Tom Detelich’s Tactical Meeting, October 13, 2005

1. Action and WTD/TUD Code Streamlining Project Tom Detelich’s Tactical Meeting, October 13, 2005 For questions regarding this document, please contact: Stephen Hicks Compliance Prashant Goenka CL Six Sigma

2. D M A I C Action and WTD/TUD Code Streamlining Project Project Team • Champion: Stephen Hicks • Process Owner: Credit Risk • Black Belts:Prashant Goenka • Team Resources: • Scott Harris Branch Operations • Scott Weintroub Credit Risk • Janis Frenchak Compliance • Ghazala Mansuri Compliance • Cortney Rogers Compliance • Bruce Jones BQM • Edward Seidel HTS • Lucino Sotelo Marketing • Kevin Collier Marketing • Andy Budisch Legal (as needed) • Fernando Madrid Direct Emerging Markets • Elizabeth Hennessey L&D ...Improving the way we do business.

3. Action and WTD/TUD Code Streamlining Project D M A I C DAI/ DMAIC – Used “Quick Hit” Approach • Define – Problem Statement, Customer, Process Mapping • Measure – Why? (poll of Branch Ops, QAC), How? - Internal Audits, QAC Review, Regulatory Exams • Analysis – Data, Process, Root Cause, Identify Opportunities • Improve – Identify Solutions, Implement Solutions • Control - Monitoring

4. Action and WTD/TUD Code Streamlining Project D M A I C Define - Problem Statement • Internal Audits have disclosed randomness in selection of denial reasons, selection of TUD vs. WTD codes, and inappropriate use of TUD 999 • State Regulatory Examinations have disclosed inappropriate adverse action reasons, inaccurate selection of action code, and applications lacking appropriate disclosures • Analysis by Marketing and Credit Risk cannot be performed with confidence due to inaccurate selection and non-uniform definitions of WTD and TUD codes

5. Action and WTD/TUD Code Streamlining Project D M A I C Define - Business Case Why the change now? • Changes in regulatory oversight from State only to State and multiple Federal agencies • Increased scrutiny of HMDA data • Inclusion of HBIO entities in Bank’s CRA examination • Enhance conversion management initiative with more precise and accurate data • CVP – Customer is entitled to accurate information

6. Action and WTD/TUD Code Streamlining Project D M A I C Define - Business Case Risks? • Reputation • Increased regulatory scrutiny • Potential impact on ability to merge, acquire or apply for a charter • Inability to make informed business decisions • CVP – customer can’t correct credit problems if adverse action reasons aren’t accurate

7. Action and WTD/TUD Code Streamlining Project D M A I C Measure – Abbreviated Process • Internal Audit Findings (Top 5 Internal Audit Issue) • Data Collection related to usage of WTD/TUD Codes Key Insight : TUD 999 (14,192); WTD # (136,690) • Branch Calls • Multiple credible sources have identified issues • Samples sufficient to draw preliminary conclusions

8. Action and WTD/TUD Code Streamlining Project D M A I C Analyze – Action Code: Today’s Process Vision Categories Mapping Regulatory Categories Originated Originated WTD Denied (All except WTD “3”) Closed for Incompleteness (WTD “3”) TUD Approved, Not Accepted (All TUDs (except J and 999) with an “Approval Amount”) Withdrawn (All TUDs (except J and 999) without an “Approval Amount”) Voided (J and 999) – not recorded in HMDA, no adverse action notice, no RESPA’s if app’ed and TUD same day

9. Action and WTD/TUD Code Streamlining Project D M A I C Analyze - Root Causes for Improper Action Code Selection • Limited guidance in Policies and Procedures manuals • Action codes/descriptions are different from industry standards and regulatory guidelines • By choosing the TUD option, the customer won’t receive an adverse action letter • Consequences of improper use of TUD 999 and J have not been communicated Risks: Compliance with HMDA (Regulation C), ECOA (Regulation B), RESPA (HUD Regulation X), FCRA (Regulation V)

10. Action and WTD/TUD Code Streamlining Project D M A I C Analyze – Denial Code: Today’s Process Denial Code Usage – 1Q 2005 Note: Includes both secured and unsecured.

