2007_Subprime_Shorting-Home-Equity-Mezzanine-Tranches-1

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Footnote Exhibits - Page 0960Strictly private & confidential.What does the payment shock mean to the borrower inthe example?UBorrower's mortgage debt-to-income ratio alone, which is assumed at35% at the loan origination, will grow more than 10 points to 46%after the initial reset and to nearly 50% at the second reset.M With a moderate growth assumption for the borrower's other debts,the borrower's total debt-to-income ratio can grow to nearly 60% atthe expiration of the 10 term.E In order for the borrower to have the same (mortgage) debt-toincomeratio at the second reset (when the rate becomes fullyindexed), the income needs to grow more than 19% annually.E If home prices stop appreciating, the borrower, with LTV virtuallyunchanged in the existing loan and likely larger credit card and otherdebts incurred in the meantime, may find it difficult to refinance intoanother affordable loan.M According to a subprime mortgage servicer who has the topservicer rating from all rating agencies, in the past, about 50%of the borrowers who did not refi at the payment reset woulddefault eventually.Deutsche BankAll numbers shown in this presentation are indicative and are based on a sample portfolio. Actual numbers will bedifferent and will depend on the actual portfolios selected.360000 0000
Footnote Exhibits - Page 0961Strictly private & confidentialDebt-to-income ratios for subprime mortgage borrowerwould become dramatically higher if calculated usingpayments with fully-indexed couponsDistribution of subprime ARM originated in 2005 and 2006 by DTI2 35%<30%E 2 5 % - ..................-o a20% -0ID 1 0 %............ .......... ..5-. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . ... . . . . . . . . . .5.......... ............. ......... . . .......... .. ~ ......... .........................10- 15- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65- 70- 75- 80- 85-15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90Debt-to-income ratio bucketI DTI reportedl DTI calculated pro forma using fully-indexed coupon with LIBOR at originationDeutsche BankAll numbers shown in this presentation are indicative and are based on a sample portfolio. Actual numbers will bedifferent and will depend on the actual portfolios selected.37
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2007_Subprime_Shorting-Home-Equity-Mezzanine-Tranches-1

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