Brean Capital, LLC. Offering Price Class A-1 Certificates: / 32 % Class A-2 Certificates: 98-00% Sole Book-Runner, Manager

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1 La Hipotecaria Panamanian Mortgage Trust (LH Delaware Trust) Approximately U.S. $56,250,000 Trust Certificates (Series Class A-1 Guaranteed Certificates) Approximately U.S. $4,500,000 Trust Certificates (Series Class A-2 Non-Guaranteed Certificates) Banco La Hipotecaria, S.A. (Grantor) Overseas Private Investment Corporation (Guarantor) Citicorp Trust Delaware, National Association (Grantor Trustee) Citibank, N.A. (Paying Agent and Transfer Agent) La Hipotecaria Panamanian Mortgage Trust (the "LH Delaware Trust"), will issue two classes of trust certificates (the "Class A-1 Certificates" and the "Class A-2 Certificates" and together, the "Series Certificates"), which will be offered for sale hereby, as well as one class of residual interest certificates which will not be offered hereby. The only assets of the LH Delaware Trust will be the Series A Notes, which are described below. For the Class A-1 Certificates only, the payment of current interest on each Distribution Date and the then unpaid principal on the Final Scheduled Distribution Date as described herein will be guaranteed by the Overseas Private Investment Corporation ("OPIC" or the "Guarantor"), an agency of the United States of America, which guaranty is backed by the full faith and credit of the United States of America. Banco La Hipotecaria, S.A. (the "Grantor" or "La Hipotecaria") will cause the LH Delaware Trust to acquire $60,750,000 of the total $68,250,000 Series A Notes (the "Series A Notes") issued by the Twelfth Mortgage-Backed Notes Trust, a fideicomiso governed by the laws of the Republic of Panama (the "Issuer Trust"). The Issuer Trust will also issue $6,000,000 of mezzanine notes (the "Series B Notes") and $750,000 of subordinated notes (the "Series C Notes"). Only the Series Certificates are being offered hereby. The Series A Notes will be supported by a Panamanian Group of Mortgages (see "Group of Mortgages" in this Private Placement Memorandum) and will be rated "BBB" by Fitch based on credit enhancement. For the Series A Notes, such credit enhancement will consist primarily of (i) "Excess Spread," which is the difference between the amount of interest collected on the Group of Mortgages and the amount of interest accrued on the Series A Notes, (ii) the subordination of the Series B Notes and the Series C Notes, (iii) an Interest Reserve Account (as defined herein) and (iv) solely for the purpose of protecting against a failure to register the assignment of the Group of Mortgages to the Collateral Trust as described further herein, a Performance Bond provided by ASSA Compañía de Seguros, S.A. Cover continued on next page Offering Price Class A-1 Certificates: / 32 % Class A-2 Certificates: 98-00% Sole Book-Runner, Manager Brean Capital, LLC Private Placement Memorandum dated July 23, 2014

