CONFIDENTIAL FCIC-178505 ~ ~ Rankin~ FR Restricted FR - PDF document

CONFIDENTIAL FCIC-178505

~ ~ Rankin~ FR Restricted FR Restricted • • Survey focused on Non-Traditional Mortgages (NTMs): Survey focused on Non-Traditional Mortgages (NTMs): Option ARMs (POs) Interest only mortgages (lOs) Option ARMs (POs) -- Interest only mortgages (lOs) st and 2 nd mortgage structures st and 2 nd mortgage structures Low and no doc loans Low and no doc loans -- Simultaneous 1 Simultaneous 1 • • Six lenders in survey group represented about one-half of Six lenders in survey group represented about one-half of aggregate originations aggregate originations Projected 2005 Peer Group Aggregate and Non~Tradtional Projected 2005 Peer Groul:! Aggregate and Non~Tradtional Mortgage Originations Mortgage Originations NTM Share of NTM Share of National National Aggregate Aggregate Aggregate Aggregate Lender Lender Lender ($ billions) Lender ($ billions) Ranking Originations Originations Market Share Market Share Originations Originations Countrywide Countrywide 1 1 $ $ 423.6 423.6 14.9% 14.9% 58.8% 58.8% 299.2 ' 299.2 ' Wells Fargo Wells Fargo 2 2 10.5% 10.5% 58.1% 58.1% Washington Mutual 235.4 8.3% 31.4% Washington Mutual 3 3 235.4 8.3% 31.4% Bank of Bank of America America 146.0 146.0 5.1% 5.1% 18.3% 18.3% 5 5 CitiFinancial CitiFinancial 26.5% 26.5% 6 6 145.6 145.6 5.1% 5.1% National City National City 9 2.1% 2.1% 51.1% 51.1% 9 9004 9004 Sub Total: Sub Total: 1,340.2 1,340.2 46.0% 46.0% 45.4% 45.4% $ $ All Others All Others 1,499.8 54.0% $ $ 1,499.8 54.0% Total: Total: 2,840.0 2,840.0 100.0% 100.0% $ $ Source: Federal Reserve Residential Mortgage Survey and Inside Mortgage Finance Source: Federal Reserve Residential Mortgage Survey and Inside Mortgage Finance 1: NTM originations and market share is estimated using data from the FRB Mortgage Survey, Loan 1: NTM originations and market share is estimated using data from the FRB Mortgage Survey, Loan Peiformance and Inside Mortgage Finance. Peiformance and Inside Mortgage Finance. 2 2 CONFIDENTIAL FCIC-178506

FR Restricted FR Restricted • NTM originations in 2005 will grow over 17% to $608.5 billion • NTM originations in 2005 will grow over 17% to $608.5 billion .... .... Growth primarily driven by POs and lOs Growth primarily driven by POs and lOs • PO and IO percentage of originations have more than tripled since 2003. • PO and IO percentage of originations have more than tripled since 2003. Share of Simultaneous Second originations have remained relatively steady as a share of Share of Simultaneous Second originations have remained relatively steady as a share of NTM originations. NTM originations. Non-PI & 10 low I no doc. originations' share ofNTM originations have decreased Non-PI & 10 low I no doc. originations' share ofNTM originations have decreased sharply. sharply. NTM Production Volme by Product Type NTM Production Volme by Product Type % Low/ % Low/ Total NTM % PO 0/0 Sim. No. Doc. Total NTM % PO 0/0 Sim. No. Doc. & 10 * & 10 * Sec.** Originations Originations Sec.** Only Only $ billions $ billions 2003 2003 $583.5 $583.5 18% 18% 18% 18% 64% 64% 2004 2004 $519.9 $519.9 29% 29% 55% 55% 16% 16% 2005 P 2005 P $608.5 $608.5 13% 13% 22% 22% 65% 65% '---.......:...... .......... ...:...-.1 * Includes Low / No Doc. And Sim. Seconds. * Includes Low / No Doc. And Sim. Seconds. ** Does not include PO & 10 loans. ** Does not include PO & 10 loans. 3 3 CONFIDENTIAL FCIC-178507

