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N O V E M B E R 2 0 0 7

N O V E M B E R 2 0 0 7. Chase Home Lending - New Product Development Process. JU Vice President – Product Design Leader. P R O D U C T D E V E L O P M E N T. Overview. Overview of Chase Home Lending Chase Home Lending’s 2008 Strategy

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N O V E M B E R 2 0 0 7

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  1. N O V E M B E R 2 0 0 7 Chase Home Lending - New Product Development Process JU Vice President – Product Design Leader P R O D U C T D E V E L O P M E N T

  2. Overview • Overview of Chase Home Lending • Chase Home Lending’s 2008 Strategy • Strategic Recommendation for Product Development • Overview of recommended New Product Development Process • StageGate Process P R O D U C T D E V E L O P M E N T

  3. Chase Home Lending Overview • Chase Home Lending, subsidiary of JPMorgan Chase & Co. • Ranked # 5 in US mortgage originations, ranked # 4 as US mortgage servicer • 2006 funding volume $172 Billion • 2007 1Q-3Q funding volume $159 Billion • Originate and fund first mortgages and second mortgages • 50 states, DC • 17,000 loan officers • Origination Channels include: • Retail – traditional retail, bank branch, call-center 41% • Wholesale – mortgage brokers 23% • Correspondents – banks, credit unions, mortgage banks 36% • Diverse first mortgage and second mortgage product portfolio P R O D U C T D E V E L O P M E N T

  4. Chase Home Lending’s 2008 StrategyStrategic Recommendation for Product Development • 2008 Strategic Focus • Attractive markets  bank branch, domestic emerging markets, correspondent. • Leverage JPMorganChase brand • Launch innovative, high margin new products and product enhancements • Moveinto top 3 origination ranking • Implement a new product development • Focus on Gates and Stages • Emphasis on predevelopment • Defined product definition • Tough go/kill decision points • Focus on quality of execution • Success measured by  Volume, Revenue and Profit P R O D U C T D E V E L O P M E N T

  5. Recommended New Product Development Process P R O D U C T D E V E L O P M E N T

  6. Goal Idea generation with a defined process for capturing idea. Process Re-launch of Voice of Sales – retail, wholesale, correspondent loan officers. Introduce monthly product idea calls with sales leadership – retail, broker, correspondent Regional Sales Meetings Introduce broker and correspondent Idea Center www.chaseb2b.com Voice of Customer – long-term B2B Schedule B2B customer sessions – builder, domestic emerging markets, mass markets. Leader’s Club Product Idea Sessions – Top producing loan officers. Personal Banker/Bank Branch Loan Officer Sessions. Mortgage Investors and Mortgage Insurance Companies Research Friday’s – off site research for Product Design leaders. • New • Existing Discovery P R O D U C T D E V E L O P M E N T

  7. Goal Filter the good ideas from the not so good ideas. Focus is on identifying promising ideas based on criteria approved by leadership. Deliverable Ideas from idea bank Criteria Evaluate based on strategic alignment, market attractiveness, technical feasibility, killer variables. Market attractiveness - Minimum yearly volume of $100M? Technical feasibility - Origination and servicing requirements realistic? Strategic fit? Growth markets? Regulatory/Headline/Reputation? Killer variables? Regulatory/Headline/Reputation? Key Decision Makers Mid-management: Product design & development, IT, sales, legal, & credit Output List of ideas worth moving to scoping, scope due at Gate 2 within 45 days. Gate 1 Decision Point – Idea Screen 1/5 P R O D U C T D E V E L O P M E N T

  8. Goal Determine the ideas/projects technical and marketplace merits. Tasks Produce scope overview, cross-functional team involvement Preliminary Market Assessment Attractiveness and potential Product acceptance Preliminary Technical Assessment Impacts to systems – origination, underwriting, pricing, investor loan delivery & servicing. Preliminary Business & Environmental Assessments Cost and time to execute Financial Analysis Regulatory or legal risks Roadblocks Stage 1Activity - Scoping 1/5 • Competition • Initial concept P R O D U C T D E V E L O P M E N T

