integrating continuous improvement into the dna of your organization for success and sustainability

June 28, 2006 Version 1.0 PAGE 1

Countrywide Financial Corporation

Integrating Continuous Improvement into the DNA of Your Organization for Success and Sustainability

Global Six Sigma Summit


Karen Schoen, Managing DirectorJune 28, 2006



Agenda

Countrywide Financial Corporation Background Embracing Continuous Improvement Listening to Ideas Providing Continuous Improvement Tools Shepherding Business Process Transformation Case Studies Q&A



Countrywide Financial is a Fortune 150 Diversified Financial Services Provider & the #1 Residential Mortgage Originator & Servicer in the U.S.

$2.5 Billion 2005 Net Earnings38% Earnings CAGR

#1 Servicer$1.1T 2005 Servicing Portfolio,

representing 7.4M loans

#1 Originator 15.7% 2005 Market Share,

up from 12.4% in 2004

$175 Billion 2005 Total CFC Assets

Bank Assets totaling $73BDo

min

ate

Mo

rtg

age

L

end

ing

A

chieve L

on

g-T

erm

Earn

ing

s Stab

ility

Maximize Shareholder Value

Countrywide is a diversified financial services company serving the needs of households, investors, and institutions, with mortgage lending at its core

22% 2005 Return on Average Equity

$23 Billion Market Capitalization(1)

(2)

(2)

(1) As of May, 2006(2) Source: Inside Mortgage Finance



Countrywide’s Foundation is in Mortgage Banking -- However We Have Grown Into a Dominant Diversified Financial Services Company

Countrywide Insurance Group offers homeowners, home warranty, auto, life, disability, and health insurance for consumers and commercial businesses

Insurance

Countrywide Capital Markets is an investment banking firm engaged in the sales, trading, and underwriting of mortgage-backed and asset-backed securities

Capital Markets

Countrywide Bank offers retail and commercial banking, and document custody services

Banking

Countrywide Home Loans originates, purchases, securitizes, and services mortgage loans nationwide

MortgageBanking



CFC Has Experienced Extraordinary Growth In the Past Ten Years

0

10,000

20,000

30,000

40,000

50,000

60,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

Hea

dco

un

t

$0

$2,000

$4,000

$6,000

$8,000

$10,000

Rev

enu

e/E

arn

ing

s

Headcount Revenue Earnings

CFC

S&P

1990 1995 2000 2005

Growth in company size and revenue … and successful diversification efforts …

… are reflected in our strong historical stock performance when compared with the S&P 500



We Credit This Growth to Our Entrepreneurial Spirit and a Culture That Inspires Employees to Actively Take Part in “Making It Better”

We believe every employee has a voice worth hearing We make it easy for employees to contribute We expect employees to be change agents We reward successes We communicate this often



Cultivating a Culture That Inspires Every Employee to Take Part in “Making It Better”



We Address Continuous Improvement in Three Broad Categories

Employee Suggestions

Process Improvement

Strategic Business

Transformation

Fundamental Rethinking of What and/or How We Do Things

Incremental Tuning

Ideas on How to “Make It Better”



Consider a Fast Food Restaurant Example


Process Improvement

Strategic Business

Transformation

Establish vision for Healthy Choice menu

Improve placement of condiments based on

traffic flow

Have employees park remotely to leave prime spaces for

customers



We Expect These CI Change Efforts to Emanate From Different Employee Groups


Process Improvement

Strategic Business

TransformationCustomer Service

Senior Management Professional Project

Managers

Board of Directors

Team Leads and Above

Person 1Person 1Person 1Person 1Person 1Person 1Person 1Person 1Person 1Person 1

All Employees



We Have a Tailored CI Program Targeted for Each Type of Change


Process Improvement

Strategic Business

Transformation

FASTER-PM Project Management Methodology

FASTER Process Improvement Methodology

CIdeas Employee Suggestion Program



Listening to Ideas Helps Us Enforce Our Culture of Making It Better Every Day

Provide employees a vehicle for speaking directly to

management Ensure that ideas do not get stifled far down in the

organization Encourage all employees to use online suggestion box –

can be anonymous if employee chooses Rewards include 5% cash for first year’s cost savings

($5,000 cap); Cultural and non-monetary ideas receive “CW reward points”



2005 Estimated 5-Year NPV: $5.7mm; Program-To-Date NPV: $37mm



Fixing Broken Processes is an Enterprise-Wide Effort – At CFC We Approach it Consistently

Created FASTER process improvement methodology four years ago to ensure:

