AEI 07-21-2011 Goodman

8/6/2019 AEI 07-21-2011 Goodman

1/14

AmherstSecurities Group, LP, Member FINRA/SIPCThis material has been prepared by individual sales and/or trading personnel and does not constitute investment research.

1Amherst Securities Group LP

AEI Conference

Washington, DC

July 21, 2011

Is Dodd-Frank Regulation Cutting off

Mortgage Credit?

Laurie Goodman

Senior Managing Director

Amherst Securities

8/6/2019 AEI 07-21-2011 Goodman

2/14



Debt

Mortgages,

$10,458

Equity,

$6,408

Value of the US Housing Market

(Dollars in Billion, $16.9 Trillion Total)

Private Label

Universe,

1,195

Agency MBS,

5,327

Unsecuritized

1st Liens at

Comm. Banks,

Savings Inst.,

Credit Unions,

& Fannie /Freddie

Portfolio,

3,010

2nd Liens, 925

Size of the U.S. Mortgage Market

(Dollars in Billion, $10.5 Trillion Total)

The US Mortgage Market Size Snapshot

Source: Federal Reserve as of Q1 2011, Fannie Mae, Freddie Mac, Ginnie Mae, CoreLogic, Amherst Securities as of May 2011

8/6/2019 AEI 07-21-2011 Goodman

3/14



DQ Status

Number of

Loans

% of

Loans Total Balance

% by

Balance

WA MTM

LTV 3Mo cTr 3Mo vPr

3Mo

D/TV

Total NPL 4,501,006 8.2% 943,380,507,426 9.9% 118.5 - - -

Total RPL 3,836,392 7.0% 653,918,485,660 6.9% 105.3 43.7% 2.7% 94.2%

Total APL >120 MTM LTV 2,761,985 5.0% 542,840,326,323 5.7% 140.9 13.8% 5.7% 70.9%

Total APL 100-120 MTM LTV 5,541,784 10.1% 1,088,499,455,331 11.4% 110.7 6.4% 7.5% 45.8%

Total APL 120 MTM LTV 2,761,985 30% 45% 828,595 1,242,893

Total APL 100-120 MTM LTV 5,541,784 15% 20% 831,268 1,108,357

Total APL

8/6/2019 AEI 07-21-2011 Goodman

4/14



Growth of the Shadow Inventory

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Apr 2011

(pro rata)

LoanC

ount

>12M DQ & FCL REO Loans Sold

Date

Shadow

Inventory

Outstanding

REO

Outstanding

Loans

Sold per

Quarter

Avg Loans

Sold per

Month

Current

Overhang

in Months

Q1 2010 1,370,588 432,444 253,901 84,634 28

Q2 2010 2,471,575 450,490 275,980 91,993 27

Q3 2010 2,559,658 497,581 266,737 88,912 29

Q4 2010 2,698,640 494,942 252,815 84,272 32

Q1 2011 2,883,744 470,500 284,271 94,757 30

Apr 2011

(pro rata)2,857,754 489,839 281,708 93,902 30

Source: CoreLogic Prime Servicing Database, CoreLogic Securitized Loan Database, FDIC, Fannie Mae, Freddie Mac, FHA, Amherst Securities

Despite Liquidations averaging 90k per month, since January 2009 the balance of the Shadow Inventory (loans greater than 12 months DQ,loans in foreclosure and REO properties) has increased by an average of 60k each month

These figures DO NOT include any contribution from borrowers less than 12 months DQ, who have a very substantial chance of entering theShadow Inventory over the next year, or re-performing borrowers, who have a reasonable chance of becoming delinquent again over the nearterm

Current Overhang = (Shadow Inventory Outstanding + REO Outstanding) divided by Average Loans Sold Per Month

8/6/2019 AEI 07-21-2011 Goodman

5/14



10.81 million homes are at risk of default over the next 6 years. Even if we try to be

extremely conservative we cant get the number below 8.7 million units.

Estimate of Supply (per Year)

1.45 - 1.80 million distressed units per year

+ 0.40 million units new construction

1.85 - 2.20 million units total annual supply

Estimate of Housing Demand (per Year)

0.65 million demand due to demographics (1.00 million housing formation x 0.65 home ownership)

0.40 million obsolescence

+ 0.20 million second home purchase

1.25 million units total annual demand

1.85 - 2.20 million total supply per year

- 1.25 million total demand per year

0.60 0.95 million units net annual supply

Over the next 6 years:

3.6 5.7 million units

To solve the housing crisis you must create 3.6 to 5.7 million units of housing demand overthe next 6 years.

