FIRST HERITAGE FOOTNOTES A QUARTERLY NEWSLETTER FOR OUR PARTNERS

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1 FIRST HERITAGE FOOTNOTES A QUARTERLY NEWSLETTER FOR OUR PARTNERS VOLUME 1, ISSUE 1 MARCH 22, 2013 LETTER FROM THE CHAIRMAN The mortgage industry experienced a record year in 2012, and on behalf of the Board of Directors, I would like to thank you for your support. We continue to a dd new credit unions to our CUSO. As one of the premier mortgage producers in the country, First Heritage offers timely and unique mortgage solutions that have ensured its success over the past 12 years. Under the leadership of CEO John Giordano, we have made great strides in the mortgage arena. Given today's climate of rapid political and regulatory change, your mortgage provider s ability to meet compliance challenges is vital. As always, First Heritage remains vigilant and informed. We are also adopting new technologies that will enable our credit unions to view the status of loan applications, enhancing your ability to advise your members. In 2013, we look forward to expanding your mortgage program and increasing your credit union's bottom line. -Bru ce K. Foulke, Chairman CFPB ISSUES RULES FOR MORTGAGE INDUSTRY If you visit the Consumer Financial Protection Bureau website you will see that mortgage lending is center stage. This is a dynamic time for the mortgage industry. The CFPB has issued 7 final rules in January that impact mortgage lending based upon the 2010 Dodd-Frank Act. These rules amend Regulations B, X & Z. A majority of the rules will not be effective until January 2014; however the Escrow Requirements under the Truth in Lending Act rule (Reg Z) is effective June 1, This rule establishes that certain lenders have to collect monthly escrow payments from consumers for higher priced mortgage loans for at least the first five years that they have the mortgage. Prior to this amendment, lenders only had to maintain these escrow accounts for a minimum of one year. The escrow account is established to set aside funds to pay property taxes, premiums for homeowners insurance and other mortgage-related insurance. For more information regarding new rules please visit and select Regulations under the Law & Regulation tab at the top of the page. PARTNER SPOTLIIGHT CORRY FCU Stacey Heiser is the CEO of Corry FCU, a First Heritage Partner for just over one year. Stacey said prior to working with First Heritage her credit union used another mortgage services provider, however, she believed there were more opportunities to do mortgages for her membership than she was experiencing with that provider and began to look for another source. She chose to work with First Heritage and said our program has certainly increased the number of opportunities for Corry to provide mortgage financing for their members and as a result she plans to more aggressively promote first mortgages to her members in She also thought the First Heritage program was very easy to use and especially liked the flexibility we provide to work with members requiring special consideration. She really appreciated this out of the box thinking that allows Corry to offer these members first mortgage financing. When asked, Stacey said she believed the First Heritage Mortgage Partners Program has been successful and has given us a better opportunity to service our members.

2 HOUSING TO GIVE ECONOMY A BOOST IN 2013 by: John Giordano Are you prepared as a credit union to support the home financing needs of your members? Are you making the necessary commitment to your 1st mortgage program? Do credit unions, their Board of Directors and their staff realize the damaging impact that is identified when a member finances with another lending institution? After many years of home sales dragging along, it looks as if 2013 may show a strong rise in our members purchasing homes. While those members who can benefit from refinancing their homes will continue to do so throughout 2013, we feel that new home sales and existing home sales (increased from 2011 to 2012 by 9.2%) will finally start to contribute heavily to our nation s economic growth. Housing has traditionally lead the U.S. economy out of past recessions. With recent positive correspondence coming from economic and housing industry pundits, it appears that this maybe a similar recipe for the future. This growing confidence in a housing recovery, in addition to other factors, may reinforce growing consumer optimism regarding the improving direction of the general economy, Fannie Mae Chief Economist Doug Duncan said. Home purchases are especially important to the economy and to our Credit Unions because home buyers spend ancillary dollars on other items such as furnishings, appliances and landscaping. New home purchasing will identify additional Credit Union core product lending opportunities to the economy. As home purchasing increases, home values will also increase overall household wealth. WHY? Job Growth - As the job market strengthens (we have seen a decrease in the unemployment rate from 10% in 2010 down to a 7.8% to end 2012) it will help people finally move out of friends and relatives homes and into their own. We don t see unemployment dropping below 6% over the next three years, which will hold back explosive growth in housing. Homes For Sale - Inventory of homes for sale continues to fall, a good sign for the convergence of events taking place in Builders are not and have not been building enough new homes to replace obsolete ones. Builders and developers are now receiving funding and are ramping up activity. Existing Homes For Sale - Existing home selling has been a large segment of market problems. Many sellers have held themselves out of the marketplace because their properties have been underwater. Many of these seller s have been involved in modifications, short sales and foreclosures which have been a large part of the existing home sale issue. A good sign is that 23% of these (a 5% increase from July 2010) sellers believe it is a good time to sell. In addition, 51% of these homeowners stated that it would be easy for them to get a mortgage to buy a new home. The inventory shortage will cause home values to increase, rescuing many underwater home owners and thus bringing more existing homes to the market. 2

