Real gross domestic product

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1 Real gross domestic product United States Compound annual growth rate Sources: Bureau of Economic Analysis, IHS Global Insight.

2 Employment by sector United States Percent change, year ago Manufacturing Construction Financial Activities Sources: Bureau of Labor Statistics, IHS Global Insight.

3 Mortgage rates United States Percent year fixed year ARM Sources: Mortgage Bankers Association, Moody s Economy.com.

4 Interest rates Fed funds rate vs. 10-year bond yield Percent year T- note yield Federal funds rate Sources: Federal Reserve Board, IHS Global Insight.

5 Mortgage originations United States US$ trillions, SAAR 1.8 US$ trillions, SAAR Purchase originations - L Refinance originations - R Sources: HUD, Federal Reserve, Moody s Economy.com.

6 ARM share of mortgage applications United States Percent Sources: Freddie Mac., Moody s Economy.com

7 Cash out refinancings United States US$ billions Sources: Federal Reserve., Moody s Economy.com.

8 Median single-family home sales United States Percent change, year ago Existing homes New homes Sources: National Association of Realtors, Moody s Economy.com.

9 Single-family housing starts United States Millions of units Sources: U.S. Census Bureau, IHS Global Insight

10 Housing inventory Existing, Single-family homes, United States Millions Available homes for sale (L) Months supply (R) Months Sources: NAR, Moody s Economy.com

11 Price-to-rent ratio United States Ratio Sources: BLS, FHFA, Moody s Economy.com. Milken Institute.

12 Median home price to median family income ratio United States Ratio Sources: U.S. Census, NAR, Moody s Economy.com

13 Homeownership rates United States Percent Sources: U.S. Census, Moody s Economy.com.

14 Housing Affordability rates United States Index Sources: U.S. Census, Moody s Economy.com

15 S&P/Case Shiller index Home price index Index Jan. 2000=100, 3 month ending metro composite 10-metro composite Sources: Standard & Poor's and Fiserv, Inc., Moody s Economy.com.

16 Median existing single-family home price United States Percent change, year ago Sources: National Association of Realtors, Moody s Economy.com.

17 Median home prices in most expensive metros Ranked by biggest decline in 1-year period MSA Q4 10-yr growth 5-yr growth 1-yr growth Santa Cruz-Watsonville, CA $ % -30.6% -48.5% San Francisco-Oakland-Fremont, CA $ % -15.4% -37.4% San Jose-Sunnyvale-Santa Clara, CA $ % -7.7% -37.3% San Diego-Carlsbad-San Marcos, CA $ % -27.0% -36.3% Los Angeles-Long Beach-Santa Ana, CA $ % -6.8% -31.4% Santa Rosa-Petaluma, CA $ % -17.0% -25.3% Santa Barbara-Santa Maria-Goleta, CA $ % -20.4% -24.1% Naples-Marco Island, FL $ % 23.6% -21.8% Bridgeport-Stamford-Norwalk, CT $ % -8.2% -17.5% Barnstable Town, MA $ % -7.0% -14.9% New York-Northern New Jersey-Long Island, NY-NJ-PA $ % 11.8% -14.7% Seattle-Tacoma-Bellevue, WA $ % 33.4% -13.4% Boulder, CO $ % 1.2% -12.7% Boston-Cambridge-Quincy, MA-NH $ % -7.1% -12.0% Honolulu, HI $ % 53.6% -2.4% U.S. average $ % -2.9% -15.7% Sources: NAR, Moody's Economy.com.

18 All states had home price increases From 4Q 2001 to 4Q United States = 43% Sources: Moody s Economy.com, Milken Institute.

19 Forty-seven states had home price declines From 4Q to 4Q United States = -19% Sources: Moody s Economy.com, Milken Institute.

20 Percent of all loans delinquent vs. in foreclosure* United States Percent 8.0 *Started during quarter % of loans in foreclosure (R) % of loans past due (L) Percent Sources: Mortgage Bankers Association, Moody's Economy.com.

