,307 2.61%

2008 70.29 12.50% 412 170,713 1,509 4.66%

2009 95.01 8.20% 574 165,620 1,995 4.76%

2010 84.51 8.45% 510 165,802 1,572 5.38%

2011 82.55 8.86% 513 160,994 1,262 6.54%

2012 124.08 6.59% 742 167,169 2,044 6.07%

2013 120.54 9.32% 702 171,724 1,845 6.53%

Sept ‘14 68.10 15.55% 389 174,999 844 8.07%

Credit Union market share didn’t just stay stable, it grew. as of third quarter 2014, Cu market share had grown to 8%.


The Top 300

tOp 300 first MOrtgAge grANtiNg cU As Of septeMBer 30, 2014 $ Originated # Originated $ Outstanding Name of 1st Mortgages 1st Mortgages 1st Mortgages $ Sold RE Loans Sold State Credit Union (Fixed & Adjustable) (Fixed & Adjustable) (Fixed & Adjustable) 1st Mortgages but Serviced by CU 1 VA Navy $5,574,302,908 23,464 $19,332,762,669 $2,025,910,046 $19,915,180,751

2 VA Pentagon $2,989,833,137 7,327 $10,285,450,847 $285,301,163 $4,416,976,855

3 NC State Employees’ $2,158,851,575 14,445 $12,939,098,631 $1,419,889 $254,774,509

4 CA Kinecta $1,655,356,538 3,723 $1,713,682,947 $1,169,812,370 $3,343,849,160

5 CA First Tech $1,001,455,835 2,695 $2,721,966,081 $248,633,732 $2,669,786,623

6 MI Lake Michigan $903,173,498 6,602 $1,665,180,706 $748,256,435 $4,728,863,300

7 WA BECU $807,704,721 3,289 $3,117,412,076 $243,380,172 $3,531,400,523

8 AK Alaska USA $784,119,817 3,231 $633,319,943 $683,467,289 $4,495,209,832

9 OH Wright-Patt $702,924,185 5,572 $489,414,596 $260,197,948 $2,875,346,614

10 NY Bethpage $653,093,475 2,183 $2,022,945,238 $241,427,738 $3,274,976,134

11 CA San Diego County $637,582,750 1,681 $2,823,135,274 $70,083,524 $703,169,352

12 CA Logix $554,874,480 1,540 $1,833,941,120 $111,502,921 $941,550,267

13 CA Patelco $492,528,672 1,286 $1,599,409,743 $89,770,654 $1,086,504,548

14 CA SchoolsFirst $463,507,385 1,553 $2,153,474,185 $66,742,207 $1,665,393,366

15 UT Mountain America $450,324,118 3,380 $1,314,679,379 $168,245,284 $1,206,202,628

16 ID Idaho Central $428,769,154 2,712 $556,178,205 $261,497,914 $862,390,732

17 CO Elevations $425,110,881 1,597 $467,855,631 $265,815,971 $1,532,149,717

18 UT America First $422,859,914 4,312 $766,032,587 $225,665,249 $2,221,068,018

19 OR OnPoint Community $409,169,083 3,752 $922,659,344 $148,523,066 $1,148,434,744

20 TX Security Service $399,347,524 2,113 $1,005,504,130 $68,707,919 $91,716,488

21 MA Digital $396,656,410 1,266 $2,077,108,970 $120,050,329 $1,055,055,354

22 IL BCU $373,479,171 1,791 $841,742,634 $197,469,437 $1,694,454,748

23 TX Randolph-Brooks $370,411,024 1,942 $1,713,957,268 $25,675,803 $297,974,354

24 TX University $370,010,325 1,357 $612,089,671 $218,624,781 $98,346,807

The Top 300 – Leading the market share chargetOp 300 first MOrtgAge grANtiNg cU MArket shAre As Of septeMBer 30, 2014

$ Originated # Originated $ Outstanding 1st Mortgages 1st Mortgages 1st Mortgages $ Sold (Fixed & Adjustable) (Fixed & Adjustable) (Fixed & Adjustable) 1st Mortgages Top 300 1st Mortgages Originated CUs 52,592,185,603 253,116 197,886,047,256 17,714,480,218

All Originating CUs (3,359 CUs)* 68,104,522,773 389,165 289,017,116,438 22,187,986,355