2 Interest on the Series Certificates will be payable on a monthly basis as described herein. The Mortgage Loans in the Group of Mortgages bear interest at various rates, calculated on the simple interest method, which is a rate substantially equivalent to the Panamanian Reference Rate (as defined herein). The Series A Notes will pay interest on a monthly basis at a rate equal to the greater of (a) Panamanian Reference Rate minus 1.60% per annum and (b) 0.642% per annum. The Class A-1 Certificates will pay interest on a monthly basis, at a rate equal to the greater of (x) the Panamanian Reference Rate minus 2.242% per annum and (y) 0.00% per annum. The Class A-2 Certificates will pay interest on a monthly basis, at a rate equal to the greater of (x) (1) the Panamanian Reference Rate minus (2) 1.642% per annum plus (3) at any time the Guaranty Fee is the Accelerated Guaranty Fee (each as defined herein), 1.00% per annum and at any other time, 0.00% per annum and (y) 0.60% per annum. The Series A Notes will mature on November 24, 2042, or upon the last stated maturity of the Mortgage Loans, whichever occurs first (the "Maturity Date"). Based upon such Maturity Date, the Series Certificates will have a Final Scheduled Distribution Date of five Business Days after such Maturity Date. The Series Certificates will not be registered under the Securities Act of 1933, as amended (the "Securities Act") or any state securities laws. In the United States, the Series Certificates are being sold to "qualified institutional buyers" ("QIBs"), as defined under Rule 144A under the Securities Act ("Rule 144A"). The Series Certificates are being offered outside the United States to non-u.s. Persons ("Non-U.S. Persons"), as defined under Regulation S under the Securities Act ("Regulation S") in accordance with Regulation S. Additionally, as a condition of the provision by the Guarantor of the Guaranty, 25% of the initial Class A-1 Certificateholders and 100% of the initial Class A-2 Certificateholders, based on the initial Certificate Principal Balance of the Class A-1 Certificates and the Class A-2 Certificates, respectively, on the Closing Date, (i) must be U.S. citizens or entities beneficially owned by U.S. citizens, (ii) must covenant not to sell, assign, transfer or otherwise dispose of such Class A-1 Certificate or Class A-2 Certificate, respectively, for a period of 40 days, (iii) must not be a partnership or other tax pass-through entity or, if such Class A-1 Certificateholder or Class A-2 Certificateholder is such an entity, none of the direct or indirect beneficial owners of such entity have allowed, or caused, or will allow or cause, 50% or more of the value of such interests to be attributable to its ownership of the Class A-1 Certificates (or interests therein) or Class A-2 Certificates (or interests therein), respectively, and (iv) must execute and deliver an investor letter (which includes certifications relating to clauses (i), (ii) and (iii)) which is attached as Exhibit A hereto. By accepting its Series Certificate, each investor will be deemed to covenant that it will not sell, offer or transfer such Certificate to a resident of Panama, except pursuant to any exemption from the registration requirements of, and otherwise in compliance with, all relevant securities laws and regulations in Panama, or except in circumstances that do not constitute a public offering or distribution under Panama laws and regulations. The underlying Series A Notes will be issued publicly in Panama through the Securities Exchange of Panama (Bolsa de Valores de Panama, S.A.). Delivery of the Series Certificates will be made in book-entry form only through the facilities of The Depository Trust Company ("DTC") in New York, New York, including for the account of Euroclear Bank S.A./N.V., as operator of the Euroclear System ("Euroclear"), and Clearstream Banking, société anonyme ("Clearstream, Luxembourg"), against payment therefor in immediately available funds. Investing in the Series Certificates involves risks. Prospective investors should consider the factors set forth under "Risk Factors" beginning on page 25 of this Private Placement Memorandum. This Private Placement Memorandum is confidential and is not to be shown or given to any person other than the person who is an intended recipient and is not to be copied or otherwise reproduced. Failure to comply with this directive could result in a violation of the Securities Act. No person has been authorized to give any information or to make any representations other than those contained in this Private Placement Memorandum and, if given or ii

