Industry and Regulatory Landscape September 2013 Pete Mills – SVP Residential Policy MBA Mike Fratantoni – MISMO President, VP Single Family Research MBA Moderator - Rick Hill – AVP Industry Technology MBA Presented by David H. Stevens President, Mortgage Bankers Association

Outlook for 2013 and 2014 Source: MBA August 2013 Forecast

Rate Forecast Source: MBA August 2013 Forecast

Estimated Originations 1990 to 2014: SF Market Source: MBA – August 2013 Mortgage Finance Forecast

Net Production Income (basis points) Source: MBA’s Quarterly Mortgage Bankers Performance Report Orig Vol ($M)

2013: The Year of Implementation  Final DFA Mortgage Rules Issued in 2014: Ability to Repay/Qualified Mortgage HOEPA/High Cost Mortgage Loans Loan Officer Compensation Rule National Servicing Standards (2 Rules: RESPA & TILA) Escrow Rule ECOA Appraisal Disclosure Rule Appraisals for High Risk Mortgages Rule  Pages of FINAL Rules… plus proposed rules, small entity compliance guides, Official and unofficial guidance, …but still many uncertainties

…and there is more to come  Risk Retention/QRM Just re-proposed (505 pages)  RESPA-TILA Integrated Disclosures Expected late 2013, with implementation by ???  HMDA Amendments Expected late 2013…significant expansion, implementation by ???  Anti-Steering Rules  Ongoing GSE Strategic Alignment and FHA Program Changes  State laws (e.g., CAHBOR)  And more? CFPB has authority to issue rules to address “risks to consumers” it identifies without waiting for Congress to act.

Implementation Challenges  The systems, programming and training challenges are unprecedented…  …and so are the risks of getting it wrong – legal, regulatory and reputational  Implementation time frame remains incredibly compressed  Will lenders, servicers and vendors be ready? CFPB says supervision and enforcement will be “measured”… But what about the AGs? The plaintiffs bar?

Impact: the Known and the Unknown  Biggest Known Impacts QM/QRM: Define the Credit Box in near-term, possibly the long-term  Fed Data: 20% + of purchase mortgages > 43% DTI  Fees and Points Cap: Small Loan impact  Implications for LMI, Minority Borrowers National Servicing Standards:  Sharply higher costs of servicing, esp. for small servicers  Reconsolidation of Market LO Comp Rule:  Combined with QM: Further Impairs on Broker Channel? Rise of Mini Corr Uncertainty: Industry remains cautious, risk taking remains constrained  Fed 2012 HMDA Report on current credit conditions: “…almost no risk-taking in the [conventional] mortgage market in the aftermath of the financial crisis.”  Biggest Unknowns QM: Availability and Cost of Non-Safe Harbor Lending, Non QMs Implementation: Can we do it? Enforcement? CFPB, AGs and Plaintiffs Bar

Cumulative Impact of Regulation Risks to Recovery QRM Rule Making & Compliance Disparate Impact LO Comp FHA False Claims & Enforcement Lo Licensing The Fed & QE Basel III GSE Reform Debate QM Eminent Domain Points & Fees

Cumulative Impact on Industry/Consumer  Community Based Lenders Community banks, Independent Mortgage Banks (IMBs): Too small to survive? Will Costs become prohibitive? (especially on a per unit basis) Re-aggregation of Market? (especially with respect to servicing) Implications for competitiveness, ability of market to expand/contract…  Large Lenders Higher costs: impact on relative returns on mortgage vs. other business lines Reputational risks of mortgage lending and servicing?  Consumers Uncertainty = Tightened “Credit Box” in Near Term Reduced Competition if lenders leave or reduce their mortgage lending Constrained Product Innovation Fewer Choices Cost of Credit will rise, but by how much?

Contact Information & MBA Resources Rick Hill Associate Vice President, Industry Technology (202) MBA Homepage: MBA Research Page: Research Institute for Housing America: MISMO:

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