Top 300 Share 77.2 65.0 68.5 80 *CUs who granted $10,000 or more 01/14 - 09/14


The Top 300

25 WI Community First $357,922,599 2,781 $1,191,174,837 $6,780,100 $5,206,569

26 WI Summit $356,643,109 2,173 $833,640,273 $131,124,718 $1,404,681,461

27 CO Ent $345,035,105 1,889 $1,466,170,097 $35,724,406 $680,486,548

28 NC Coastal $339,231,638 1,031 $901,046,518 $141,723,919 $1,118,941,618

29 WI Royal $325,934,448 1,440 $629,614,042 $120,193,025 $1,539,435,683

30 CA Chevron $310,112,869 994 $1,684,154,321 $0 $21,838,463

31 WI University Of Wisconsin $308,986,333 1,759 $309,634,575 $211,584,000 $1,147,534,919

32 WI Landmark $306,014,432 2,097 $849,917,667 $174,345,769 $1,565,361,787

33 IL Alliant $302,681,590 512 $3,570,937,067 $25,567,394 $196,458,768

34 PA Citadel $295,956,646 730 $858,051,184 $30,880,887 $347,694,914

35 IL CEFCU $293,437,067 1,599 $2,123,639,848 $0 $120,482,777

36 CA The Golden 1 $284,798,889 1,168 $1,568,905,470 $10,491,559 $392,643,311

37 IA University Of Iowa Community $282,211,835 1,704 $1,237,166,236 $207,770,855 $121,781,643

38 MO CommunityAmerica $279,290,771 1,463 $587,863,787 $250,370,142 $1,359,957,343

39 GA Delta Community $269,155,707 1,296 $1,348,853,492 $26,408,599 $297,409,014

40 AZ Desert Schools $268,563,442 1,816 $430,097,263 $257,127,137 $1,618,011,287

41 DC Bank-Fund Staff $266,209,179 554 $1,734,560,556 $24,131,495 $457,336,307

42 CA Premier America $265,547,963 340 $908,872,118 $8,953,250 $233,072,609

43 CA Star One $259,301,662 724 $2,429,702,821 $0 $12,232,895

44 WA WSECU $259,121,690 824 $435,349,572 $81,426,588 $1,281,810,257

45 CA Mission $251,043,300 656 $695,126,493 $58,838,450 $784,529,102

46 CA KeyPoint $247,078,789 367 $374,579,125 $163,877,653 $167,681,588

47 FL VyStar $240,013,263 1,720 $1,844,053,552 $52,168,265 $298,127,237

48 TN Eastman $232,732,568 1,875 $1,448,532,391 $206,917 $7,271,034

49 NY State Employees $231,114,744 1,762 $662,619,564 $114,046,372 $1,233,765,593

50 NC Local Government $218,059,603 1,771 $400,483,237 $150,321,720 $0

51 NY CAP COM $216,485,688 1,415 $530,006,489 $78,099,252 $765,585,074

52 CA Provident $213,770,660 484 $743,978,493 $76,196,110 $1,180,144,491

53 FL GTE Financial $213,765,548 1,243 $362,632,136 $183,153,895 $1,379,566,637

54 WI Altra $211,117,044 1,231 $385,093,220 $107,814,405 $810,348,491

55 FL Suncoast $209,011,803 1,614 $1,748,498,880 $3,919,843 $408,136,363

56 CA California $208,438,758 477 $430,360,979 $57,785,436 $591,864,289

57 NY Visions $207,687,500 992 $1,210,715,010 $5,935,818 $79,666,808

58 CA Evangelical Christian $207,578,046 61 $681,882,558 $134,690,777 $1,193,362,970

59 CO Bellco $205,062,178 1,055 $761,932,904 $49,917,401 $521,950,086

60 TX Advancial $204,058,161 592 $433,702,080 $89,608,196 $296,826,178

61 CA Redwood $197,811,650 611 $952,922,004 $73,616,600 $557,106,579

62 CA Xceed Financial $193,050,351 371 $535,815,497 $9,571,812 $66,598,954

63 VT New England $192,228,939 1,041 $462,634,825 $122,863,746 $1,242,459,348

