“Banks need to support both existing and potential customers and that experience should be both pleasant and efficient,” said Kim Dziedzec, user experience strategist at Chicago-based Vox Inc. “Customers do appreciate and notice up-to-date look and feel of websites and banks should make an effort to keep them current. The homepage is where customers make judgment on the overall site and are there to conduct business and have their questions answered. What banks should do is draw them in with potential offers and cross-sell while being careful not to overwhelm.”

Vox’s Banking Mind Model Study, which analyzed customer experiences on consumer banking industry websites in the fourth quarter of last year, revealed that more than two-thirds of the average bank home page is devoted to products and special offers. Increasingly, banks have dropped unessential elements to focus instead on pushing other products, especially credit cards. Many of the banks in the study have mortgage arms, but considering current market conditions, such products and services are not currently in the spotlight.

“Credit cards and CDs are on products and services lists more than mortgages—there is bigger profit margin on these products, especially credit cards,” Dziedzec said. “Financial institutions support one-stop shopping for customers’ needs—those sometimes also include insurance. Even if mortgages aren’t being pushed at the moment, they are still part of the cross-selling strategy and most customers will consider their own bank when looking for a mortgage. The affinity evolves out of the trust and relationship established with the bank. But right now, banks are pulling back on pushing mortgages and are looking for better risk—but they will switch back when the market turns around.”

The number of customers banking online is increasing steadily, though the rate of growth has slowed in recent years. In 2007, New York-based eMarketer predicted that that 80 million—43 percent of the U.S. adult population—would bank online in 2008—an increase of 9.5 percent over 2006. A bank’s online customer portal is critical in serving customers and retaining them while also attracting new business.

Ninety-one percent of online customers who have a bad experience on a self-service web site will not return and on average, a bank that spends 10 percent on of their project budget on usability experiences an increase of 100 percent in sales conversion rate, 150 percent increase in site traffic and a 200 percent increase in the use of site features.

The study analyzed page elements and layouts of banking industry web sites to gauge customer experiences and also the bank’s focus and strategy on the customer. Improvements in web sites were found in aspects such as allowing customers control over text and image size—a result of variation in internet browsers. Enhanced search functions on web sites also improved over previous studies, including  detecting common misspellings. Other trends were the phasing out of institutional images—such as stock photos of customers—that were replaced by product promotions.

Banks are also pushing to create and improve experiences for those who bank from the palm of their hand—mobile banking. By 2010, 35 percent of online banking households are expected to use mobile banking. As accessibility rises, issues of security also increase. On average, banks allocated 4.1 percent of their homepage to security and most sites place security information adjacent to customer access. Chase Bank, New York, and Atlanta-based SunTrust devote more than 5 percent to security while Citibank, New York, HSBC, Wilmington, Del., Washington Mutual, Seattle, and National City, Cleveland, devote less than 1 percent.

“There is a definite increase in security and from the customers’ perspective, they are getting more comfortable,” Dziedzec said. “Customers are less worried about the security of banking online than last year. As of 2007, only 14 percent of offline-only users attributed their avoidance of online banking to security concerns. In 2006, this figure was 53 percent —a difference of 39 percent in just one year. This could only be explained by word-of-mouth factor. If customers see that friends and relatives are banking online, then they are more than likely to believe that it is a safe thing to do. Additionally, banks are offering more security layers such as putting user names and passwords on different pages—it’s definitely a word-of-mouth reason.”

Citibank, Bank of America, both of Charlotte, N.C., and Wells Fargo, San Francisco, ranked highest in the usability analysis. They excelled in more than one category but didn’t excel in all, leaving room for improvement to enhance customer experiences. In terms of catering to non-English speaking customers, many bank sites fail to offer Spanish-language versions—a gap that needs to be addressed as the Hispanic population grows nationally.

“Specific mortgage banking web sites could also focus efforts on creating cleaner, less overwhelming websites while also adding human touch,” Dziedzec said. “While having efficiency and power, customers who aren’t used to doing things online may also start. Increasingly, there will be competition with the larger financial institutions and its best to offer a positive and personal online experience.”
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The Market Composite Index rose to 706.0, an increase of 32.2 percent on a seasonally adjusted basis from 533.9 one week earlier, the week between the Christmas and New Year holidays. On an unadjusted basis, the Index increased 81.1 percent compared with the previous week and was up 8.7 percent compared with the same week one year earlier. The four-week moving average for the Market Index fell by 4.1 percent to 624.4 from 650.8. 

The seasonally adjusted Refinance Index increased 53.9 percent to 2494.2 from 1620.9 the previous week. The four-week moving average fell by 4.5 percent to 2031.0 from 2127.4. The refinance share of mortgage activity increased to 57.7 percent of total applications from 50.9 percent the previous week.

