One Lenders Perspective!

Sub-Prime MortgageMarket

HSBC Finance

Formerly Household Finance Corp. Acquired by HSBC in 2003 6 Business Line Auto, Wholesale, Retail Branches, Private

Label, Mastercard, and Mortgage Brokerage

Deal with brokers in wholesale and retail network

Lender responsibility ???

What responsibility does a lender have to its stakeholders when balancing price, risk and customer needs when creating products and competing in the Alt A., Non-prime and Sub-prime markets?

Extended Amortization's??? With the introduction of extended

amortization's in the Canadian market what are the customer behavioral implications for lenders? And how do you manage the risk of these changes in your product offerings?

Are these risks any different for the non-prime market than mainstream?

Mortgage Market

$650B mortgages outstanding $150B originated annually 35% originated through mortgage brokers 12000 to 14000 Brokers in Canada Sub-prime market estimated @ 10% Sub-prime is currently under-served

Sub-prime Mortgage Market

Fast growing mortgage segment in Canada Higher risk and higher returns Serviced primarily through the broker

channel New entrants are creating products that

challenge traditional models (Finance) Sub-Prime? Alt-A? Non-Prime?

Market Segmentation

Super prime - great credit & high net worth Prime - V. Good credit & building assets Alt. A - V Good credit but does not meet

traditional bank guidelines Non-Prime - bruised credit, low asset base, high

LTV’s Sub-prime - bad credit with equity and low

LTV’s

Competitors

Alt. A - Maple Trust, First National, Bridgewater Financial

Non-Prime - HSBC Finance, XCEED, Wells, GE Money, Accredited

Sub-prime - Home Trust, Equitable Trust, AGF Trust

Market and Product Developments

Securitization in non prime space Self insurance - non regulated No/Low documentation approvals 1 day discharge bankrupt lending Extended amortization's (all spectrums) New to Canada products Market appreciation and loan losses

Mortgage Fraud

Definition of Mortgage FraudAny material misstatement, misrepresentation or omission relied upon by a lender or

insurer to underwrite, approve, fund or insure a mortgage loan.

CIMBLOrigination Standards for Fraud Avoidance

Mortgage fraud occurs when an individual intentionally provides inaccurate, fraudulent or incomplete information to a lender in order to secure a mortgage that they might not otherwise be granted. This could include anything from an individual claiming to have a higher income than they actually have to providing falsified proof of identification or a falsified appraisal of the property.

Title fraud occurs when a fraudster assumes the identity of an individual homeowner and then uses that false identity to pose as the homeowner. They could then assume the title on the home, sell the property or obtain a mortgage on that property or other properties in the homeowner’s name.

CBACanadians Bankers Association

Mortgage Fraud - why?

Fraud Prevention

Watchful employee’s Process for prevention

AVM’s - Automated values PURVIEW - values and title information REDX - non-public database to subscribers

Collections

Balance is a must Underwriting is key Underwriting strategy for “B” customer Contact strategy is critical Won’t/Can’t pay - not “A” options In collections longer - loss control Not for the faint of heart

Risk in the wholesale channel?

Balancing: Risk and Return Managing: Competition, Risk, and Return Building: Product Innovation in new

markets, understanding the risk and achieving acceptable returns

Recognizing: Your market space and competing vigorously

Lender responsibility ???

What responsibility does a lender have to its stakeholders when balancing price, risk and customer needs when creating products and competing in the Alt A., Non-prime and Sub-prime markets?

Extended Amortization's??? With the introduction of extended

amortization's in the Canadian market what are the customer behavioral implications for lenders? And how do you manage the risk of these changes in your product offerings?

Are these risks any different for the non-prime market than mainstream?