Shorting Home Equity Mezzanine Tranches

Footnote Exhibits - Page 0943
CD
Strictly private & confidential
High HPA rates played major roles in good
performance of subprime mortgages in past few years
As shown above
a Mortgages located in the quartile of MSAs with lowest home price growth have
been three to five times as likely to default as those in the quartile of MSAs with
highest home price growth
a Generally, MSAs with double-digit home price appreciation rates have been
experiencing loss severity ratios less than 20%, many such MSAs had loss
severity ratios less than 10%. The average loss severity ratio for loans
located in areas with growth rate over 12% was 2%. By contrast, the
average loss severity ratio for loans located in areas with growth rate
between 2 and 6% was 35%, a 17-fold increase in loss severity.
E A majority of mortgages by balance originated in the past few years are in areas
with double-digit home price appreciation rates
a If home price appreciation rates slow-down to 4% p.a. for MSAs currently having
double-digit rates, losses (both defaults and severity ratios) may increase
substantially in these MSAs
Deutsche Bank
All numbers shown in this presentation are indicative and are based on a sample portfolio. Actual numbers will be
different and will depend on the actual portfolios selected.
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