Common language and consistent approach for process changeFocused effort on continuous improvement

Designed for a broad cross-section of employees (team lead and up)Six Sigma-esque methodology – simplified for CFC CultureEmphasis on employee training and business-unit ownership



Process Improvement Methodology

Map current processes

Measure opportunities for

improvement

Brainstorm and prioritize solutions

Set minimum and stretch

performance levels

Implement solutions

Monitor and control impact

Flow Analyze Solve Target Execute Review



FASTER Has Reached a Large Cross-Section of Employees and Has Improved CFC’s Bottom Line

BRONZEOn-line training introduces all employees to basic FASTER concepts in 30 minutes

18,243 employees Bronze-certified

SILVER3.5 day seminars engage employees in solving business problems real-time

2,726 employees Silver-certified

GOLDMedals are awarded for completing projects with audited financial results

784 employees Gold-certified

PLATINUMMedals are awarded to FASTER experts for completing multiple gold projects and mentoring others

59 employees Platinum-certified

Program-to-date NPV: $760M 2005 Hard Savings: $50M



Driving Business Process Transformation Requires a Structured Project Management Methodology

Large complex strategy, business and/or technology integration projectsOften crosses business and corporate unitsStep level change required vs incremental improvementOften requires specific skill sets (analytic, technology)



CFC Developed FASTER-PM to Support Project Management Across the Organization

Jointly developed by business and technology professionals Program includes:

Methodology and TemplatesTraining and CertificationSupporting Systems

Required of any project exceeding $250KCompliance audited



Project Management Methodology

Originate Initiate Plan ExecuteClose/Review

• Current state assessment

• Problem definition

• Examination of impact and strategic alignment

• FLOW – Detailed current state assessment

• ANALYZE – Analysis of processes

• SOLVE – Identification of solutions

• Agreement on solutions

• Detailed scoping and success criteria

• Development of plans for implementation, communication, risk, scheduling and resources

• Risk and Change management

• Quality control

• Schedule and budget tracking

• Approvals

• Evaluation of business impact

• Lessons learned

• Project closure



Case Study: Prioritize Network Setup for Contractors

Significant hard savings

Contractors productive soonerResults

Facilitated discussion between Business Unit and idea submitter

Monitored creation of new process incorporating contractors with new hires and prioritizing them in the request queue

Assisted with development of detailed cost-benefit analysis

Our Approach

Up to 2,000 contractors at any given time at up to $75/hour, with a 3.5-day turnaround for network access

Reduce downtime, save fees

Business Opportuni

ty

CFC Confidential and Proprietary



Case Study: Instruction Guides for Modifying Loan Terms

Significantly increased loan modifications closed resulting in increased incentives

Reduced average time to complete a loan modification from 55 days to 26 days in 6 months after implementation

Results

Facilitated discussion between Business Unit and idea submitter

Monitored creation of detailed instruction guide for completing forms correctly

Monitored measurement of error rates for 4 months prior to and 6 months after implementation

Assisted with development of detailed cost-benefit analysis

Our Approach

Reduce errors in paperwork received from notaries to process more loan modifications faster

(A loan modification is a payment workout plan on a delinquent loan)

Business Opportuni

ty




Case Study: Originating Loans Through Mortgage Brokers

Increased efficiency across branch network

Increased customer satisfaction resulting in greater loan volumeResults

Performed a gap analysis between high and low performing branches

Determined root causes for the largest gaps in performance

Measured level of impact and difficulty of implementation for best-in-class practices, processes and tools

Prioritized best-practices and shared highest impact solutions amongst entire branch network

Our Approach

• CHL’s Wholesale Lending Division (WLD) originates loans through mortgage brokers. WLD’s fulfillment operations are distributed across a combination of large centers and small regional branches

• There is a wide range of performance in efficiency (loans per employee) and customer satisfaction (surveys to brokers) amongst the regional branches, which fulfill the majority of WLD’s loans

Business Opportunit

y




Case Study: Human Resources Shared Service Center

Increase use of self service

Improve knowledge sharing and escalation processes

Add other transactional HR functions to center

Leverage offshore resources

Results

Benchmarked against best-in-class companies

Performed root-cause analysis and hypothesis testing to derive recommendations

Determined optional service coverage in terms of functions included in the center and best support model

Our Approach

CFC’s HR Shared Services center provides first-level support and services to 50,000+ employees

Reduce costs, improve service levels, and establish ongoing performance metrics

Business Opportuni

ty




Questions?

integrating continuous improvement into the dna of your organization for success and sustainability

Education