3 made, such information and representations must not be relied upon. The delivery of this Private Placement Memorandum at any time does not imply that the information herein is correct as of any time subsequent to its date. The Series Certificates are solely obligations of the LH Delaware Trust and do not represent an interest in or obligations of, and are not insured or guaranteed by, the Initial Purchaser, the Grantor, the Paying Agent, the Grantor Trustee (each, as defined herein or any other persons except the Guarantor (to the extent described in this Private Placement Memorandum). The Series A Notes do not represent an interest in or obligations of, and are not insured or guaranteed by, the Issuer Trustee, the Collateral Trustee, the Assignor, the Primary Servicer, BG Valores, S.A. (each, as defined herein) or any other person except the Issuer Trust. The Group of Mortgages is not insured or guaranteed by any private company or by any Panamanian state, local or federal agency. The Series Certificates have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission, nor has the Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this Private Placement Memorandum. Any representation to the contrary is a criminal offense. The Series Certificates have not been, and will not be, registered with the Securities Market Superintendency of the Republic of Panama (the Superintendencia del Mercado de Valores de Panamá) under decree-law No. 1 of 8 July 1999 (the "Securities Law"), and may not be offered or sold in the Republic of Panama, except in transactions exempted from the registration requirements of the Securities Law. If the Series Certificates are offered in the Republic of Panama in transactions exempted from registration, such securities would not be subject to supervision by the Securities Market Superintendence of Panama. THIS PRIVATE PLACEMENT MEMORANDUM HAS BEEN PREPARED BY AND IS THE SOLE RESPONSIBILITY OF THE LH DELAWARE TRUST AND LA HIPOTECARIA. OPIC DOES NOT EXPRESS ANY OPINION REGARDING, AND HAS NOT PASSED UPON, THE ACCURACY OR ADEQUACY OF THE DISCLOSURES CONTAINED HEREIN. NEITHER CITICORP TRUST DELAWARE, NATIONAL ASSOCIATION, CITIBANK, N.A., OPIC NOR THE UNITED STATES GOVERNMENT OR ANY OTHER AGENCY THEREOF IS OR SHALL BE DEEMED TO BE A SPONSOR OF THE OFFERING DESCRIBED IN THIS PRIVATE PLACEMENT MEMORANDUM OR TO HAVE PASSED UPON THE MERITS OF THIS OFFERING. NONE OF CITICORP TRUST DELAWARE, NATIONAL ASSOCIATION, CITIBANK, N.A., OPIC, THEIR RESPECTIVE OFFICERS, DIRECTORS, OR ANY OF ITS EMPLOYEES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO, NOR HAS ANY RESPONSIBILITY FOR, THE ACCURACY OR THE COMPLETENESS OF THE INFORMATION CONTAINED IN THIS PRIVATE PLACEMENT MEMORANDUM, OTHER THAN, IN THE CASE OF OPIC, IN THE SECTION HEADED "THE GUARANTOR." A DESCRIPTION OF THE OPIC GUARANTY IS INCLUDED HEREIN. SUCH DESCRIPTION DOES NOT PURPORT TO BE COMPREHENSIVE OR DEFINITIVE. ALL STATEMENTS MADE HEREIN WITH RESPECT TO THE OPIC GUARANTY ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH DOCUMENT. Brean Capital, LLC, as initial purchaser (the "Initial Purchaser") of the Series Certificates, expects to deliver the Series Certificates on or about July 29, iii

4 TABLE OF CONTENTS TRANSACTION STRUCTURE DIAGRAM... vii SUMMARY OF TERMS... 1 Summary of Terms of the Series Certificates... 1 Summary of Terms of the Underlying Series A Notes... 7 RISK FACTORS Limited Liquidity Restrictions on Transfer Complex Securities Limited Assets Prepayment Risk Risks Related to Disclosure Minimum Alternative Income Tax of the Issuer Trust Combination or "Layering" of Multiple Risk Factors Forward-Looking Statements Political Risks Enforcement of Judgments and Service of Process Potential Conflicts of Interest Limited Assets; Limited Recourse Obligations Political and Economic Risks Debtors May Default in their Payment Obligations Subsidized Mortgage Loans Geographic Concentration; Social, Economic, Meteorological and Geological Factors Mortgage Loan Servicing Risk Originators and Servicers may be Subject to Litigation, Governmental Proceedings or Adverse Economic Conditions Variable Rate Mortgage Loans Real Estate Taxes and Assessments and Servicer Advances Risk of Commingling Public Registry Composition of Group of Mortgages General Economic Risks Related to Panama General Political Risks Related to Panama Risks Associated with the Panamanian Monetary System THE LH DELAWARE TRUST THE ISSUER TRUST AND THE COLLATERAL TRUST BANCO LA HIPOTECARIA Current Corporate Structure La Hipotecaria's Directors Principal Executives of La Hipotecaria La Hipotecaria's Business Plan Laws that Affect the Industry The Origination of Mortgage Loans Types of Mortgage Loans Valuation Procedures and Appraisal Methodology General Collection Policies iv