21 Percent of all loans delinquent vs. in foreclosure* California Percent *Started during quarter Percent % of loans in foreclosure (R) % of loans past due (L) Sources: Mortgage Bankers Association, Moody's Economy.com.

22 Foreclosure rates* on ARM loans United States Percent * Started during quarter Subprime Prime Sources: Mortgage Bankers Association, Moody's Economy.com.

23 Overview of the housing market Total value of housing stock = $18.3 trillion Mortgage debt $10.5 trillion Subprime 7.3% Prime 92.7% Equity in housing stock $7.8 trillion Securitized 60% Non- Securitized 40% Governmentcontrolled 48% Private sectorcontrolled 52% Note: total residential and commercial mortgages = $14.6 trillion at year-end. Sources: Federal Reserve, Milken Institute.

24 The mortgage problem in perspective 80 million houses 25 million or 31% are paid off 55 million have mortgages 49 million or 89% are paying on time 6 million are behind 11% of 55 million with 3% in foreclosure This compares to 50% seriously delinquent in the 1930s. Sources: U.S. Census, Freddie Mac, Mortgage Bankers Association, Milken Institute.

25 Subprimes take an increasing share of all home mortgage originations US$ trillions % Subprime Subprime's share: 7.8% 7.4% 18.2% 21.3% 20.1% Prime 7.9% 1.5% Sources: Inside Mortgage Finance, Milken Institute.

26 The rise and fall of private-label securitizers New securities issuance Private-label Fannie Mae, Freddie Mac, Ginnie Mae 1985 total = $110 B 2001 total = $1.3 T total = $2.0 T total = $1.2 T 2% 20% 56% 4% 98% 80% 44% 96% Sources: Federal Reserve, Milken Institute.

27 Estimated potential losses From unsecuritized loans October US$ billions Outstanding Estimated Loss Subprime Alt-A Prime 3, Commercial real estate 2, Consumer loans 1, Corporate loans 3, Leveraged loans Total for loans 12, Source: International Monetary Fund.

28 Loss projections by vintage and credit grade 2004 Prime 0.8% 2.0% 3.1% 3.4% Alt-A 2.3% 7.1% 14.0% 13.8% Alt-B 2.8% 10.3% 14.0% 19.3% Subprime 3.1% 10.0% 20.7% 24.1% Sources: Loan Performance, Wachovia Capital Markets, LLC.

29 30+ Re-default rates Q1 loans by loan category Three months after modification Six months after modification (30+ days delinquent) (30+ days delinquent) Prime 23.7% 38.5% Alt-A 36.3% 53.2% Subprime 42.9% 61.3% Other 44.1% 61.0% Source: Comptroller of the Currency Administrator of National Banks.

30 Existing Home Sales Trends Homesale Units Price 7.5 $250 Unit Sales (in millions) $179K 6.8 $195K 7.1 $220K $222K 6.5 $219K 5.7 $199K 4.9 $230 $210 $190 $170 Median Home Price (000s) Source: National Association of Realtors. $150

31 Fannie Mae Housing Forecast Unit sale peak: 7.1M in Unit sale peak: 7.1M in 6.5 Median home price peak: $225K in Median home price peak: $225K in $250 $230 Unit Sales (in millions) $178K 5.2 $166K 5.8 $166K $176K $197K $210 $190 $170 Median Home Price (000s) $150 Source: Fannie Mae. Units Price

32 Housing Affordability Key Determinants 20.0% Family Income vs Single Family Median Price Change vs Prior Year 15.0% 10.0% 5.0% 0.0% 5.0% 10.0% Fam Income SF Med Price 15.0% Source: NAR HAI Index.