Mortgage Market Math: Supply/Demand Gap

Source: CoreLogic Prime Servicing Database, CoreLogic Securitized Loan Database, Amherst Securities

8/6/2019 AEI 07-21-2011 Goodman

6/14



Source: CoreLogic, Amherst Securities as of June 2011

The Supply & Demand Function of Housing Is Broken

Status since June 2007 Loan Count % of Loans

Prepaid 19,892,400 36%

Never 90 days DQ 24,549,503 45%

Reached 90+ DQ 7,400,774 14%

Defaulted 2,954,733 5%

Total Outstanding ResidentialMortgages as of June 2007

54,797,410 100%

Based upon payment history of mortgages originated before June 2007,19% of all homeowners NO LONGER QUALIFYfor a mortgage loan based solely upon Payment History.

We have only liquidated ~30% of the loans that are in trouble

8/6/2019 AEI 07-21-2011 Goodman

7/14


7

Source: Freddie Mac Loan Level Data, Amherst Securities

Orig

Year

Orig

FICO

% FICO

< 675 Orig LTV

% Orig

LTV > 80

% Balance

> 90 LTV

2010 762 3 67 7 3

2009 762 3 66 7 2

2008 741 11 71 19 8

2007 723 21 74 20 12

2006 726 19 73 13 6

Origination Characteristics (excluding HARP refi loans)

Origination Characteristics Are Quite High

D

rivingM

arket

D

ynam

ics

0

5

10

15

20

25

%P

urchaseIssuance

% Purchase Issuance, LTV > 80 & FICO < 700

8/6/2019 AEI 07-21-2011 Goodman

8/14



GNMA Has Become The Major Outlet For Purchasing A Home(All Are %s In Loan Count Terms)

Source: Freddie Mac, Fannie Mae, Ginnie Mae, Inside MBS & ABS, Amherst Securities

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

5/1/2

005

8/1/2

005

11/1/2005

2/1/2

006

5/1/2

006

8/1/2

006

11/1/2006

2/1/2

007

5/1/2

007

8/1/2

007

11/1/2007

2/1/2

008

5/1/2

008

8/1/2

008

11/1/2008

2/1/2

009

5/1/2

009

8/1/2

009

11/1/2009

2/1/2

010

5/1/2

010

8/1/2

010

11/1/2010

2/1/2

011

5/1/2

011

%S

hareofPurchaseByLoanCount

GNMA Share of Total Agency Volume

0%

10%

20%

30%

40%

50%

60%

70%

5/1/2

005

8/1/2

005

11/1/2005

2/1/2

006

5/1/2

006

8/1/2

006

11/1/2

006

2/1/2

007

5/1/2

007

8/1/2

007

11/1/2

007

2/1/2

008

5/1/2

008

8/1/2

008

11/1/2

008

2/1/2

009

5/1/2

009

8/1/2

009

11/1/2

009

2/1/2

010

5/1/2

010

8/1/2

010

11/1/2010

2/1/2

011

5/1/2

011

%ShareofPurchaseByLoanCount

GNMA Share of Purchase Volume

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

5/1/2005

8/1/2005

11/1/2005

2/1/2006

5/1/2006

8/1/2006

11/1/2006

2/1/2007

5/1/2007

8/1/2007

11/1/2007

2/1/2008

5/1/2008

8/1/2008

11/1/2008

2/1/2009

5/1/2009

8/1/2009

11/1/2009

2/1/2010

5/1/2010

8/1/2010

11/1/2010

2/1/2011

5/1/2011

%S

hareofPurcha

seByLoanCount

GNMA Share of Total Refi Volume

0%

10%

20%

30%

40%

50%

60%

70%

80%

5/1/2005

9/1/2005

1/1/2006

5/1/2006

9/1/2006

1/1/2007

5/1/2007

9/1/2007

1/1/2008

5/1/2008

9/1/2008

1/1/2009

5/1/2009

9/1/2009

1/1/2010

5/1/2010

9/1/2010

1/1/2011

5/1/2011

%ShareofPur

chaseByLoanCount

Agency Purchase Volume Share of Total

GNMA

Purchase /

GNMA Total

FNMA

Purchase /

FNMA Total

FHLMC

Purchase /

FHLMC Total

8/6/2019 AEI 07-21-2011 Goodman

9/14



QRM and QM, as Proposed, Crimp Credit Availability

Risk Retention: 5% for all loans that are not QRMs, GSE loans exempt

What is a QRM? A very tight definition Be a closed end 1st lien mortgage to purchase or refinance a 1-4 family property, at least

one unit of which is the principal dwelling of the borrower. (Investor loans cannot be

QRM loans).

