NOTE ON SUBPRIME LENDING ITeS Vertical – Notes September 08

A type of loan that is offered at a rate above prime to individuals not qualifying for normal loan Subprime borrowers are often turned away from traditional lenders because of their low credit ratings Subprime loans tend to have a higher interest rate than prime rate offered on traditional loans Different lenders charge different rates in subprime loan SUB PRIME LOAN

BASIC TYPES OF SUB PRIME LOANS

BASIC TYPES OF SUBPRIME LOANS Interest-only payments, borrowers pay only interest for a period of 5-10 years "pay option" loans, are adjustable rates, borrowers choose their monthly payment (full payment, interest only, or a minimum payment ) and so-called "hybrid" mortgages with initial fixed rates that sooner/ later convert to adjustable rates; includes the "2-28 loan", which offers a low initial interest rate fixed for two years

PARTICIPANTS & BENEFITS

LENDER/ CONDUIT SERVICER MORTGAGE BROKER HOME OWNER TRUST/ TRUSTEE UNDERWRITER INDIVIDUALS, PENSION FUNDS, INSURANCE COMPANIES Participants in the Subprime Loan

LENDERS PROFILE IN SUBPRIME LOAN Lenders take risks associated with lending to people with allegedly poor credit ratings Subprime loans carry a far greater risk for the lender due to the credit risk characteristics of typical subprime borrower Lenders offset the risk with a higher interest rate Subprime customer may be charged higher late fees, higher over limit fees, yearly fees, or up front fees for the card

Non Bankruptcy in the last 7 years A credit score of not less than 620 Not more than 2 or more loan payments in the last 30 days Accurate credit lined data by the underwriter BORROWERS PROFILE CRITERIA BASED – BORROWER PROFILE

PARTICIPANTS & BENEFITS Borrowers- Access to credit despite poor credit history Securities Dealer- Makes money by selling the securities and charging commission on the underwriting Mortgage Originator- Makes money by the difference between the interest of the market and the premium charged to the borrower Investors- Opportunity to diversify Portfolio Greater integration for financial and capital markets Source of funds for banks and other institutions BENEFITS TO THE PARTICIPANTS IN SUBPRIME MARKET

EFFECTS OF SUBPRIME LOANS

Effects of Subprime Loan

IN THE CONTEXT OF U.S. SUBPRIME MARKET SCENARIO In late 2006, the U.S. subprime mortgage industry saw a shift that was referred as a meltdown Steep rise in the rate of subprime mortgage defaults has caused more than 100 subprime mortgage lenders to fail or file for bankruptcy The failure of companies has caused prices in the $6.5 trillion mortgage backed securities market to collapse, threatening broader impacts on the U.S. housing market and economy as a whole The crisis is ongoing and has received considerable attention from the U.S. media and from lawmakers during the first half of 2007

EFFECTS OF SUMPRIME CHALLENGES Effect on Home Owners - As home prices have declined caused by speculation re-financing standards have tightened Effect on Jobs of the Financial Sector According to Bloomberg, from July 2007 to March 2008 financial institutions laid off more than 34,000 employees. In April, Citigroup announced an extra 9,000 layoffs for the remainder of 2008 In April, Merrill Lynch planned to terminate 2,900 jobs by year end. At Bear Stearns fear is that half of the 14,000 jobs could be eliminated once JP Morgan completes acquisition Effect on Minorities- About 46% of Hispanics and 55% of African Americans who obtained mortgages in 2005 got higher-cost loans compared with about 17% of whites and Asians Effect on Tenants - Many renters have been forced from their homes by foreclosures due to their landlords defaulting on loans

Effect on Stock Markets Investors have taken their money out of risky mortgage bonds/ shaky equities and put it into commodities as "stores of value" Effect on Financial Institutions ICICI, India's second largest bank, has reported loss of $263 million in loans/ investment exposures Effect on Insurance Companies There is concern that some homeowners are turning to arson as a way to escape from mortgages they can't or refuse to pay Effect on Municipal Bond “Monoline" Insurers A secondary cause and effect of the crisis relates to the role of "monoline" insurance corporations; Ambac and MBIA. By insuring municipal bond issues, those bonds achieve higher debt ratings EFFECTS OF SUBPRIME MARKET