11. Action and WTD/TUD Code Streamlining Project D M A I C Analyze – Denial Code: Today’s Process • Only two flavors of action • Blue box allows user to input code directly, rather than choosing from pick list • Pick list only shows seven options at one time and reasons aren’t in any logical order

12. Action and WTD/TUD Code Streamlining Project D M A I C Analyze - Root Causes for Improper Denial Code (WTD) Selection • Takes too long to pick denial reasons • Denial reasons are vague – no clear definition • Pick-list only shows seven reasons at a time • Pick-list is not in logical order • Vision allows user to enter denial code rather than picking the full description • Denial codes can be entered directly into CII, circumventing controls in Vision • No procedures for choosing denial reasons

13. Action and WTD/TUD Code Streamlining Project D M A I C Analyze – Withdrawal Code: Today’s Process

14. Action and WTD/TUD Code Streamlining Project D M A I C Analyze – Withdrawal Code: Today’s Process • Only two flavors of action • Blue box allows user to input code directly, rather than choosing from pick list • Pick list only shows seven options at one time and aren’t in any logical order

15. Action and WTD/TUD Code Streamlining Project D M A I C Analyze - Root Causes for Improper Withdrawal (TUD) Code Selection • Codes are poorly defined • Consequences of improper use of TUD 999 and J have not been communicated

16. Action and WTD/TUD Code Streamlining Project D M A I C Improve – Process Improvement Strategy Proposed Strategy: • Short Term Solutions • Long Term Solutions • Next Steps

17. Action and WTD/TUD Code Streamlining Project D M A I C Improve - Strategy: Short Term Solutions • Enhanced policy • Enhanced procedures • Training & Communication • Definitions of existing denial reasons (WTD) • Definitions of existing withdrawal reasons (TUD)

18. Action and WTD/TUD Code Streamlining Project D M A I C Strategy: Long Term Solutions • Modifications to Vision “Action Taken” code screen expanding categories to conform to regulation • Denials (WTD): • Bucketing denial reasons • Present only top three Bureau decline reasons in “Credit” bucket • Replace scrolling pick-list with check boxes • Fit potential denial reasons on one Vision screen • Rationalize denial reasons for “Credit” to better reflect scorecard variables • Develop functionality to update of denial reasons without a Vision release • Pre-populate or hard-code denial reasons chosen by underwriting • Credit Risk to “own” maintenance of denial reason list

19. Action and WTD/TUD Code Streamlining Project D M A I C Strategy: Long Term Solutions • Withdrawals (TUD): • Bucketing withdrawal reasons • Replace scrolling pick-list with check boxes • Fit potential withdrawal reasons on one Vision screen • Develop functionality to update of withdrawal reasons without a Vision release • Marketing to “own” maintenance of withdrawal reason list • Approved, not accepted – same as withdrawals

20. Action and WTD/TUD Code Streamlining Project D M A I C Strategy – Proposed Action Code Screen Application Denied Application Withdrawn by Applicant Application Approved Not Accepted by Applicant File Closed for Incompleteness

21. Action and WTD/TUD Code Streamlining Project Failed NTB Test Not of Age of Majority Title Not Clear Insufficient Equity Amount of Income Time in current and/or previous employer Not a homeowner Level of indebtedness in relation to income Too Much Debt Employment Status Amount of available credit Delinquency Recent credit inquiries Number of satisfactory account ratings Too many recent credit inquiries Number of accounts or debts on credit reports D M A I C Strategy – Proposed Denial Reason Screen Denied Loan Application Capacity Credit (top three from scorecard) Short Description Long Description Collateral Other

22. Action and WTD/TUD Code Streamlining Project HANDLING – Employee Handling HOURS – Hours are not convenient VOIDED – Application Voided POINTS – Points Too High LOCATION – Location not convenient RATE – Interest Rate Too High NO NEED – Customer decided against taking out any sort of loan at this time FEES – Fees / Closing Costs Too High CLI – Credit Line Increase Application TERM – Desired term (length of contract) not available MIN AMOUNT – Minimum Amount Offered Too High PRODUCT – Desired product type or features not available SERVICE – Service was below expectations D M A I C Strategy – Proposed Withdrawn Code Screen Withdrawn Loan Application/ Approved Not Accepted Application Pricing Need Processing Product Terms Service Channel

23. Action and WTD/TUD Code Streamlining Project D M A I C Conclusion, Next Steps • Implement short-term solutions: • Policy manual updates • Procedures Manual with descriptions of codes • Training and Bulletins as necessary • Develop SPR with long-term solution • Submit SPR to CHT for evaluation, sizing and prioritization