Have a maximum maturity of 30 years.

No other lien on the mortgage can, to the creditors knowledge, exist at closing of the

mortgage transaction (i.e., a junior lien cannot be used in conjunction with a QRM to

purchase a home). The Agencies wanted to incorporate credit score, but were reluctant to use FICO or

another measure designed by a private entity, as models may change materially at an

entitys discretion. Instead, a set of derogatory factors was used; each lowers a

borrowers credit score significantly; thus using derogatory events was thought to be a

good proxy for credit scores. A mortgage can qualify as a QRM if the borrower was not>30 days past due, in whole or in part on any obligation at the time of closing, and the

borrower had not been >60 past due on any debt obligation within the preceding 24months. A borrower must not have, within the preceding 36 months been a debtor in a

bankruptcy proceeding, had property repossessed or foreclosed upon, engaged in a

short sale or deed-in-lieu of foreclosure, or been subject to a Federal or State judgmentfor collection of any unpaid debt. Legend:

QRM: Qualified Residential MortgageQM: Qualified MortgageSource: US Congress, Amherst Securities

8/6/2019 AEI 07-21-2011 Goodman

10/14



QRM and QM, as Proposed, Crimp Credit Availability

(Continued from previous page)

Mortgages cannot be structured with interest only payments, negative amortization, or

balloon payments, or prepayment penalties.

Interest rates on hybrid ARMs cannot increase more than 2%/year (or 6% over the life of

the loan). Thus, 5/1 hybrids with a 5/2/5 cap structure (5% at the first reset, 2% atsubsequent resets. 5% life cap) would not qualify, as the initial reset could potentially

introduce too big a payment shock.

The maximum LTV would be 80% for purchase loans, 75% for rate andterm refi loans, and 70% for cash out refinancing. The LTV must reflectthe appraised value of the home if the purchase price was higher thanthe appraised value. Down payments can include gifts, but not loans.

The maximum front-end DTI would be 28%; the maximum back-end DTIwould be 36%.

What is QM? Ability to pay 2 ways to implementas a safe harbor, as a rebuttable presumption

Interaction between QM and QRMIf QM was done as a rebuttable presumption,QRM could be the new standard

Source: US Congress, Amherst Securities

AS 031107

8/6/2019 AEI 07-21-2011 Goodman

11/14

This material has been prepared by individual sales and/or trading personnel and does not constitute investment research.

Amherst Securities Group, LP, Member FINRA/SIPC

11

ST

R

IC

T

LY

P

R

IV

A

T

E

&

C

O

N

FID

E

N

T

IA

L

QRM: What Percentage GSE Loans Qualify?

AS-031107

Source: Office of the Comptroller of the Currency Docket No. OCC-2011-0002

Year QRM PTI/DTI Relaxed LTV Relaxed FICO Relaxed Product Type Relaxed All Loans

1997 20.44% 13.04% 13.74% 5.81% 3.75% 286,497,878,371.00$

1998 23.29% 13.30% 17.10% 6.24% 2.17% 691,033,994,509.00$

1999 19.48% 14.83% 12.95% 5.37% 3.16% 481,450,519,442.00$

2000 16.44% 17.00% 8.40% 4.53% 3.70% 356,779,731,420.00$

2001 19.37% 14.33% 13.11% 4.62% 3.01% 1,039,412,013,403.00$

2002 22.37% 15.35% 10.72% 4.62% 4.28% 1,385,056,256,240.00$

2003 24.57% 16.68% 10.02% 4.98% 4.55% 1,924,265,340,603.00$2004 17.03% 17.68% 6.25% 4.34% 6.35% 937,643,914,289.00$

2005 14.41% 18.78% 5.45% 3.36% 6.74% 939,069,358,457.00$

2006 11.52% 17.59% 3.91% 2.73% 7.11% 887,443,942,464.00$

2007 10.72% 16.14% 4.95% 2.24% 5.44% 1,027,460,511,244.00$

2008 17.39% 22.01% 9.22% 2.12% 4.64% 793,136,249,487.00$

2009 30.52% 24.47% 15.26% 1.74% 3.38% 1,176,445,135,548.00$

Total 19.79% 17.36% 9.86% 3.91% 4.62% 11,925,694,845,477.00$

Drivin

gM

arket

Dynam

ics

AS 031107

8/6/2019 AEI 07-21-2011 Goodman

12/14



12

ST

R

IC

T

LY

P

R

IV

A

T

E

&

C

O

N

FID

E

N

T

IA

L

Rental Demand Is Outpacing Rental Supply

AS-031107

60.0

61.0

62.0

63.0

64.0

65.0

66.0

67.0

68.0

69.0

70.0

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20102011

HomeownershipRate(%)