64 CA Stanford $185,732,758 269 $676,115,216 $40,855,687 $468,193,408

65 OR Advantis $182,776,538 694 $371,314,401 $85,992,447 $629,225,901

66 CA Wescom $180,985,040 577 $759,401,332 $61,259,850 $1,211,378,033

67 NY Teachers $180,844,132 689 $1,099,209,937 $48,487,007 $1,298,305,151

68 NY Hudson Valley $179,536,450 903 $694,127,028 $90,235,671 $1,249,458,004

69 TX TDECU $176,222,875 1,308 $715,164,681 $102,611,995 $306,398,565

70 IA Veridian $174,964,640 1,188 $742,326,598 $55,399,161 $584,820

© 2015 BOK Financial Correspondent Mortgage Services, a division of BOKF, NA. Member FDIC. Equal Housing Lender

855.890.1485 | [email protected] | www.bokfinancial.com/cms

Long Live A Great Partnership.As a proven industry leader operating multiple lines of business and strengthened by $29 billion in assets, BOK Financial delivers the one thing all customers seek: confidence in their financial partner.

BOK Financial Correspondent Mortgage Services offers a full suite of mortgage products and services especially for Banks and Credit Unions. We are a direct to Agency seller and one of the top 50 issuers of Ginnie Mae securities in the U.S. In addition, we retain the servicing on every loan we purchase.

We exemplify our dedication to the success of our clients and partners by providing solutions that help them to retain and continue to meet the needs of their own customers.

Advantages to partnering with us:

• Non Solicitation Agreement • Reverse Referrals • Limited Overlays

We have the experience and capabilities you want to satisfy the needs of your customers.

Contact us to learn how we can partner today!

• Common Sense Approach • Straight Forward Purchase Review • Valued Partnership and Communication

© 2015 BOK Financial Correspondent Mortgage Services, a division of BOKF, NA. Member FDIC. Equal Housing Lender

855.890.1485 | [email protected] | www.bokfinancial.com/cms

Long Live A Great Partnership.As a proven industry leader operating multiple lines of business and strengthened by $29 billion in assets, BOK Financial delivers the one thing all customers seek: confidence in their financial partner.

BOK Financial Correspondent Mortgage Services offers a full suite of mortgage products and services especially for Banks and Credit Unions. We are a direct to Agency seller and one of the top 50 issuers of Ginnie Mae securities in the U.S. In addition, we retain the servicing on every loan we purchase.

We exemplify our dedication to the success of our clients and partners by providing solutions that help them to retain and continue to meet the needs of their own customers.

Advantages to partnering with us:

• Non Solicitation Agreement • Reverse Referrals • Limited Overlays

We have the experience and capabilities you want to satisfy the needs of your customers.

Contact us to learn how we can partner today!

• Common Sense Approach • Straight Forward Purchase Review • Valued Partnership and Communication


