N O V E M B E R 2 0 0 7

Chase Home Lending - New Product Development Process

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JU

Vice President – Product Design Leader

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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

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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

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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 Move into 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

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Recommended New Product Development Process

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Discovery

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.

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Existing New

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Gate 1 Decision Point – Idea Screen

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.

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1/5

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Stage 1Activity - Scoping

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

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Competition

Initial concept

1/5

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Gate 2 Decision Point – Second Screen

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.

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2/5

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Stage 2Activity – Build Business Case

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

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Positioning strategy

Product Benefits

ID customer needs, wants

2/5

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Gate 3 Decision Point – Go to Development?

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.

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3/5

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Stage 3Activity – Development

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

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3/5

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Gate 4 Decision Point – Go to Testing?

Goal

Review development work

Deliverable

Mortgage product 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

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4/5

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Stage 4Activity – Testing and Validation

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

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4/5

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Gate 5 Decision Point – Go to launch?

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

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Green light to launch?!

5/5

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Stage 5Activity – Launch, Go to Market!

Goal

Commercialization of product

Tasks

Implement marketing plan - production & operations Plan for retail, correspondent and wholesale Strategies and Objectives

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5/5

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Post-Launch Review

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

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