MIS 3090:MIS 3090:IT for Financial ServicesIT for Financial Services

Real Estate and IT

April 21, 2023

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Fannie MaeFannie Mae

Originally the Federal National Mortgage Association, founded by Congress in 1938

– part of FDR’s New Deal initiative Buy mortgage loans from banks and other

institutions and package them into mortgage-backed securities which they sell to investors

They independently provide mortgages to people with bad credit or mortgage with unusual criteria such as zero down payment or interest only loans

Traded on NYSE (Ticker: FNM)

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Freddie MacFreddie Mac

Federal Home Loan Mortgage Corporation Competes with Fannie Mae Also buys mortgages in the secondary market They also provide mortgages to people with

bad credit Traded on NYSE (Ticker: FRE)

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Industry BackgroundIndustry BackgroundReal Estate Industry GDP, 1991 and 2001 *

Note*: The real estate industry includes all economic activity of owners, lessors, lessees, buyers, sellers, agents, and developers of real estate. Companies engaged primarily in the construction of buildings for sale (operative builders) are classified under the construction industry.

Source: Bureau of Economic Analysis, U.S. Commerce Department

$689.1

$1,171.7

$0.0

$600.0

$1,200.0

1991 2001

Trillion

GDP, 1991 and 2001 Contribution to Total GDP

11.5% 11.6%

0.0%

7.0%

14.0%

1991 2001

PercentOf Total

+70%

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New Home SalesNew Home Sales

New Home Unit Sales, 1968 to 2002*

Source: U.S. Bureau of the Census, 2003

Thousands

Annual Change,1997 – 2002: 4.6%

0

600

1,200

68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 '02

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Existing Home SalesExisting Home Sales

Existing Home Unit Sales, 1968 to 2002*

Source: National Association of Realtors, 2003

Thousands

Annual Change,1997 – 2002: 4.7%

0

3,000

6,000

68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 '02

Approx 4 times the rate of new homes

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Declining Mortgage RatesDeclining Mortgage Rates

Source: Freddie Mac, 2003

Mortgage Rates, 1984 to 2003

2%

9%

16%

30-Year FRM

1-Year ARM

84 029286 88 90 94 96 98 00 03

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Supply of HomesSupply of Homes

Increased housing demand kept unsold home inventory at historically low levels.

Source: National Association of Realtors; U.S. Bureau of Census, 2003

Month’s Supply of Existing and New Homes, 1991 to 2001

3

6

9

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Existing Homes

New Homes

4.6

4.1

8.9

8.1

MonthsSupply

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Looking Forward …Looking Forward …

Future housing demand will also be influenced by the increased use of mortgage debt which was expected to continue to rise through 2010.

Source: Federal Reserve Board, 2003

Single Family Debt-to-Value Ratios, 1952 to 2010e

10%

35%

60%

2010e1952 2000199019801960 1970

MortgageHome Value

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U.S. ImmigrationU.S. Immigration

Source: Bureau of Citizenship and Immigration Services

Immigration to the U.S., 1950s – 1990s

2.53.3

4.4

7.3

9.3

0.0

5.0

10.0

1950-1960 1960-1970 1970-1980 1980-1990 1990-2000

Million

Immigration into the United States, which continued to grow, will have a significant impact on home ownership rates in the years to come ...

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Growth in Online UseGrowth in Online Use

Use of the Internet as an information source in buying a home increased significantly.

Source: “2001 Realtors & The Web,” National Association of Realtors; 2003 National Association of Realtors Profile of Home Buyers and Seller; Harris Interactive; Kannon Analysis

Penetration of Online Search in Home Purchases, 1995 - 2003 *

2%

41%

65%

0%

40%

80%

1995 2001 2003

Percentof Total

PC Users PC Users Online

50%

73% 75%

9%

69%64%

0%

50%

100%

1995 2001 2003

Homebuyers Searching OnlinePercentof Total

PC & Internet Penetration, U.S. Adults (18+)

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Sources of InformationSources of Information

Note(1): Only of those homebuyers who used each source.Note(2): Agents are licensed sales workers who provide their services to a real estate broker on a contractual basis. Brokers, on the other hand, are

licensed business people who sell real estate owned by others. Brokers manage their own brokerage company, advertise properties, and handle other matters related to the business. Brokers manage and supervise agents. The term Realtor is a registered collective membership mark that identifies a real estate professional who is a member of the National Association of Realtors.

Source: 2003 National Association of Realtors Profile of Home Buyers and Sellers

Usefulness of Information Sources, 2003 (1)

(Top Box Response = Very Useful)

9%

15%

23%

30%

40%

45%

48%

57%

71%

0% 50% 100%

Television

Relocation Company

Home Book or Magazine

Newspaper Ad

Builder

Open House

Yard Sign

Internet

Real Estate Agent

Percent ofRespondents

(2)

Where do homebuyers find their information?

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Information Sought Information Sought OnlineOnline

When going online, the majority of home buyers searched primarily for information on properties for sale.

Source: 2003 National Association of Realtors Profile of Home Buyers and Seller

Type of Information Sought Online, 2003

93%

22%

6% 4%

0%

50%

100%

Properties ForSale

InformationAbout An Area

Real EstateCompany

Real EstateAgent

Percent ofRespondents

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Value of Online Features Value of Online Features

Features valued most highly by home buyers searching online were photos and detailed property information.