The seasonally adjusted Purchase Index increased 14.7 percent to 414.0 from 360.8 one week earlier. On an unadjusted basis, the Purchase Index increased 56.2 percent to 251.8 from 161.2 the previous week. The four-week moving average was down 3.5 percent to 397.9 from 412.4.

The seasonally adjusted Conventional Index increased 34.1 percent to 1015.3 from 757.4 the previous week; the seasonally adjusted Government Index increased 18.2 percent to 190.4 from 161.1 the previous week.
 
The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.73 percent from 6.05 percent, with points increasing to 1.10 from 1.05 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.21 percent from 5.61 percent, with points increasing to 1.18 from 1.02 (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year adjustable-rate mortgages increased to 6.04 percent from 6.00 percent, with points decreasing to 0.99 from 1.00 (including the origination fee) for 80 percent LTV loans. The ARM share of activity decreased to 9.3 percent from 9.8 percent of total applications from the previous week.

The survey covers 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
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HUD noted that the “market has changed significantly” since the original FY 2008 budget proposal was made. Additionally, the Mortgage Bankers Association produced “solid evidence” that the programs affected were providing affordable housing, prompting HUD to determine that an MIP increase at this time was “not appropriate.”

“Thanks go to those MBA members who participated in lobbying Congress and the Administration on this issue as well as to those who submitted data for MBA’s survey,” said Cheryl Malloy, MBA’s senior vice president of multifamily and governance. “There was no indication provided as to whether the Administration’s FY 2009 budget proposal will contain an MIP increase. However, we are hopeful that FHA modernization legislation prohibiting an unwarranted increase will become law prior to October 1.”
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FHA Fundamentals
MBA Headquarters, January 10
http://www.campusmba.org/products/default.aspx?product_code=E2801618/REGIS

This new CampusMBA course is designed for anyone who is new to FHA lending and those who need to refresh their knowledge of FHA guidelines. With the improvements made to FHA lending over the past two years, this workshop covers latest developments and keeps you abreast of recent procedures and regulations to FHA loans.

FHA Underwriting & Operations
MBA Headquarters, January 11
http://www.campusmba.org/products/default.aspx?product_code=E2801620/REGIS

This course is designed specifically for processors, underwriters and quality control staff responsible for the details within the FHA loan process. It takes an extensive look into the processing and underwriting requirements of FHA lending guidelines and compliance. Learn developments with the back end of the lending process, closing and quality control.

Who Should Attend:
• Underwriters
• Processors
• Loan originators
• Production managers
• Loan sales teams

Registration Information:
Register for BOTH FHA Fundamentals and FHA Underwriting & Operations and save. To take advantage of this special bundle offer, register by phone at (800) 348-8653.

Registration after December 7 (For individual courses): MBA Members $199/Non-members $299.

Registration after December 7 (Bundle price): MBA Members $299/Non-members $399.

To qualify for the member rate, you must work for a company that is a member of the Mortgage Bankers Association

To register online, click the links above; you can also call (800) 348-8653 or download the registration form at www.campusmba.org/files/ClassroomProgramRegistrationForm.pdf and fax it to (202) 721-0166.
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As rapid changes in the mortgage industry create difficult setbacks and hidden opportunities for investors, this conference focuses on creative and forward-looking ways for you and your company to meet the challenges of today's marketplace and come out ahead.

Join industry leaders and your peers to exchange ideas and strategies on topics such as:

• A perceived credit crunch
• Tighter credit standards
• Lack of liquidity in the private label MBS market
• GSE portfolio caps
• GSE reform

Register before April 14, 2008 to save on your registration fee. Make your hotel reservations at the Sheraton Boston before April 8, 2008. Room rates are $238/night and up. Register today: call (800) 793-6222 or visit the conference Web site for more information: http://events.mortgagebankers.org/secondary2008/default.html.
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The letter, written in response to specific questions raised by FASB as a result of earlier MBA correspondence, recommended that lenders be allowed to measure impairments of modified residential mortgage loans that they hold for investment under FAS 5, Accounting for Contingencies, instead of FAS 114, Accounting by Creditors for Impairment of a Loan. MBA said that measuring impairments of such loans under FAS 114 would be operationally difficult for lenders that presently do not have the systems capability to project cash flows on modified loans as required under that accounting standard.

“MBA's involvement with this issue is important to note because it provides further evidence of our members' commitment to making loan modifications,” said Alison Utermohlen, MBA’s senior director of government affairs and author of the letter. “By contacting the FASB, MBA is demonstrating our sincere interest in moving forward by removing all impediments to these modifications.”

