LPS Mortgage Monitor

February 2010 Mortgage Performance Observations

Data as of January 31, 2009 Month-end

 February 2010 Mortgage Performance Package
Data as of January 31, 2010
Released February 15, 2010
Outline / Agenda

• Delinquency and Foreclosure: Inventory volumes / percentages for January 2010 with industry
extrapolations, time in delinquent status and long-term trends.

• Newly delinquent loans: Vintage analysis, geographic detail, 2009 trending and loss mitigation
comparison.

• Roll rates: including cure rates, deterioration ratios and shadow inventory migration.

• Foreclosure trends: Covering foreclosure starts, time to foreclose and foreclosure sales

• Vintage Analysis: Performance by vintage, origination characteristics and first payment defaults. FHA
focus.

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Total delinquencies increased slightly from December to January to new highs.
Total Delinquencies (excluding Foreclosures) = 10.25%
Month over Month Increase of 2.0%, Year over Year Increase of 22.1%

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 Foreclosure inventories continue to climb to record highs.
January Foreclosure Rate = 3.27%
Month over Month Increase of 1.8%, Year over Year Increase of 61.3%

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 Beware „Picture Frame‟ thinking when looking for signs of recovery.

Total Non-Current % and Foreclosure % by As of Month

16.00% 4.00%

14.00% 3.50%

12.00% 3.00%

10.00% 2.50%

8.00% 2.00%

6.00% 1.50%

4.00% 1.00%

2.00% 0.50%

0.00% 0.00%
Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Non-Current % (Left Axis) Foreclosure % (Right Axis)

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January 2010 year over year deterioration for both delinquencies and foreclosures was
highest among the three prime categories

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 Pool of Problem Loans Continues to Grow and Stagnate

• 90+ Delinquency evolution

Time Period Ln. Count % Ln. Count Avg.Days DQ
Jan ‘08 – Jun ‘08 Avg. 1.0 million 1.9% 204
Jan ‘08 – Jan ‘10 Avg. 1.8 million 3.3% 222
Jan ‘10 2.9 million 5.3% 272

• Foreclosure evolution
Time Period Ln. Count % Ln. Count Avg.Days DQ
Jan ‘08 – Jun ‘08 Avg. 0.8 million 1.4% 260
Jan ‘08 – Jan ‘10 Avg. 1.2 million 2.3% 319
Jan ‘10 1.8 million 3.3% 410

• Total Non-current (30+ DQ and FC) and REO evolution

Time Period Non-Current Non-Current REO Count REO %
Count %
Jan ‘08 – Jun ‘08 Avg. 4.1 million 7.3% 0.8 million 1.4%

Jan ‘08 – Jan ‘10 Avg. 5.6 million 10.1% 0.9 million 1.7%

Jan ‘10 7.4 million 13.6% 1.0 million 1.8%

Counts based on Extrapolated LPS Servicing Database. 70% Factor for DQ and FC counts, 40% Factor for REO

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LPS Servicing Database – Non-Performing Loan Counts Extrapolated
(Assumed Market Share = 70% Servicing, and 40% REO)

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Delinquency and Foreclosure Rate Table
Ranked based on Non-Current %

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 Foreclosure Inventory by State
8 States are now above the National Average (3.27%): Florida, Nevada, New Jersey,
Arizona, California, Illinois, Indiana, and Ohio.

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Total Non-Current (including Delinquencies and Foreclosures) by State
National Average = 13.5%

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4.93% of loans that were current in December 2008 were 60 or more days delinquent or
in Foreclosure as of January 2010 month-end.

12
 Cumulative Monthly Count of Loans Current at 12/31/08 that are at Least 60 Days
Delinquent. Current loans continue to default at significant rates, though the pace has
slowed over last quarter

*Extrapolated to the US market using 70% coverage ratio.

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 New Problem loans exceed modifications / trials from 1/09 through 1/10

• New Problem Loans

2.46 million Current loans at 1/1/09 are 60+ or FC as of 1/31/2010

• Permanent Modifications and Trial Mods

947,000 = All Active HAMP Modifications
– As reported by MHA through January 2010
– 830,000 Active Trial Mods + 116,000 Active Permanent Mods

1.00 million = Completed Non-HAMP mods

– Extrapolated from OCC Q3 Mortgage Metrics Report data
– Assumes Non-HAMP Q4 ‘09 activity is approximately equal to Q3 ‘09 activity

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 FHA product is experiencing the highest rate of new seriously delinquent loans.