The Top 300

71 PA Police And Fire $174,789,217 1,078 $1,373,326,453 $43,019,692 $511,384,762

72 CA Firefighters First $172,687,196 393 $530,769,838 $6,483,465 $118,591,954

73 AZ Arizona State $172,021,667 810 $511,304,049 $76,361,100 $623,246,612

74 TX American Airlines $165,845,490 869 $1,842,505,058 $0 $6,786,205

75 CA Technology $162,976,107 240 $606,078,361 $6,821,883 $176,865,519

76 IN Forum $161,189,818 804 $304,066,770 $91,530,159 $638,967,971

77 MN Wings Financial $152,413,846 706 $595,731,515 $55,397,179 $394,576,240

78 NV One Nevada $152,226,396 801 $162,879,938 $121,598,605 $174,816,666

79 CA NuVision $151,138,213 439 $462,129,905 $67,990,386 $449,010,628

80 PA Members 1st $150,249,206 1,025 $574,912,012 $69,420,579 $0

81 CA SAFE $148,523,511 609 $520,394,449 $87,168,933 $612,775,134

82 UT Goldenwest $147,399,135 777 $283,623,180 $88,994,932 $222,107

83 WI Westconsin $145,204,454 1,406 $372,214,497 $89,565,130 $766,241,025

84 CA Travis $141,177,386 595 $375,070,830 $54,294,659 $297,466,672

85 CA Financial Partners $140,497,658 348 $395,121,612 $49,026,706 $555,177,118

86 CA California Coast $139,171,938 478 $554,207,039 $40,560,397 $52,593,044

87 VA Northwest $139,094,300 518 $396,331,698 $108,978,279 $1,466,059,667

88 MN TruStone Financial $136,138,264 708 $285,404,142 $100,052,326 $369,056,731

89 MI Michigan State University $134,543,213 878 $760,986,305 $341,295 $0

90 IN Teachers $134,390,711 630 $835,020,274 $2,048,859 $4,038,591

91 CA Orange County’s $134,389,247 523 $446,421,745 $38,963,867 $283,019,064

92 MD SECU of Maryland $133,533,275 648 $1,035,999,604 $76,663,000 $812,636,345

93 RI Navigant $131,886,338 600 $797,877,952 $23,272,372 $146,543,896

94 MI DFCU Financial $130,554,703 794 $675,738,883 $95,050,369 $447,050,707

95 MD NASA $128,428,813 332 $421,324,929 $29,793,859 $16,962,584

96 IA Dupaco Community $124,498,862 883 $279,377,205 $61,132,890 $561,616,350

97 RI Pawtucket $122,171,700 754 $1,040,283,827 $10,091,722 $211,895,493

98 CA Partners $121,686,259 442 $404,089,776 $44,492,090 $520,806,048

99 ND Town and Country $119,907,028 543 $155,135,237 $72,198,471 $0

100 MI United $119,819,893 567 $717,176,771 $27,843,291 $64,556,914

101 VA Apple $119,797,907 294 $629,643,038 $46,003,434 $275,250,044

102 IN Purdue $119,257,630 563 $374,353,678 $58,092,114 $413,309,032

103 GA Georgia’s Own $117,560,600 453 $411,887,936 $17,887,023 $70,017,900

104 NY United Nations $117,273,543 322 $1,017,950,593 $9,160,840 $74,655,816

105 WA Spokane Teachers $116,195,841 689 $812,279,840 $8,535,016 $176,991,113

106 IA Collins Community $114,932,270 721 $321,942,469 $33,018,325 $0

107 UT Utah Community $113,199,986 609 $191,575,967 $74,508,344 $65,832,698

108 CA San Francisco Fire $111,510,242 258 $380,422,082 $24,633,300 $258,284,442

109 WI Covantage $110,689,920 1,080 $526,296,836 $13,293,153 $149,957,845

110 IN Beacon $109,926,388 350 $596,022,182 $0 $0

111 TX Navy Army Community $109,316,869 872 $791,878,000 $0 $0

112 WA Whatcom Educational $108,833,546 511 $538,200,946 $72,379,161 $364,985,803

113 IN Eli Lilly $108,826,954 554 $326,156,760 $32,503,684 $0

114 NY Self Reliance New York $108,738,195 205 $647,977,524 $0 $0

115 VA Virginia $108,707,993 668 $510,795,812 $12,813,262 $180,444,215

116 NY ESL $107,305,000 723 $383,693,669 $70,280,902 $1,024,194,142


The Top 300