US SUBPRIME CRISIS – INDIA IN CONTEXT

MACRO INDICATORS Loan Write Offs Buyer Behavior

FEEL FACTOR OF SUBPRIME CRISIS ON INDIAN ECONOMY India should escape major fallout from the US sub prime credit turmoil It remains far less exposed to global financial upheaval than many countries India appears to be in a strong position to withstand aftershock as the country has largely a domestically driven economy with limited trade dependence India's banking sector is not directly exposed to sub prime woes unlike some banks in Britain, Germany and elsewhere

Continued… A possible US economic slowdown could hit budgets of cost-conscious firms, but this accounts for only 5.4 percent of India's GDP. Some insist that subprime upheaval could cause a "significant" slowdown, as "Global risk" has been at the heart of India's current growth acceleration cycle However, if the current global risk aversion trend continues for more than three months, India could face a significant deceleration in growth It all boils down to international integration our growth story is still one mainly of domestic demand.

MAJOR COMPANIES THAT HAVE MORTGAGE PROCESSES

Various Positions in Mortgage Processing EXECUTIVE/ORIGINATION 􀂃 Executive Management 􀂃 Origination Channels 􀂃 Retail 􀂃 Telemarketing 􀂃 Wholesale SECONDARY/CAPITAL MARKETS 􀂃 Loan Portfolio Management 􀂃 Loan Securitization/Loan Pooling 􀂃 Pricing 􀂃 Quantitative Analysis 􀂃 Sales/Investor Relations 􀂃 Secondary/Capital Markets

Continued… Management 􀂃 Secondary/Capital Markets Support 􀂃 Trading OPERATIONS/SERVICING AND INFRASTRUCTURE 􀂃 Customer Service 􀂃 Finance 􀂃 Loan Operations 􀂃 Loan Workout 􀂃 Marketing & Communications 􀂃 Quality Control/Compliance 􀂃 Risk Management 􀂃 Technology 􀂃 Underwriting

Company- Mortgage Processing AEGIS MORTGAGE CORPORATION 􀂃 AEGON USA REALTY ADVISORS, INC. 􀂃 AMERICAN GENERAL FINANCE 􀂃 AMERICAN HOME MORTGAGE 􀂃 AMTRUST BANK 􀂃 ARVEST BANK OPERATIONS 􀂃 ASSURITY FINANCIAL SERVICES LLC 􀂃 ASTORIA FEDERAL SAVINGS 􀂃 AURORA LOAN SERVICES 􀂃 AVELO MORTGAGE, LLC 􀂃 BANK OF AMERICA 􀂃 BANK OF MONTREAL 􀂃 BANK UNITED 􀂃 BARCLAYS CAPITAL GROUP 􀂃 BMO FINANCIAL GROUP 􀂃 BNC MORTGAGE, INC. 􀂃 BRANCH BANKING & TRUST CO. 􀂃 CENLAR 􀂃 CHEVY CHASE BANK 􀂃 CITI CONSUMER LENDING GROUP

􀂃 D.B. HOME LOANS 􀂃 DOWNEY SAVINGS & LOAN 􀂃 EMC MORTGAGE 􀂃 EQUIFIRST 􀂃 EVERBANK 􀂃 FANNIE MAE 􀂃 FIFTH THIRD BANK 􀂃 FIRST FRANKLIN (MERRILL LYNCH) 􀂃 FIRST TENNESSEE BANK/ FIRST HORIZON HOME LOANS 􀂃 FIELDSTONE MORTGAGE COMPANY 􀂃 FREDDIE MAC 􀂃 GMAC 􀂃 HOMESTREET BANK 􀂃 HOMEQ SERVICING 􀂃 HSBC BANK USA 􀂃 HUNTINGTON BANCSHARES INCORPORATED 􀂃 INDYMAC BANK 􀂃 ING MORTGAGE 􀂃 JOHNSON FINANCIAL GROUP, INC. 􀂃 JP MORGAN CHASE 􀂃 HOVNANIAN ENTERPRISES, LLC 􀂃 KEYCORP 􀂃 KH FINANCIAL, L.P.