Percentage of loans that were Current at the beginning of the prior year and 60+ Delinquent
or in Foreclosure at the end of January of the current year by Product
10.0%

9.0%

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%
2007 2008 2009 2010

FHA VA All Other Total

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 14.9% of loans current in December 2008 are now seriously delinquent in Nevada
“Big 4” continue to lead the pack relative to Current loans migrating to 60+ over the
course of 2009

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 Total new delinquencies (Current to 30 rolls) in January remain range-bound
Rolls into foreclosure increased to a six month high - the third highest figure on record.
Foreclosure sales hit an all-time high.

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The rate of newly delinquent loans (current to delinquent roll) in January 2010 was
higher than any prior year.

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Almost 350k borrowers that became delinquent in January did so for the first time. This
represents approximately 40% of all newly delinquent loans for the month.

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Older loans are making up a higher proportion of new delinquencies as more loans
experience repeat delinquencies.

Percentage of loans that were Current at the beginning of

January and missed at least one payment with Vintage
2.00%

1.80%

1.60%

1.40% 2010
2009
1.20%
2008
1.00% 2007
2006
0.80%
2005
0.60% 2004
<2004
0.40%

0.20%

0.00%
2007 2008 2009 2010

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The weighted average loan age of newly delinquent loans has increased from 27
months in January of 2007 to 46 months in January 2010.

Weighted average loan age of newly delinquent loans in

January by year
50.0

45.0

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0
2007 2008 2009 2010

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Despite loss mitigation efforts, the rate at which loans are curing from delinquency has
steadily declined.

Cure to current counts and percentages

35.0% 600,000

30.0%
500,000

25.0%
400,000

20.0%
300,000
15.0%

200,000
10.0%

100,000
5.0%

0.0% 0

Non-Current to Current Count Non-Current to Current %

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5.04% of Loans Rolled to „Worse‟ Status in January „10 vs. 1.74% that Improved.

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 Six month average deterioration ratio has remained relatively stable.
2009 marks the only time out of the last 5 years that the six month deterioration ratio
has dropped from September to December.
2.9 Loans Deteriorated in January 2010 for every 1 Improved

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 Roll Rates are stabilizing but at levels approximately 50% higher than long term
averages

Historical Roll Rates - 6 month average

50.0%

45.0%

40.0%

35.0%

30.0%

25.0%
30 to 60
20.0% 60 to 90
90+ to FC
15.0%

10.0%

5.0%

0.0%
Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09

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Recent 4 month average roll rates in key DQ categories are nearly twice as high as the
minimum 4 month averages of the past 5 years

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 Roll rates into Foreclosure jumped in January reflecting the increased volume of
foreclosures however the rates are still historically low due to the sheer volume of
delinquent loans.

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The number of loans deteriorating further into delinquent status is almost 2.5 times the
volume of foreclosure starts (down from three times in the prior month).
This drop is due entirely to the increase in foreclosure starts.

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 More Severely Delinquent Loans are Not in Foreclosure…

Number of Loans not in Foreclosure as a % of Loans with 6, 12, 18, or

24 missed payments
January 2010 Non-Foreclosure January 2009 Non-Foreclosure January 2008 Non-Foreclosure

31.5%
25.28%
22.8%
17.8%
15.1% 13.7% 14.2%
11.26%
9.0% 9.26% 10.2% 10.12%

No Pmts 6 Month No Pmts 12 Month No Pmts 18 Month No Pmts 24 Month

Loan counts are extrapolated based on 70% market coverage.

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Foreclosure sale rate (as a percent of foreclosure inventory) = 5.6%

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Default Curves: 2009 Vintage is performing better than any of the prior five years.

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Almost 90% of all originations are greater than or equal to 660 FICO.

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In addition to higher FICO scores, lower interest rates are contributing to the improved
performance of 2009 originations.

FICO and Interest Rate by Vintage

750 7.50%

7.00%
740
6.50%

730 6.00%

5.50%
720
5.00%

710 4.50%

4.00%
700
3.50%

690 3.00%

WAFICO WAIR

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Within higher FICO bands, first payment defaults have returned to pre-crisis levels but
have increased steadily from the lows in early 2009.