117 MN Central Minnesota $106,962,182 597 $349,173,730 $31,397,111 $132,864,379

118 NJ Affinity $106,796,505 341 $1,183,255,835 $5,187,972 $225,993,419

119 TN ORNL $106,779,596 751 $478,593,952 $45,154,750 $594,748,196

120 CA North Island $106,386,961 168 $434,949,317 $7,076,750 $140,760,399

121 IL Deere Employees $105,681,483 638 $333,814,134 $20,974,000 $0

122 NM Sandia Laboratory $104,118,564 388 $639,360,838 $4,321,625 $0

123 NC Truliant $103,128,205 748 $449,399,487 $15,064,630 $0

124 NY Nassau Educators $102,632,060 217 $566,103,400 $28,476,000 $318,492,412

125 NJ Polish & Slavic $100,894,970 420 $723,641,192 $8,411,129 $86,815,072

126 FL Fairwinds $99,205,199 661 $511,805,555 $1,945,740 $146,859,140

127 OK Truity $99,035,192 505 $159,588,349 $66,294,332 $444,161,431

128 WI Educators $98,965,847 922 $632,365,370 $9,291,219 $163,659,552

129 MA Jeanne D’Arc $98,650,042 256 $538,145,533 $33,313,029 $127,537,840

130 NY Sunmark $98,058,884 501 $138,797,935 $42,532,299 $0

131 IL Great Lakes $96,099,864 284 $170,849,907 $38,520,631 $166,299,426

132 CA Meriwest $95,165,672 149 $339,158,478 $142,385,850 $812,491,068

133 MD Tower $95,120,265 399 $462,419,140 $59,358,919 $1,113,486,188

134 CT American Eagle $94,615,997 436 $413,539,088 $19,082,062 $298,630,444

135 TX GECU $94,031,120 973 $409,515,346 $42,043,090 $275,151,481

136 CT Charter Oak $93,839,835 606 $487,896,605 $16,990,490 $117,449,753

137 CA Western $93,637,186 292 $585,317,777 $27,274,760 $312,227,176

138 WI Capital $91,905,240 905 $461,862,887 $8,272,866 $165,297,390

139 NH St. Mary’s Bank $91,409,453 501 $280,262,279 $57,462,901 $398,736,989

140 WI Fox Communities $90,020,840 967 $614,612,505 $4,822,500 $62,366,417

141 AL Redstone $89,373,355 625 $381,293,986 $57,135,572 $677,778,631

142 MA Metro $88,202,221 302 $444,710,147 $42,098,705 $511,318,614

143 PA TruMark Financial $87,192,907 358 $482,481,835 $37,092,211 $406,776,586

144 WI Marine $87,068,581 1,100 $206,137,393 $57,260,143 $575,610,813

145 FL Space Coast $86,334,805 503 $816,730,835 $41,140,415 $942,738,313

146 WA Numerica $85,592,147 481 $376,959,663 $30,938,067 $353,011,485

147 NY Melrose $84,849,149 102 $366,504,021 $0 $855,544

148 NM New Mexico Educators $84,499,445 462 $401,086,255 $41,653,144 $223,186,052

149 CA American First $84,493,434 212 $181,958,961 $26,764,500 $429,670,283

150 PA Pennsylvania State Employees $83,746,760 613 $444,986,710 $7,354,615 $262,817,931

151 NY Corning $82,737,758 549 $260,071,106 $26,113,816 $372,167,393

152 VA Langley $82,261,455 573 $291,903,102 $9,240,700 $129,941,073

153 OH Superior $81,380,015 812 $187,766,790 $56,729,487 $697,348,833

154 OK Weokie $80,585,723 411 $261,386,669 $4,812,939 $155,768,112

155 WA iQ $80,431,906 322 $133,927,782 $39,594,845 $50,514,968

156 VA State Department $80,428,141 237 $497,252,490 $43,546,725 $114,718,262

157 AL APCO Employees $79,933,286 489 $400,291,885 $0 $0

158 MN Affinity Plus $79,769,830 533 $414,333,939 $148,365,600 $1,580,167,391

159 NY Empower $78,977,859 676 $218,237,636 $59,279,781 $426,944,446

160 FL Grow Financial $78,341,973 478 $528,672,979 $21,182,771 $140,534,735

161 TN Ascend $78,201,625 636 $515,846,982 $0 $0

162 NV Silver State Schools $77,859,620 319 $324,586,867 $20,600,610 $183,916,602


The Top 300

163 WA Columbia $77,701,641 359 $326,618,081 $43,258,670 $153,631,391

164 MA Workers’ $75,468,900 332 $456,107,951 $25,082,711 $182,905,167