5 Procedures for Collection of Payments Procedures for Foreclosure and Recovery of Guaranties Delinquency and Loss USE OF PROCEEDS PREPAYMENT AND YIELD CONSEQUENCES Expected Final Distribution Date Final Scheduled Distribution Date Modeling Assumptions Weighted Average Life Default, Recovery and Prepayment Assumptions REPORTING AMENDMENT AMENDMENTS TO SERIES A NOTES AND PANAMANIAN TRANSACTION DOCUMENTS ACQUISITION OF THE SERIES A NOTES BY THE LH DELAWARE TRUST THE GROUP OF MORTGAGES EXAMPLES OF HOMES IN PANAMA FINANCED BY LA HIPOTECARIA DESCRIPTION OF THE PANAMANIAN TRANSACTION DOCUMENTS Servicing Agreement Mortgage Transfer Agreement Panama Broker Agreement Note Payment Agent Agreement Performance Bond Panama Escrow Agreement Letter of Credit THE GUARANTOR THE GUARANTY CERTAIN LEGAL ASPECTS RELATING TO THE MORTGAGE LOANS UNDER PANAMA LAW General Sale of the Mortgage Loans Foreclosures of Panamanian Mortgages GOVERNING LAW CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES CERTAIN PANAMANIAN TAX CONSIDERATIONS Taxation of Interest Taxation of Dispositions Stamp and Other Taxes Foreign Investors v

6 NO PURCHASE OF CERTIFICATES BY EMPLOYEE BENEFIT PLANS PLAN OF DISTRIBUTION Series Certificates Are Not Being Registered NOTICE TO INVESTORS ADDITIONAL INFORMATION EXHIBIT A EXHIBIT B APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E FORM OF OPIC INVESTOR LETTER FORM OF EMPLOYEE BENEFIT PLAN LETTER STATISTICAL INFORMATION AS TO THE GROUP OF MORTGAGES AS OF THE CUT-OFF DATE BOOK-ENTRY REGISTRATION, GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES STATIC POOL ANALYSIS CERTIFICATE CASH FLOWS DEFAULT AND RECOVERY INFORMATION INDEX OF DEFINED TERMS vi

7 TRANSACTION STRUCTURE DIAGRAM The following diagram provides a simplified overview of the structure of Series Certificates transaction. You should read this private placement memorandum in its entirety for a more detailed description of the transaction. vii

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9 SUMMARY OF TERMS Summary of Terms of the Series Certificates Securities Offered: The La Hipotecaria Panamanian Mortgage Trust Series Certificates: Class A-1 Certificates with an initial principal amount of U.S. $56,250,000 (the "Class A-1 Certificates"); and Class A-2 Certificates with an initial principal amount of U.S. $4,500,000 (the "Class A-2 Certificates" and, together with the Class A-1 Certificates, the "Series Certificates"). Each of the Series Certificates will represent a beneficial interest in the LH Delaware Trust. At any time, the principal amount of a Series Certificate is its "Certificate Principal Balance". Denominations: LH Delaware Trust: Grantor Trustee: Grantor: Certificate Paying Agent: Guarantor: LH Delaware Trust Assets: The Series Certificates will be issued in minimum denominations of U.S. $100,000 and integral multiples of U.S. $1,000 in excess thereof. The La Hipotecaria Panamanian Mortgage Trust , a Delaware statutory trust, which is to be governed pursuant to an Amended and Restated Grantor Trust Agreement (the "LH Delaware Trust Agreement"), dated as of the Closing Date, among the Grantor Trustee, the Certificate Paying Agent (also acting in the capacity of the Transfer Agent and the Authenticating Agent therein) and the Grantor. The LH Delaware Trust will be created and administered under the laws of the state of Delaware for the limited purposes of the issuance and sale of the Series Certificates, obtaining the LH Delaware Trust Assets (as defined in this Private Placement Memorandum) and an investment guaranty from the Guarantor and making payment of interest and principal on the Series Certificates. Citicorp Trust Delaware, National Association, a national banking association, will act as trustee of the LH Delaware Trust. Banco La Hipotecaria, S.A. ("La Hipotecaria"), a Panama corporation. Citibank, N.A., a national banking association. Overseas Private Investment Corporation, an agency of the United States federal government. Approximately U.S. $60,750,000 in aggregate principal amount of the Series A Notes. Closing Date: On or about July 29, Ratings: The Class A-1 Certificates will be rated "AAA" by Fitch Ratings, Inc. ("Fitch"), based primarily on the credit of the Guarantor, which is backed by the full faith and