Source: 2003 National Association of Realtors Profile of Home Buyers and Seller

Value of Online Features, 2003

26%

32%

40%

47%

77%

78%

0% 50% 100%

Ral Estate Agent Contact

Neighborhood Information

Interactive Maps

Virtual Tours

Detailed Property Information

Photos

Percent ofRespondents

Enter Google Maps…

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Jay Burnham

123 Main Street

Coldwell Banker Coldwell Banker (Example)(Example)

Multiple Photos

Finance Tools

Easy ways to contact mefor more information

Extensive Details

Save to your profile

Coldwell BankerResidential Brokerage54 Dodge StreetBeverly, MA 01915

Call me direct: (978) 233-2828

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Websites UsedWebsites Used

Source: 2003 National Association of Realtors Profile of Home Buyers and Sellers

Websites Used As Information Source, 2003

9%

3%

5%

9%

19%

29%

38%

39%

53%

0% 30% 60%

Other Websites

MSN House & Home

Real Estate Magazine Website

HomeSeekers.com

Local Newspaper Website

Real Estate Agent Website

Real Estate Brokerage Website

Multiple Listing Service

Realtor.com

Percent ofRespondents

www.bostoncondos.com

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Key Online Competitors …Key Online Competitors …

Top Real Estate and Rental Sites, March 2003

Source: Nielsen/Net Ratings, 2003

Time Spent On Site

32 minutes

7 minutes

5 minutes

8 minutes

22 minutes

5 minutes

14 minutes

9 minutes

14 minutes

9 minutes

Unique Audience

4,583,000

3,611,000

1,175,000

1,091,000

979,000

767,000

730,000

688,000

567,000

469,000

Brand/Channel

Realtor.com

Homestore.com

HomeGain.com

Yahoo! Real Estate

Century 21

RE/MAX

Coldwell Banker

Apartments.com

Rent.com

ZipRealty

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Business Model Business Model (Homegain)(Homegain)

HomeGain charged Realtors $29.95 month to subscribe to the site. Members receive an average of 30 real-time buyer and seller leads per month.

Leads include such information as address of home for sale, number of bedrooms and bathrooms, approximate total square footage, property type (for example, single family detached), and desired selling price.

Realtors also pay a referral fee to HomeGain if the lead results in a closing. The referral fee is 25% of the gross commission.

Note*: Assumes two sides to the transaction and a total commission rate of 6%. Realtor’s commission is before any broker’s split of the commission, if applicable.

Source: Company articles and web site, 2003

Example of Referral Fee *For example, Realtor receives 3% gross commission on a

$150,000 sale Realtor’s gross commission ($150,000 x 3%) $4,500 Referral Fee to HomeGain ($4,500 x 25%) $1,125 Realtor's commission ($4,500 - $1,125) $3,375

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Real Estate Broker Real Estate Broker CommissionsCommissions

The Bureau of Economic Analysis estimated that real estate commissions reached over $67 billion in 2002. The average commission charged on home transactions dropped to 5.12% in 2002 from 5.48% in 2001

Estimate of Real Estate Sales Commissions, 1997 to 2002e*

Note*: Assumes a constant commission rate of 6%.Source: U.S. Bureau of Economic Analysis Estimates, 2003

$41.5$48.8

$53.9 $56.2$60.0

$67.3

$0.0

$40.0

$80.0

1997 1998 1999 2000 2001 2002e

In BillionsAnnual Change = 10%

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Disintermediation Disintermediation PotentialPotential

The potential disintermediation of newspapers is foreshadowed by brokers’ investments to build their presence online.

Internet Presence of Real Estate Brokers, 2000 and 2002

82%

87%

80%

85%

90%

2000 2002

Percent Of Brokers

Source: The 2001 National Association of Realtors Member Profile; The 2003 National Association of Realtors Member Profile

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Website ActivityWebsite Activity

52% of brokers with websites reported getting at least eleven online inquiries in 2002, but. 70% of then said that no more than 10% of their total business came from their websites.

Website Activity of Real Estate Brokers, 2002

13%

35%

25% 27%

0%

20%

40%

None 10 orLess

11-30 30+

Percent Of Brokers

Source: The 2003 National Association of Realtors Member Profile

Brokers by Website Inquires

Number ofInquiries

32%39%

16%12%

0%

25%

50%

None 10% orLess

11% -25%

26%+

Percent Of Brokers

Percent of Business From Website

Percent of BusinessGenerated by Website

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For Sale by OwnerFor Sale by Owner

The primary reason cited by sellers for selling direct or FSBO was their desire not to pay agents’ commissions, though a large number also knew their buyer directly.

Source: 2003 National Association of Realtors Profile of Home Buyers and Sellers

Most Important Reason For Selling Home As FSBO, 2003

FSBO14%

Real EstateAgent83%

Home-buying

Company1%

Other2%

Method Used to Sell HomeReasons for FSBO

3%

4%

4%

8%

10%

25%

46%

0% 25% 50%

Other

Seller has own license

Agent was unable to sell home

Did not want to deal with agent

Buyer contacted seller directly

Sold to relative, friend, or neighbor

Did not want to pay commission

Percent ofRespondents

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For Next Class…For Next Class… Guest speaker, Mr. Rick Burke from Commerce Bank Read

− Internet Customer Acquisition Strategy at Bankinter− Case questions will be posted shortly

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QUESTIONS?QUESTIONS?

???

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THANKS!!THANKS!!

GO CATS!!