165 AZ Vantage West $74,094,022 311 $236,690,297 $7,970,660 $0

166 MN Mayo Employees $73,672,075 409 $103,493,551 $0 $0

167 WA Verity $73,566,587 337 $141,060,310 $41,757,000 $277,361,028

168 NE Centris $73,398,753 499 $175,910,116 $42,853,850 $238,416,823

169 MO Anheuser-Busch Employees $73,098,804 395 $377,986,859 $29,924,222 $299,534,247

170 CA First Entertainment $72,786,322 172 $330,787,097 $10,375,075 $97,853,454

171 SC Founders $71,566,933 2,279 $620,231,361 $0 $0

172 GA Robins $71,552,536 522 $303,041,763 $33,698,397 $266,156,176

173 FL MidFlorida $70,940,194 325 $607,628,484 $64,954,105 $386,949,160

174 VT Vermont State Employees $70,863,434 533 $262,120,570 $34,873,860 $346,172,812

175 CA Ventura County $70,515,751 222 $145,287,445 $12,730,223 $6,595,822

176 WA Gesa $70,041,544 403 $232,886,583 $26,817,724 $293,333,577

177 SD Dakotaland $69,848,548 670 $87,887,114 $19,730,914 $136,288,228

178 PA Franklin Mint $69,404,107 274 $201,772,643 $85,148,996 $402,533,443

179 KY L & N $69,081,157 501 $361,254,955 $1,267,011 $169,512,640

180 IN Centra $68,158,685 389 $306,850,625 $19,000,100 $152,701,004

181 NY CFCU Community $68,105,773 395 $378,915,647 $7,708,481 $167,880,025

182 CA SF Police $66,862,507 167 $298,900,804 $0 $0

183 MI Michigan Schools and Government $66,731,469 387 $463,906,363 $0 $7,883,672

184 MO First Community $66,723,612 441 $358,037,523 $8,735,307 $550,980,469

185 VA Dupont Community $66,635,066 436 $427,659,952 $12,610,247 $7,718,837

186 MT Whitefish $66,361,820 416 $546,493,728 $0 $0

187 FL Tropical Financial $66,303,761 254 $199,094,519 $31,615,658 $213,111,419

188 SC Sharonview $65,734,377 427 $489,558,989 $766,500 $16,892,449

189 MA Rockland $65,280,810 230 $366,170,790 $28,628,384 $125,572,037

190 CO Credit Union of Colorado $65,055,001 400 $242,378,843 $28,006,095 $130,791,430

191 CA Point Loma $64,983,961 147 $178,369,790 $0 $17,128,018

192 IN Indiana Members $64,692,092 416 $377,460,922 $18,813,005 $27,877,584

193 OR Unitus Community $64,260,186 311 $182,795,299 $41,022,128 $381,100,790

194 MA Greylock $64,071,611 359 $450,309,133 $22,043,459 $433,136,000

195 CA CoastHills $63,597,134 292 $325,002,501 $5,427,150 $98,290,555

196 PA American Heritage $63,514,807 313 $377,686,858 $104,454,144 $814,337,725

197 MI Community Financial $63,349,906 351 $251,544,712 $21,207,472 $197,061,420

198 OH General Electric $63,154,303 326 $389,361,064 $2,376,325 $0

199 NC Allegacy $61,945,153 408 $236,504,712 $34,935,995 $220,678,133

200 CA Christian Community $61,788,563 119 $431,872,718 $7,736,250 $84,145,793

201 IN 3Rivers $61,655,795 371 $235,576,953 $18,466,912 $216,416,990

202 AZ TruWest $61,055,172 221 $254,449,034 $25,174,341 $24,452,462

203 IN Evansville Teachers $61,050,976 587 $318,111,755 $15,824,040 $91,467,034

204 TX Shell $60,537,934 493 $133,493,289 $21,858,057 $99,599,789

205 NY AmeriCU $60,521,695 454 $262,428,904 $30,094,199 $226,825,308

206 DC Congressional $60,398,099 193 $193,004,421 $10,458,815 $0

207 FL Achieva $59,718,038 304 $210,545,833 $17,967,572 $128,675,519

208 OH Seven Seventeen $59,356,764 528 $278,922,164 $4,782,085 $0


The Top 300

209 CO Public Service Employees $59,332,604 307 $151,232,065 $33,151,543 $208,014,828

210 OK TTCU $59,329,265 434 $175,455,250 $39,110,797 $159,416,414

211 IN Indiana University $59,289,784 374 $325,449,975 $9,848,821 $15,178,881

