CUREN Texas Keynote
25
Nizar Hashlamon VP, Prime Alliance Solutions, Inc. TX CUREN February 12 2009 Making Sense of Mortgage Economics
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CUREN Texas Keynote
Transcript of CUREN Texas Keynote
Nizar HashlamonVP, Prime Alliance Solutions, Inc.
TX CURENFebruary 12 2009
Making Sense of Mortgage Economics
How aware Are you?
CUs First Mtg Originations
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Callahan & Associates First Look Data
How Low Will It Go
30 Yr Fixed Rate
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Sources of funds...
Return on RiskSupply and Demand
Economic Growth
Inflation Expectations
Interest Rate Risk
Default & Prepayment Risk
Underlying Consideration
Economic GrowthIndicator Purpose Impact on
Rates
Inflation Expectations
= offered Rate + Premium for Expected Rate of Inflation
Real Rate
$10,000 at 10% 1 year balloon Return = $11,000 10,000 + {10,000 X 0.10}
6% inflation$11,000 would be worth $10,377
Offered rate is 10% Real rate is under 4% {377 / 10k}
if the CU wants a 4% return they have to offer the rate at 10%
Interest Rate Risk
Net interest Income (NII) Arises because interest income and interest expense don’t change in an equivalent manner as market rates change.
Net Economic Value (NEV) Is the value of its asset bonds less its liability bonds.
DefaultPrepayment
and
R i s k
Many Business
LINES
Two Assets
Loan
Servicing
PortfolioInvestment
ORIGINATE to Sell
PricingStrategies
The Competition
Relative
to
Investment Yields
Loan R ate = Y ie ld Cur ve + Ne t Charge-of fs +Ne t Ops Expense + De s i re d Spre ad
Relative
to
Cost of Funding
Loan Rate =
Cost of Funds +
Net Charge -offs +
Net Ops Expense +
Desired Spread
To CU needs
Relative
to
RevenueSales Premiums
Net Profit = Revenues – Costs
Net Warehoused incomeDiscount Points
SRP
Fees CostCost to Originate RebateHedge costLLPAs
Revenues= 99.1593 - 100
(Note Rate – Cost of fund)365
X 15 days
= 1.25= 0
= 1.0
= -0.841
= (5.625- 4.00)/365 X 15 = 0.06678
Sales Premiums
Net Warehoused income
Discount PointsSRPFees
=
= 1 .476Total Revenue
Do the Math!
5.625Note Rate
Cost= 0.75
= 0
= 0.25
= 0.12
Cost to Originate
Rebate
Hedge Cost
LLPAs
= 1 .120
Yield =
Revenue Cost-
1.476 - 1.1
20
= 0.356
Total Cost
Do the Math!
Do the Math!5.625Note Rate
With 0.356 net profit
or
5.875Note Rate
With 0.175 net profit
What can we affect...
Cost to Originate
ProductsMember Experience
Speed
Putting it all together
Evaluate
Execute
Build sound strategy
Identify your business line