10 credit of the United States. The Class A-2 Certificates will be rated "BBB" by Fitch. The Series A Notes underlying the Series Certificates will be rated "BBB" (global) by Fitch. Guaranty: The Class A-1 Certificates will have the benefit of the Guaranty (the "Guaranty") issued by the Guarantor providing for (i) the timely payment of interest on the Class A-1 Certificates and (ii) the payment of the Certificate Principal Balance that remains outstanding of the Class A-1 Certificates on the Final Scheduled Distribution Date. The Class A-2 Certificates will not have the benefit of the Guaranty. The "Guaranty Term" shall commence on the Closing Date and expire on the close of business on the Final Scheduled Distribution Date. Distribution Date: Interest and, to the extent described below, principal, on the Series Certificates will be payable on the fifth Business Day after the related Payment Date, as defined in this Private Placement Memorandum (the "Distribution Date"). The first Distribution Date will be September 15, A "Business Day" is a day other than Saturday, Sunday or a day on which the Guarantor, the Grantor Trustee or banking institutions in the Republic of Panama or New York City or the city in which the corporate trust office of the Grantor Trustee or the Certificate Paying Agent are authorized by applicable law or executive order to close. Monthly Interest: Certificate Rate: Interest on the Series Certificates will be payable on each Distribution Date with respect to the related Accrual Period (as defined below). The Accrual Period for the Series Certificates is identical to the Accrual Period for the Series A Notes. Interest on the Series Certificates will accrue at (x) the Certificate Rate multiplied by (y) a fraction the numerator of which is, in the case of the first Accrual Period (based on a month consisting of 30 days), the number of days commencing on and including the Closing Date and ending on and including the last calendar day (regardless of whether such calendar day is a Business Day or not) immediately preceding the fifth Business Day after the Payment Date of the month in which the first Payment Calculation Date occurs, and thereafter 30 days, and the denominator of which is 360 days. With respect to each Distribution Date and (a) the Class A-1 Certificates, a rate of interest equal to the greater of (x) the Panamanian Reference Rate (which is described below under "Summary of Terms of the Underlying Series A Notes Panamanian Reference Rate") minus 2.242% per annum and (y) 0.00% per annum and (b) the Class A-2 Certificates, a rate of interest equal to the greater of (x) (1) the Panamanian Reference Rate minus (2) 1.642% per annum plus (3) at any time the Guaranty Fee is the Accelerated Guaranty Fee, 1.00% per annum and at any other time, 0.00% per annum and (y) 0.60% per annum. The Certificate Rate with respect to each Accrual Period and the related Distribution Date will be determined on the eighth calendar day of the month immediately prior to the month in which such Distribution Date occurs. 2