212 CA USE $59,184,988 270 $242,357,579 $32,163,305 $131,028,897

213 OR Oregon First Community $59,038,269 365 $216,885,022 $25,487,614 $246,838,676

214 NE Liberty First $58,958,297 428 $60,255,168 $39,082,167 $0

215 MA St. Anne’s Of Fall River $58,825,768 253 $411,534,745 $22,548,731 $320,267,399

216 MI Lake Trust $58,724,671 360 $518,720,514 $0 $26,871,054

217 CA Southland $58,217,100 184 $155,312,491 $32,806,150 $122,538,658

218 WI Westby Co-op $57,807,525 496 $140,535,551 $9,121,903 $129,945,671

219 MA Harvard University Employees $57,633,117 149 $208,930,399 $12,411,988 $130,584,269

220 TX First Community $57,630,730 299 $175,984,858 $19,859,141 $89,606,693

221 WA School Employees Credit Union Of Washington $57,543,053 454 $109,427,602 $0 $0

222 UT Deseret First $57,309,310 291 $121,623,740 $33,077,100 $0

223 MI Genisys $57,258,715 339 $342,415,381 $4,961,244 $44,395,617

224 IL Abbott Laboratories Employees $56,843,299 264 $167,744,193 $21,027,900 $0

225 CO Westerra $56,841,571 290 $385,641,645 $13,363,906 $155,776,974

226 TX United Heritage $56,234,140 325 $306,524,992 $15,953,385 $2,851,007

227 WA TwinStar $55,845,518 309 $126,008,908 $53,234,157 $215,526,198

228 SD Black Hills $55,822,502 299 $278,884,936 $5,860,119 $0

229 TX Texans $55,646,533 414 $226,447,273 $10,111,373 $5,614,590

230 TX Austin Telco $55,472,843 302 $274,170,040 $0 $0

231 WI CitizensFirst $55,402,813 464 $317,284,176 $15,209,564 $141,698,497

232 FL Campus USA $55,120,620 510 $304,712,194 $12,578,975 $58,212,624

233 MA Align $53,730,115 200 $215,484,586 $16,421,180 $177,402,430

234 ND First Community $53,484,329 250 $190,283,376 $12,203,106 $0

235 IN Interra $53,241,244 304 $251,706,830 $2,592,405 $0

236 WA Solarity $52,825,742 343 $172,286,713 $32,358,162 $147,568,623

237 SC South Carolina $52,490,175 320 $353,486,774 $11,386,475 $115,095,563

238 WI Thrivent $52,319,850 383 $182,277,901 $29,678,746 $345,880,528

239 MD National Institutes of Health $51,321,703 155 $162,514,635 $24,366,115 $329,013,773

240 TN Knoxville TVA Employees $50,308,079 652 $401,476,435 $6,724,856 $0

241 TX Firstmark $49,850,574 483 $295,187,687 $0 $0

242 IA Community 1st $49,588,942 458 $233,244,966 $7,897,574 $0

243 WA Salal $49,526,776 147 $100,058,570 $26,931,381 $214,288,514

244 AL America’s First $48,897,448 440 $368,537,166 $5,879,220 $0

245 VA University of VA Community $48,674,930 417 $93,405,345 $19,930,342 $0

246 CO Aventa $48,625,417 188 $26,165,194 $47,376,980 $62,790,777

247 MI Educational Community $48,600,216 376 $184,513,706 $16,081,018 $103,646,566

248 MN Spire $47,926,975 344 $197,651,651 $21,769,439 $0

249 MN US $47,844,530 296 $295,324,159 $0 $0

250 NY Municipal $47,676,222 196 $569,844,013 $0 $34,666,985

251 CO Air Academy $47,571,043 237 $119,841,134 $32,266,380 $0

252 TX FirstLight $47,105,653 281 $212,633,882 $9,644,896 $86,924,435

253 HI Hawaiian Tel $46,973,750 113 $184,750,572 $12,632,250 $0

254 UT University First $46,942,845 383 $101,733,250 $23,752,600 $197,583,185


The Top 300

255 MI Dow Chemical Employees $46,841,849 344 $357,380,430 $322,700 $24,418,932

256 VA Chartway $46,784,643 292 $255,957,833 $27,871,972 $103,845,682

257 KS Heartland $46,642,458 763 $92,080,510 $14,405,121 $0

258 AL Listerhill $46,380,207 1,156 $218,006,645 $1,104,916 $0

259 IA Linn Area $45,811,658 320 $82,726,888 $16,154,814 $0