RentalYield

(Annualized,%)

Year / Quarter

Rental Yield * (Left Axis) Homeownership Rate (Right Axis)

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

MultiFamilyYoYRentGrowth(%)

MultiFamilyVacancyRate(%)

MultiFamily Vacancy Rate (Left Axis) MultiFamily YoY Rent Growth (Right Axis)

Residential Homeownership Has Declined, Rental Yield Has Increased

Multifamily Rents Are Up, Vacancies Are Down

* - Rental Yield = Median Rent / Median Sales Price

Source: US Census, PPR, Amherst Securities

Foreclosures

More Evictions

More Renters

Higher RentPrices

Lower

Affordability

Solution: InvestorProperty for Rent

Drivin

gM

arket

Dynam

ics

8/6/2019 AEI 07-21-2011 Goodman

13/14



13

ST

R

IC

T

LY

P

R

IV

A

T

E

&

C

O

N

FID

E

N

T

IA

L

4

5

6

7

8

9

10

11

12

7/14/1989

7/14/1990

7/14/1991

7/14/1992

7/14/1993

7/14/1994

7/14/1995

7/14/1996

7/14/1997

7/14/1998

7/14/1999

7/14/2000

7/14/2001

7/14/2002

7/14/2003

7/14/2004

7/14/2005

7/14/2006

7/14/2007

7/14/2008

7/14/2009

7/14/2010

7/14/2011

FreddieMacSurveyRate(%)

Primary Mortgage Rate History

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

10/1/2006

1/1/2007

4/1/2007

7/1/2007

10/1/2007

1/1/2008

4/1/2008

7/1/2008

10/1/2008

1/1/2009

4/1/2009

7/1/2009

10/1/2009

1/1/2010

4/1/2010

7/1/2010

10/1/2010

1/1/2011

4/1/2011

HPDSincePeak(%)

S&P/CS Cumulative HPD Since 2006 Peak

Prices Down, Rates Low Affordability is at a 20 Year High

Source: Freddie Mac, National Association of

Realtors, S&P/Case-Shiller, Amherst Securities

80

100

120

140

160

180

200

4/1

/1987

3/1

/1988

2/1

/1989

1/1

/1990

12/1

/1990

11/1

/1991

10/1

/1992

9/1

/1993

8/1

/1994

7/1

/1995

6/1

/1996

5/1

/1997

4/1

/1998

3/1

/1999

2/1

/2000

1/1

/2001

12/1

/2001

11/1

/2002

10/1

/2003

9/1

/2004

8/1

/2005

7/1

/2006

6/1

/2007

5/1

/2008

4/1

/2009

3/1

/2010

2/1

/2011

Housing Affordability Composite Index

8/6/2019 AEI 07-21-2011 Goodman

14/14



Disclaimer

Amherst Securities Group LP has prepared this report incorporating information provided by third party market data sources. Although

Amherst Securities Group LP believes this information to be reliable, it cannot be held responsible for inaccuracies in such third party

data or the data supplied to the third party by issuers or guarantors. Amherst Securities Group LP cannot and does not make any claim

as to the prepayment consistency and/or the future performance of any securities or structures. CMO and Mortgage-backed yields and

cash flow projections are calculated using estimates based on assumed prepayment assumptions that may or may not be met as of the date

of this report, and are quoted as bond equivalent yields unless otherwise noted. Changes in prepayment rates and/or payments may

significantly affect yield, price, total return and average life. Prices, quotes, yields, call features and availability are subject to change

without notice. Market prices are only indicators and are subject to changes in market conditions and subject to prior sale and price

change. This report is for analytical use only and is not intended as an offer or solicitation with respect to the purchase or sale ofsecurities. The decision of whether to adopt any strategy or to engage in any transaction and the decision of whether any strategy or

transaction fits into an appropriate portfolio structure remains the responsibility of the customer and/or its advisors. This material has

been prepared by individual sales and/or trading personnel and does not constitute investment research. Please contact your representative

for information on Collateralized Mortgage Obligations (CMO) and how they react to different market conditions.

Copyright 2011 Amherst Securities Group, LP. All Rights Reserved. This document has been prepared for the use of Amherst clients

and may not be republished, redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express

written consent of Amherst. Any unauthorized use or disclosure is prohibited, and receipt and review of this document constitutes your

agreement to abide by the restrictions specified in this paragraph.

Documents

AEI 07-21-2011 Goodman