􀂃 DIVISION 􀂃 LENDINGTREE, INC. 􀂃 LINCOLN MORTGAGE COMPANY 􀂃 LITTON LOAN SERVICING LP 􀂃 M & T BANK 􀂃 MARKET STREET MORTGAGE CORPORATION 􀂃 MARRIOTT VACATION CLUB INTERNATIONAL 􀂃 MDC HOLDINGS, INC. 􀂃 MIDFIRST BANK 􀂃 MORGAN STANLEY HOME LOANS 􀂃 MORTGAGE GUARANTY INSURANCE CORP. 􀂃 NATIONAL COOPERATIVE BANK 􀂃 NATIONAL CITY CORPORATION 􀂃 NATIONWIDE INSURANCE 􀂃 ONE WASHINGTON FINANCIAL, LLC 􀂃 OPTEUM FINANCIAL SERVICES, LLC 􀂃 OPTION ONE MORTGAGE 􀂃 PHH MORTGAGE 􀂃 PLAZA HOME MORTGAGE, INC. 􀂃 RBC FINANCIAL GROUP 􀂃 REGIONS FINANCIAL CORPORATION 􀂃 RESMAE MORTGAGE CORP 􀂃 SAXON MORTGAGE (MORGAN STANLEY) 􀂃 SCME MORTGAGE BANKERS INC. 􀂃 SHEA FINANCIAL SERVICES

􀂃 CITIMORTGAGE 􀂃 CITIZENS BANK 􀂃 COLORADO HOUSING FINANCE AUTHORITY 􀂃 COMPASS BANK 􀂃 SN SERVICING CORPORATION 􀂃 SOVEREIGN BANK 􀂃 STERLING SAVINGS BANK 􀂃 SUNTRUST BANK, INC. 􀂃 SYNOVUS FINANCIAL CORPORATION 􀂃 TECHNOLOGY CREDIT UNION 􀂃 TITLE RESOURCE GROUP 􀂃 THORNBURG COMPANIES 􀂃 UNION BANK OF CALIFORNIA 􀂃 UNIVERSAL AMERICAN MORTGAGE CO., LLC 􀂃 USAA 􀂃 WACHOVIA CORPORATION 􀂃 WASHINGTON MUTUAL 􀂃 WEBSTER BANK 􀂃 WELLS FARGO HOME MORTGAGE 􀂃 WILSHIRE CREDIT CORPORATION (MERRIL

Companies in India Accenture ACS Adventity Aegis Capgemini Cognizant e4e Group,Equinox iflex EXL Service Fidelity National Information Services, First Source Fiserv Genpact HCL BPO Hexaware IBM Daksh iGATE Indecomm Infosys iSeva Karvy Motif Nipuna BPO Ocwen Office Tiger (RRD), Quattro BPO Sutherland TCS Trans works Aditya Birla US Technology Global Wipro WNS Global Xansa Zenta

MORTAGE PROCESS IN INDIAN BPO COMPANIES Loan Processing &Underwriting Document Procurement Rate Lock Management Employment Verification Automated Underwriting Document Preparation Credit Review Good Faith Estimate Loan Process Indexing Rate Quotes 1003/1008 Input, Phone Based Qualifications Order Appraisal Title Hazard & Flood, Closing & Funding Trust/Deed Agreement Review Cross Selling Lead Generation Review of Compliance & HOI Documents  

CONTINUED.. MORTGAGE BANKING BPO: servicing management includes outsourced tasks of : Loan Boarding Escrow Analysis Taxes Insurance Lien Release Loss Mitigation Payoff Commercial Mortgages Early Collections New Loan Audit Skip Tracing Welcome Calls ARM Audits Default Loan Setup

MEASURES TAKEN TO MANAGE THE CRISIS

The Federal Reserve In August 2007, Federal Open Market Committee announced that interest rate cuts might be forthcoming The Fed is utilizing the Term auction facility (TAF) to provide short-term loans (liquidity) to banks In March 2008, the Fed also provided funds and guarantees to enable bank J.P. Morgan Chase to purchase Bear Stearns Loan modification Lenders /homeowners both benefit from avoiding costly and lengthy foreclosure . Litigation Litigation related to the subprime crisis is underway. A study in February 2008 indicated that 278 civil lawsuits were filed in federal courts during 2007 related to the subprime crisis. MEASURES

Media Media can help educate the public and parties involved by ensuring the top subject material experts engaged Bank Financial Health Certain major banks have reduced their dividend payouts to increase liquidity Credit Rating Agencies They are taking action to address perceived or actual conflicts of interest, including additional internal monitoring programs, third party reviews of rating processes, and board updates Regulation Regulators are considering action regarding lending practices, bankruptcy protection, tax policies, affordable housing, credit counseling, education and the licensing/qualifications of lenders MEASURES

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