3 Foreclosures/Short Sales /Modifications - These all will remain the wild card. While activity is starting to build up again, in some states the process from start to finish for foreclosures are backlogged as long as three years. Short Sales continue to be increasing and hurt the residential value levels in many geographic locations. While these seem to be necessary in this housing environment, it definitely dampens the lenders position on future lending criteria. Modifications implemented by the GSE s over the last couple of years are a major topic of concern, if this bubble is not resolved, it will deeply add enormous stress and weigh to the future of our real estate and 1st mortgage lending industries. CFPB - The Consumer Financial Protection Bureau feels like it needs to make lending even safer for anyone looking to borrow funds. Hopefully, this should be done in a realistic environment. Once CFPB identifies and implements their final rules, lenders will be able to finally move forward. Low Interest Rates - Over the last two years mortgage interest rates have been under 4.00% and have driven consumers to refinance at an all time level. They have benefited (low rates identify lower monthly payments, which allow for more positive cash flow for consumers) themselves for their economic future. While interest rates have fluctuated recently, they are still very attractive. These factors are creating the basis for people to find value in buying a home for them and their families. But challenges remain for 2013, including repurchase risk involving older loans. Broadcasting this is the uncertainty of the government- sponsored enterprises (GSE s). We feel that rates will again, remain low in 2013 and if that occurs, it will be a flat growth year for the mortgage industry. The MBA is predicting a solid refinance market (over 80% of loan production) for the first six months of the year, but then a strong drop off for the second half. First time and new homebuyers are being projected to pick up the refinancing decline. This forecasted mix will be important for any type of growth mortgage industry growth potential in We agree that the industry in moving in a sustainable recovery, but we must realize the steepness of the slope we are climbing from a purchase prospective. Remember that in late 2011, the predictions that were made for 2012 were similar, but never came about. Keys to housing recovery lay with consumers who have been paralyzed by falling house prices and job insecurity and who may finally be in the mood to move up and purchase a new home. We cannot get ahead of ourselves, though recovery to a purchase market is inevitable, the growth may not be quick, but slow and steady. 3

4 originally published in: KEY NOTES JANUARY/FEBRUARY 2013 # 35 the super bowl of lending By: First Heritage Financial, LLC There are auto loans, signature loans, credit cards, and even home equity loans. But in your relationship with your members, the Super Bowl of lending is a first mortgage. And you need to be a player. In today s economic environment, there is no more important loan to your member and his family than a first mortgage, says John Giordano, CEO of First Heritage Financial, LLC, the mortgage service provider endorsed by the Pennsylvania Credit Union Association. If your credit union is standing on the sidelines while bankers and mortgage brokers are building relationships with your members, you are passing up a big opportunity. The opportunity to be their trusted advisor and the opportunity for income in a time when consumer loan margins are razor thin. 4 For the better part of the last 40 years, credit unions have been attracting members by offering higher interest rates on savings programs combined with lower rates on consumer lending products. However, we are now seeing a shift in consumers looking to credit unions when planning to purchase or refinance a home. So what s happening? While credit unions have had the ability to offer mortgage financing since 1977, many have steered clear of offering this valuable service. Despite the incredible opportunity to create life-long relationships with members, the mortgage finance market has not been a high priority in the overall lending strategy for some credit unions.

5 service solutions I think we are seeing a real reversal in the usual order that has been in place the last 30 years that I have been working with credit unions, said Robert Dorsa, president of the American Credit Union Mortgage Association in Las Vegas. Mortgages used to be farther down on members priority lists because, in part, credit unions only began to offer mortgage loans a short time ago, compared to banks. (Source: Credit Union Times, October 31, 2012, Gains in Housing Market Expand Gateway to Credit Unions) The Federal Reserve Bank is still trying to stimulate the economy by making loans less expensive for those looking to make major purchases, pushing the calendar date for the expected first long-term rate hike until mid And at the top of the consumers major purchase list a new home purchase or refinance decision. Today s consumers are increasingly looking beyond traditional mortgage providers, and turning to their local credit union for one of the largest purchases a consumer makes in their lifetime. Credit unions can help their members while avoiding the expense of an in-house mortgage department by partnering with a third-party mortgage service provider. Not all third-party mortgage service providers are the same. Align with a provider that is member focused and credit union driven. the entire suite of Fannie Mae programs, as well all the popular FHA/VA programs, and the Pennsylvania Housing Finance Agency s (PHFA) programs. First Heritage Financial is more than mortgage finance. Our mortgage service does not stop on the 20-yard line. First Heritage Financial services also include: Conducting seminars for your members o Help members understand the mortgage finance process Asset Liability Management for your credit union o Help you identify the first mortgages in your portfolio that might be able to be sold on the secondary market. o Sell those loans on your behalf allowing you to manage your interest rate risk to achieve ALM goals o Turn existing mortgage into cash so you can make more loans to your members. Service functions o Collecting payments and remitting your funds to you each month o Perform the collection duties on these first mortgages and if necessary go all the way to foreclosure The First Heritage Financial program works for credit unions of all sizes; from less than $1 million dollars in assets to more than a billion. Get off the bench and get But now consumers are discovering credit unions can meet their housing finance needs at about the same time they are discovering credit unions as the source of local and trusted financial services that they want. There is a real synergy there. -Robert Dorsa, President, American Credit Union Mortgage Association Get in the Game! Kick-off your first mortgage program with a call to First Heritage Financial, a mortgage service provider founded and owned by credit unions and serving credit unions exclusively. The program is flexible. Whether you need to provide funds for your members to refinance their existing mortgage or provide a mortgage for a member to build or buy their dream home, First Heritage has the solution. There are financing options for second and vacation homes. And investment properties, First Heritage Financial can help you help your members finance those as well (from one to four units). The First Heritage Financial Partner program provides access to more than 250 different mortgage programs including in the game to help your members with their 1st mortgage financing needs. kn If you have questions about the First Heritage Financial Partners program or general mortgage related questions, please call First Heritage Financial at