First Payment Defaults by FICO

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%
200411

200701

200903
200401
200403
200405
200407
200409

200501
200503
200505
200507
200509
200511
200601
200603
200605
200607
200609
200611

200703
200705
200707
200709
200711
200801
200803
200805
200807
200809
200811
200901

200905
200907
200909
200911
< 620 620-659 660-719 >= 720

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 FHA/VA/All Other Production by Origination Month – January 2007 to November 09
FHA is 28.4% of origination for 2009 vs. 24.0% for the same period in 2008, and 5.7% for
the same period in 2007

Origination by FHA and Other

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

-
Feb-07
Mar-07
Apr-07

Oct-07

Feb-08
Mar-08
Apr-08

Oct-08

Feb-09
Mar-09
Apr-09

Oct-09
Jan-07

Jun-09
Jun-07

Aug-07
Sep-07

Nov-07
Dec-07
Jan-08

Jun-08

Aug-08
Sep-08

Nov-08
Dec-08
Jan-09

Aug-09
Sep-09

Nov-09
Jul-07

Jul-08

Jul-09
May-07

May-08

May-09
FHA Residential VA Residential All Other

Counts from LPS AA Servicing Database

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 2009 FHA Originations performing better than prior four vintages

90 Day Default % for FHA Loans by Loan Age

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48
Payment

2005 2006 2007 2008 2009

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 FICO profile transition has been much more pronounced within FHA product.

FHA Origination by FICO Band

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

< 620 620-679 680-719 >= 720

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 FHA Vintage default curves: FICO 640-659

Percent of Loans in the FICO

bucket within each Vintage FHA
FICO 640-659 90 Day Default % for FICO 640-659
2005 9.29%
2.50%
2006 10.23%
2007 9.97%
2008 11.86%
2009 11.87% 2.00%

1.50%
2005
2006

1.00% 2007
2008
2009
0.50%

0.00%
1 4 7 10 13 16 19 22 25 28 31 34 42
Payment

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 FHA Vintage default curves: FICO 680-699

Percent of Loans in the FICO

bucket within each Vintage FHA
FICO 680-699 90 Day Default % for FICO 680-699
2005 5.44%
1.20%
2006 5.73%
2007 4.94%
2008 8.11% 1.00%
2009 10.89%

0.80%

2005
0.60% 2006
2007

0.40% 2008
2009

0.20%

0.00%
1 4 7 10 13 16 19 22 25 28 31 34 42
Payment

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 FHA Vintage default curves: FICO >= 720

Percent of Loans in the FICO

bucket within each Vintage FHA
FICO >=720 90 Day Default % for FICO>=720
2005 10.02%
0.80%
2006 10.70%
2007 8.59%
0.70%
2008 17.27%
2009 28.31%
0.60%

0.50%
2005
0.40% 2006
2007
0.30%
2008
2009
0.20%

0.10%

0.00%
1 4 7 10 13 16 19 22 25 28 31 34 42
Payment

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 January 2009 Month-end data: Conclusions

• Delinquency rates continue to rise to historic highs, though the pace of deterioration has slowed
somewhat. However, when looking for signs of a recovery, relative stability needs to be evaluated in the
context of delinquency rates that are 2-3 times as high as the period from 1995 to early 2007.
• Extrapolating data from the LPS servicing database, almost 7.5 million loans are in some stage of
delinquency or foreclosure with an additional 1 million properties in REO or post-sale foreclosure.
• From the period January 2009 to January 2010 almost 2.5 million loans that were current became 60 or
more days delinquent. Despite extraordinary loss mitigation efforts that resulted in the execution of
approximately 2 million modifications (including HAMP trial periods), the number of new delinquencies
still exceeds this number by 25%.
• While deterioration is slowing to a degree, the current to 30 day roll rate for January 2010 was still the
highest of any prior comparable period with the age of loans going delinquent sitting at almost 4 years
(up from slightly over 2 years in 2007).

• Foreclosure starts jumped back up to the third highest level (by volume) on record and foreclosure sales
hit a new high. Despite the increased volume, roll rates into foreclosure and REO remain historically low
due to the volume of delinquent loans.
• 2009 Vintage is performing better than any of the prior five years and has been steadily improving as
more origination months are added to the pool. More restrictive under-writing is the primary driver of this
behavior, though within higher FICO ranges early defaults have returned to pre-crisis levels.

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