The letter makes the following points:

• MBA said potentially “tens, and perhaps hundreds of thousands of residential mortgage loans that are held for investment could be modified and therefore subject to the measurement guidance in FAS 114 initially and on an ongoing basis in the future. Consequently, MBA believes this issue is relevant to all companies that hold such loans for investment whose terms may be changed in the future to make them more affordable to borrowers. MBA also believes that the challenge of applying the guidance in FAS 114 would be comparable among large and small companies given their relative loan portfolios and systems capabilities.”

• FAS 114 contains a scope exception for smaller-balance homgenous loans that are collectively evaluated for impairment. However, once a loan has been mofdified and is deemed a “troubled debt restructuring” under the accounting literature, it becomes subject to the measurement guidance in that statement. MBA said that had the mortgage industry and FASB known during the drafting of FAS 114 that thousands of residential mortgage loans could be modified in the same reporting periods that the scope exception in FAS 114 would have been written more broadly to include loans that are modified, as well as those that are unmodified.

• Once a loan is subject to FAS 114, it must be measured for impairment by discounting the projected cash flows to be received at the original contractual interest rate. As a practical expedient, the loan may be valued based on 1) the value of the underlying collateral costs to sell or 2) quoted market prices for the loan.

• FAS 5 would capture the pure credit loss attributable to not receiving the carrying value of a loan based on an evaluation by the lender as of the reporting date of the probability that some amount of that value will not be recovered. This amount would likely differ from the loss amounts that would be produced under any of the three valuation approaches provided for under FAS 114 because they take into account factors beyond the probability of recovery of an asset’s current carrying value.

• MBA said many lenders simply do not have the systems capability to measure impairments of modified smaller-balance residential mortgage loans using a discounted cash flow approach. “Such an approach would involve considerations of the impact of changes to specific loan terms on probable future prepayments and defaults for the purpose of projecting future cash flows,” MBA said. “For example, lenders' systems would have to consider and quantify for valuation purposes a variety of possible changes to borrowers' loan terms, including changes to the cash flows resulting from a modification where a borrower's initial interest rate is extended for a period of time as opposed to a modification where a borrower's principal and interest payments in arrears are forgiven.”

• Even if impairment for thousands of loans could be calculated “off-line,” the measured impairment would have to be manually fed into the loan accounting system and accounted for separately for subsequent accounting purposes, including accretion of the valuation allowance due to the passage of time. This would be extremely time-consuming and would likely involve additional staff dedicated to this purpose.

• FAS 114 would require companies to calculate best estimates on a loan-by-loan basis if the loans are modified differently and therefore not evaluated as part of a pool. Accordingly, the loan-by-loan systems limitations exist at institutions both large and small, and regardless of whether they securitize or not.

• FAS 114 would be “onerous” to apply because of the requirement that future cash flows be estimated at every reporting period for the remaining life of a loan, or pool of loans. “Moreover, loans that could not be grouped together (for reasons relating to the nature of a particular modification) would still have to be evaluated separately,” MBA said. “Thus, lenders would still be burdened with projecting cash flows for some individual loans, as well—potentially—as some large pools of loans. The burden of complying with FAS 114 going forward would, therefore, still be great for most lenders.”

• MBA members said they have the means to estimate losses on loans that may be modified in the future under FAS 5, which likely will include comparing historical default rates on pre-existing and existing loans with terms and borrowers that are comparable to the newly modified loans.

• MBA members said the requirement under FAS 114 to obtain appraisals of thousands of single family homes, or quoted market prices for modified smaller-balance loans, initially and on an ongoing basis as an alternative to measuring impairments under FAS 114 using discounted cash flow analyses would be too costly. “It would also be difficult to obtain the information on a timely basis and, once obtained, it could be subject to challenge, particularly in the case of quoted market prices which can vary widely depending upon the sources of bids,” MBA said. “The requirement to obtain appraisals or quoted market prices initially and at the end of every period for which financial data is reported would likely involve the hiring of additional staff for this purpose alone.”

• A FAS 5 measurement would capture the extent to which the carrying value of a loan would not be recovered which is a cost-based measurement, similar to the requirement to carry loans held for investment at cost under FAS 65. By contrast, a discounted cash flow approach under FAS 114 would capture the effect of not receiving interest that might have been received absent the modification despite the greater likelihood that the loan would have gone into foreclosure (i.e. resulting in a loss of any and all future interest), which is neither a cost-based nor a market-based measurement.

Additionally, MBA sent the letter to the Securities and Exchange Commission and the federal banking agencies.
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