~ ~ FR Restricted FR Restricted ... ... But will still represent a low to moderate percentage of But will still represent a low to moderate percentage of balance sheet balance sheet holdings. holdings. NTMs, on average, represent less than 5 percent of the total assets and NTMs, on average, represent less than 5 percent of the total assets and about a quarter of about a quarter of the total mortgages held by the peer group. the total mortgages held by the peer group. Countrywide and Wells are exceptions due to their residential market Countrywide and Wells are exceptions due to their residential market focus. focus. NTMs as a Percentage of Balance Sheet Residential Mortgages NTMs as a Percentage of Balance Sheet Residential Mortgages as of June 30, 2005 ($ billions) as of June 30, 2005 ($ billions) (1) (1) (2) (2) (3) (3) (5) (5) (4) (4) NTM I Total NTM I Total NTM I Total NTM I Total l'I'TM I Tier 1 l'I'TM I Tier 1 NTM Products NTM Products Mortgages Mortgages Assets Assets +ALLL +ALLL BAC BAC $ $ 5.1 5.1 2.8% 2.8% 0.4% 0.4% 6.6% 6.6% Citi Citi 29.5 29.5 20.1% 20.1% 1.9% 1.9% 33.7% 33.7% Countrywide Countrywide 36.6 36.6 53.7% 53.7% 23.1% 23.1% 313.8% 313.8% National City National City 10.8 10.8 26.3% 26.3% 7.5% 7.5% 97.4% 97.4% Wells Fargo Wells Fargo 69.8 69.8 50.7% 50.7% 16.0% 16.0% 202.9% 202.9% WAMU WAMU 17.0% 17.0% IW.2% IW.2% 30.2 30.2 Total Total $ $ 182.6 182.6 24.2% 24.2% 4.7% 4.7% 73.1% 73.1% Source: Mortgage Lending Survey and Y9 reporting. Source: Mortgage Lending Survey and Y9 reporting. 4 4 CONFIDENTIAL FCIC-178508

FR Restricted FR Restricted • Slowly deteriorating quality of loans due to loosening underwriting • Slowly deteriorating quality of loans due to loosening underwriting standards (LTVs, CLTVs, and DTls) as observed in the study. FICO standards (LTVs, CLTVs, and DTls) as observed in the study. FICO scores have remained stable. scores have remained stable. Option ARM & 10 Underwriting Trends Option ARM & 10 Underwriting Trends 2003 2003 2004 2004 2005 2005 Wtd. Avg. LTV Wtd. Avg. LTV 67.4% 67.4% 69.0% 69.0% 70.6% 70.6% Wtd. Avg. CLTV Wtd. Avg. CLTV 73.1% 73.1% 76.7% 76.7% 77.4% 77.4% Wtd. Avg. DTI Wtd. Avg. DTI 32.80/0 32.80/0 34.9% 34.9% 36.2% 36.2% Wtd. Avg. FICO Wtd. Avg. FICO 721.6 721.6 721.2 721.2 723.3 723.3 Source: Residential Mortgage Lending Survey Source: Residential Mortgage Lending Survey • F • F or option ARMs and IIOs, banks generally qualify borrowers at the higher of the or option ARMs and IIOs, banks generally qualify borrowers at the higher of the fully indexed rate or an internal target rate in conjunction with minimum LTV and fully indexed rate or an internal target rate in conjunction with minimum LTV and FICO scores. FICO scores. . .. • ,< " • Qualification of • Qualification of IO borrowers is based on the IO payment, not a fully amortizing IO borrowers is based on the IO payment, not a fully amortizing payment, however, other mitigating factors appear to be considered (i.e. lower payment, however, other mitigating factors appear to be considered (i.e. lower LTVs, higher FICOs). LTVs, higher FICOs). 5 5 CONFIDENTIAL FCIC-178509

FR Restricted FR Restricted • • Significantly Increasing rate of Significantly Increasing rate of 2005 PayOption Origination Trends: 2005 PayOption Origination Trends: Negative Amortizing loans Negative Amortizing loans Loans w. Neg. Amortizations and Loans w. Current Balance> Original Loans w. Neg. Amortizations and Loans w. Current Balance> Original Bal. Bal. 45% Option ARM borrowers incurring Option ARM borrowers incurring 45% ---- ------------------------ ------ Ii!INeg. Am, Ii!INeg. Am, fJ CUlT, > Orig. fJ CUlT, > Orig. negative amortization increased negative amortization increased 40% 40% significantly, approaching 40 significantly, approaching 40 percent in 2005 vs. less than 5 percent in 2005 vs. less than 5 35% 35% percent in 2003. percent in 2003. 30% 30% '" '" I-< I-< <l.) <l.) g g 25% 25% • • Loans with current principal Loans with current principal c c !Xl !Xl 20% balance greater than original balance greater than original 20% ""' ""' c c '$ '$ principal balance also increased principal balance also increased 15% 15% significantly since 2003 significantly since 2003 10% 10% 5% 5% Note: Note: 0% 0% 0/ the peer group, only Countrwide and W AMU 0/ the peer group, only Countrwide and W AMU have have Countrwide Countrwide WAMU WAMU originated option ARMs since 2003. BAC and originated option ARMs since 2003. BAC and National City began originating Option ARMS in the National City began originating Option ARMS in the Source: Residential Mortgage Lending Survey Source: Residential Mortgage Lending Survey second halfo/200S second halfo/200S Borrowers that have utilized the minimum payment at Borrowers that have utilized the minimum payment at least once are included in the number a/borrowers least once are included in the number a/borrowers incurring negative amortization incurring negative amortization 6 6 CONFIDENTIAL FCIC-178510