  9. Goal Perform a second, more rigorous review of idea/project. Deliverable Scope document Criteria Market attractiveness - Minimum yearly volume of $100M Profitability - ROC 15% Technical feasibility - Origination and servicing functionality (IT) Investor – mortgage investor realistic? Strategic fit - Growth markets? Regulatory/Headline/Reputation? Competitive Positioning Killer variables - Regulatory/Headline/Reputation Key Decision Makers Senior Management: Product design, product development, IT, sales, legal, & credit Outputs Decision of idea/project – Go?, Go, subject to?, Postpone?, Kill? Move idea/project back to idea bank, or move to business case Business Case at Gate 3, due date TBD. Gate 2 Decision Point – Second Screen 2/5 P R O D U C T D E V E L O P M E N T

  10. Goal Conduct a detailed investigation of product, clearly define product, verify attractiveness. Institute parallel cross-functional team participation. Tasks Market Analysis Target market definition Product concept Definition – LTV, credit, mortgage terms Technical Analysis Address all systems issues, LOS, underwriting, pricing, loan delivery and systems. Business & Financial Analysis Strategic & competitive rationale Full financial analysis Investor commitment Stage 2Activity – Build Business Case 2/5 • Positioning strategy • Product Benefits • ID customer needs, wants P R O D U C T D E V E L O P M E N T

  11. Goal Perform a quantitative and qualitative review of business case. Deliverable Business Case Criteria Strategic alignment, market attractiveness, technical feasibility, investor commitment, financial analysis, & killer variables. Key Decision Makers Executive Steering Committee – Sales, Finance, Legal, Operations, Servicing Outputs Decision product – Go?, Go, subject to?, Postpone?, Kill? Move idea/project back to idea bank, or move to development. Gate 3 Decision Point – Go to Development? 3/5 P R O D U C T D E V E L O P M E N T

  12. Goal Implement development plan, build product, & deliver partially validated pro-type. Tasks Emphasis is on technical work Loan origination, underwriting, pricing, delivery Customer testing – Top B2B customers Market development Monitor and research market and competitive environment Begin market plan – 4 Ps Develop marketing material – legal and compliance Update business & financial analysis Develop action plan for Stage 4 Stage 3Activity – Development 3/5 P R O D U C T D E V E L O P M E N T

  13. Goal Review development work Deliverable Mortgageproduct pro-type Criteria Continued attractiveness of project – market?, financial? QC of development process – quality?, original product definition? Financial analysis from Stage 3 Key Decision Makers Senior Management: Product design & development, IT, sales, legal, credit & finance Outputs Go?, Kill? Postpone? Marketing plan reviewed by key decision makers Approved test and validation plans Gate 4 Decision Point – Go to Testing? 4/5 P R O D U C T D E V E L O P M E N T

  14. Goal Test and validate the entire viability of project: the product, production process, customer acceptance and the economics of the project. Tasks Internal product tests - run a sample loan POS, underwriting, closing, servicing External product tests - pilot production Key customers, test market in controlled geographies Measure results Volume, application vs fundings, borrower segments Business and financial analysis – based on new data Stage 4Activity – Testing and Validation 4/5 P R O D U C T D E V E L O P M E N T

  15. Goal Review testing and validation results; focus is financial and regulatory. Determine appropriateness of launch. Final stage to kill or postpone. Deliverables Results from stage 4 Criteria Continued attractiveness of project – market?, volume?, financial?, ROC target achieved? Well-developed marketing plan – Product, Price, Promotion and Distribution Business & Financial analysis from Stage 4 Key Decision Makers Senior Management: Product design & development, IT, sales, legal, credit & finance Outputs Go?, Kill? Postpone? Marketing plan approved by key decision makers Gate 5 Decision Point – Go to launch? 5/5 P R O D U C T D E V E L O P M E N T • Green light to launch?!

  16. Goal Commercialization of product Tasks Implement marketing plan - production & operations Plan for retail, correspondent and wholesale Strategies and Objectives Stage 5Activity – Launch, Go to Market! 5/5 P R O D U C T D E V E L O P M E N T

  17. Goal At month 12, review project and product performance. Migrate product to “standard offering” category Tasks Review financial projections vs actual Review product profile, performance and early risk analysis Portfolio characteristics Early payment defaults Post-foreclosure reviews Conduct post-audit – Product Design Leader and Product Development Leader Cross-functional team participation What worked?, what didn’t work? Causes? Learning? Report results to Post-Launch Review P R O D U C T D E V E L O P M E N T

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