260 OH KEMBA Financial $45,435,853 370 $257,406,426 $10,079,752 $17,623,535

261 NC Self-Help $45,387,550 323 $264,422,836 $0 $0

262 ID Potlatch No 1 $45,236,148 316 $85,094,391 $40,114,183 $281,347,949

263 MI Honor $44,736,439 454 $208,602,217 $19,765,600 $235,397,684

264 LA Campus $44,398,672 153 $165,355,390 $4,177,110 $0

265 TX Members Choice $44,040,238 115 $145,725,007 $0 $0

266 NH Service $43,910,281 232 $472,617,813 $0 $0

267 MO Missouri $43,882,158 400 $39,387,966 $35,091,452 $396,979,103

268 CA America’s Christian $43,658,712 86 $160,321,880 $442,500 $167,040,522

269 IL Selfreliance Ukrainian American $43,514,080 130 $186,930,525 $0 $0

270 TX A+ $43,467,298 313 $177,005,112 $5,697,516 $0

271 CA Credit Union of Southern California $43,384,820 115 $221,388,476 $5,324,575 $57,628,028

272 NY Island $43,380,400 178 $188,616,584 $10,605,300 $154,831,288

273 CA Los Angeles $43,315,131 159 $253,684,981 $1,317,100 $290,000

274 WA Global $43,244,337 273 $71,902,181 $31,501,848 $2,042,781

275 SD Sioux Falls $43,181,120 282 $13,741,879 $42,819,560 $0

276 CA Uncle $42,992,936 96 $101,592,437 $0 $0

277 OR Oregon Community $42,979,727 252 $204,692,780 $0 $0

278 CA Los Angeles Police $42,926,342 158 $247,124,086 $7,619,350 $200,029,613

279 OR Selco Community $42,850,482 181 $251,011,555 $0 $0

280 MA Hanscom $42,838,311 175 $221,255,866 $26,377,817 $231,844,655

281 FL Pen Air $42,823,561 250 $174,122,659 $7,624,285 $28,994,079

282 TX Texas Tech $42,810,016 263 $15,947,492 $35,355,356 $0

283 CA San Francisco $42,754,072 100 $292,537,245 $0 $0

284 WI Connexus $42,502,326 231 $181,565,402 $9,562,656 $30,926,690

285 OR Rogue $42,427,874 275 $196,191,939 $17,173,821 $3,485,436

286 CA Farmers Insurance Group $42,391,958 101 $187,446,890 $2,527,220 $0

287 CT Connecticut State Employees $42,247,717 351 $254,362,756 $0 $0

288 IL Consumers $42,214,093 220 $120,901,470 $16,909,498 $276,900,889

289 UT Cyprus $42,201,252 255 $125,530,762 $13,968,525 $0

290 VA BayPort $42,024,736 218 $395,401,148 $4,317,180 $0

291 NM U.S. New Mexico $41,893,524 220 $159,910,043 $10,955,749 $0

292 WA Sound $41,880,330 243 $196,548,356 $15,695,172 $0

293 IL IH Mississippi Valley $41,663,905 285 $163,103,899 $25,433,221 $322,893,726

294 NY USAlliance $41,499,326 77 $239,262,407 $10,691,888 $213,846,082

295 OR OSU $41,464,394 210 $176,089,396 $25,320,668 $227,336,691

296 CA Kern Schools $41,391,750 218 $317,527,693 $7,532,300 $238,681,745

297 MA St. Mary’s $41,019,587 170 $261,115,665 $15,011,072 $77,533,409

298 CA Educational Employees $40,995,311 320 $233,296,412 $0 $0

299 MA Merrimack Valley $40,959,914 178 $146,690,231 $10,930,381 $168,916,413

300 IA DuTrac Community $40,947,671 310 $202,622,323 $16,574,369 $0

As fast as the mortgage industry is changing, so are the tools to help us compete. From an online mortgage application for members to the latest in business-to-

business platforms, CU Members Mortgage is dedicated to providing credit unions

with technology for better lending programs, evolving to meet the market, and

ensuring compliance every step of the way.

The market doesn’t stand still. Neither do we.

www.cumembers.com 800-607-3474 Extension 3225 NMLS #401285

Randy Shannon, Vice President Correspondent Lending28 Years in Mortgage Lending

“An exceptionally challenging mortgage industry demands THE RIGHT TOOLS.”

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