33 Thousands 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Millions of homeowners are underwater.. Thousands 16,000 14,000 12,000 10,000 8,000 6,000 4,000..Some deeply underwater Homeowners with % equity, March 0 q1 q2 q3 q4 q1 q2 q3 q4 q1 q2 q3 q4 2009q1 Sources: Equifax, Case-Schiller, Moody s Economy.com, Milken Institute. 2, Percent

34 Percentage of homes purchased between 2004 and that now have negative equity United States = 41% Sources: Zillow.com, Milken Institute.

35 Impact of 10 percent decline in housing sales Impact over next four quarters Percent Category Decline Housing Market Real Gross Private Residential Investment -7.2 Real Gross Private Residential Investment in Equipment -6.9 Median Sales Price of New Single-Family Homes -2.2 Average Sales Price of Existing Single-Family Homes -2.1 Consumer Markets Real Consumer Spending on Furniture and Appliances -3.9 Real Consumer Spending on Other Durables Plus Med. Devices -1.8 Real Consumer Spending on Motor Vehicles and Parts -2.2 Consumer Spending on All Goods and Services -0.7 Business Investment Real Gross Private Nonresidential Investment in Equipment and Software -1.5 Real Gross Private Investment in Nonresidential Structures -1.4 Real Gross Private Fixed Nonresidential Investment -1.5 Employment Total Nonfarm -0.5 Civilian Unemployment Rate (DIFF) 0.4 Real Gross Domestic Product -0.8 Source: Milken Institute.

36 Projected impact of alternative housing proposals on real gross domestic product Compound annual growth rate Milken Institute projection Baseline Principal forgiveness & vesting Mortgage downpayment insurance Sources: BEA, IHS Global Insight, Milken Institute.

37 Projected impact of alternative housing proposals on real consumer spending Compound annual growth rate Baseline Principal forgiveness & vesting Mortgage downpayment insurance Milken Institute projection Sources: BEA, IHS Global Insight, Milken Institute.

38 Projected impact of alternative housing proposals on real residential investment in structures Compound annual growth rate Baseline Principal forgiveness & vesting Mortgage downpayment insurance Milken Institute projection Sources: BEA, IHS Global Insight, Milken Institute.

39 Projected impact of alternative housing proposals on new single-family home sales Millions, annual rate Milken Institute projection Baseline Principal forgiveness & vesting Mortgage downpayment insurance Sources: U.S. Census, IHS Global Insight, Milken Institute.

40 Projected impact of alternative housing proposals on single-family housing starts Millions, annual rate Baseline Principal forgiveness & vesting Mortgage downpayment insurance Milken Institute projection Sources: U.S. Census, IHS Global Insight, Milken Institute.

41 Projected impact of alternative housing proposals on average sales price of existing single-family homes US$ thousands Baseline Principal forgiveness & vesting Mortgage downpayment insurance Milken Institute projection Sources: NAR, IHS Global Insight, Milken Institute.

42 Projected impact of alternative housing proposals on total non-farm payrolls Millions Baseline Principal forgiveness & vesting Mortgage downpayment insurance Milken Institute projection Sources: BLS, IHS Global Insight, Milken Institute.

43 Projected impact of alternative housing proposals on household holdings of real estate and other nonfinancial assets US$ trillions Baseline Principal forgiveness & vesting Mortgage downpayment insurance 34 Milken Institute projection Sources: IHS Global Insight, Milken Institute.

44 SPM Model Projections of House Prices Model Projected House Price Index Actual House Price Index The SPM Cumulative Excess Housing Supply model projects house prices falling through 2010, stabilizing in 2011 and 2012 (at about -42% below the peak), before climbing in The projected changes are -17% in 2009, -9% in 2010, -4% in 2011, +1.5% in 2012, and +7% in Source: Structured Portfolio Management, LLC.

45 How should the government support housing? Loans Loan Refinancing / Modifications Home Purchase Loans Yes. Reduce foreclosures [Non starter] No. Cost: HUGE Benefit: small Yes. Support housing market Delinquent Borrowers Current / Credit worthy