11 Monthly Principal: Grantor Trustee Fee: Guaranty Fee: On any Distribution Date other than the Final Scheduled Distribution Date, principal will be paid, to the extent of the funds available for such purpose, on the Series Certificates in an amount equal to the sum of all the payments received by the LH Delaware Trust in respect of principal on the underlying Series A Notes. For each Distribution Date, the product of (i) the Certificate Principal Balance of the Series Certificates on the first day of the related Accrual Period times (ii) 0.042% per annum times (iii) with respect to the first Distribution Date (based on a month consisting of 30 days), the number of days commencing on and including the Closing Date and ending on and including the last calendar day (regardless of whether such calendar day is a Business Day or not) immediately preceding the fifth Business Day after the Payment Date of the month in which the first Payment Calculation Date occurs, and with respect to each subsequent Distribution Date, 30 days, in each case divided by 360. For each Accrual Period on the first day of which neither an Event of Default (as defined this Private Placement Memorandum) has occurred and is continuing, nor has a Claim been submitted to the Guarantor, a fee due and payable on the Distribution Date immediately following the end of such Accrual Period and equal to (x) 0.60% of the Certificate Principal Balance of the Class A-1 Certificates on the first day of such Accrual Period (after giving effect to any principal payments made on such Distribution Date), multiplied by (y) a fraction the numerator of which is, in the case of the first Accrual Period (based on a month consisting of 30 days), the number of days commencing on and including the Closing Date and ending on and including the last calendar day (regardless of whether such calendar day is a Business Day or not) immediately preceding the fifth Business Day after the Payment Date of the month in which the first Payment Calculation Date occurs, and thereafter 30 days, and the denominator of which is 360 days (such fee paid on any Distribution Date, the "Guaranty Fee"). As of the first day of the Accrual Period immediately following the first to occur of (i) an Event of Default (and whether or not the Series A Notes have been accelerated as a consequence thereof), and (ii) a Claim being submitted to the Guarantor under the Guaranty, the Guaranty Fee will cease to accrue and the Accelerated Guaranty Fee shall become due and payable. The "Accelerated Guaranty Fee" means an amount equal to the present value on such day of all future payments of Guaranty Fees that, but for the occurrence of such Event of Default would have become due and payable hereunder as provided in Section 5.1 of the Guaranty assuming, for purposes of the calculation, a Guaranty Fee equal to 1.60% per annum (instead of 0.60% per annum). The amount of Accelerated Guaranty Fee will be calculated by the Guarantor on the basis of (a) the Guarantor's base-case projected future amortization of the Class A-1 Certificates as of the Closing Date, and (b) a discount rate equal to the arithmetic mean of the rates published for the five (5) Business Days preceding the applicable calculation date in the weekly statistical release designated H.15 (519) (or any successor publication) of the Board of Governors of the Federal Reserve System under the caption "US Government Securities Treasury Constant Maturities" opposite the maturity corresponding to the remaining average life of the Class A-1 Certificates; provided that, if no maturity exactly corresponding to such remaining average life shall appear therein, yields for the closest published maturities which are greater and less than such remaining average 3

12 life shall be calculated pursuant to the foregoing sentence and the discount rate shall be interpolated from such yields on a straight-line basis, rounding in each of such relevant periods, to the nearest month on the date the computation is made. Certificate Available Funds: Class A-1 Certificate Allocable Portion: Class A-2 Certificates Allocable Portion: Certificate Priority of Payments: For each Distribution Date, "Certificate Available Funds" will equal amounts received by the Grantor Trustee as payments on the Series A Notes on the immediately preceding Payment Date. The "Class A-1 Certificates Allocable Portion" means, with respect to any specified amount, (a) such amount multiplied by (b) the percentage resulting from dividing (i) the initial Certificate Principal Balance of the Class A-1 Certificates by (ii) the aggregate initial Certificate Principal Balance of the Series Certificates. The "Class A-2 Certificates Allocable Portion" means, with respect to any specified amount, (a) such amount multiplied by (b) the percentage resulting from dividing (i) the initial Certificate Principal Balance of the Class A-2 Certificates by (ii) the aggregate initial Certificate Principal Balance of the Series Certificates. On each Distribution Date, the Paying Agent will distribute Certificate Available Funds pari passu in accordance with the two sequences of priority set forth below: (I) the Class A-1 Certificates Allocable Portion of the payments received by the LH Delaware Trust in respect of the Series A Notes shall be applied as follows: 1. to the Grantor Trustee, any accrued and unpaid Class A-1 Certificates Allocable Portion of Grantor Trustee Fees; 2. to the Guarantor, any accrued and unpaid Guaranty Fee plus interest accrued thereon as contemplated by Section 5.3(a) of the OPIC Guaranty so long as no Accelerated Guaranty Fee is due; 3. to the Class A-1 Certificateholders, Monthly Interest as of such Payment Date; 4. to the Class A-1 Certificateholders, Monthly Principal until the Certificate Principal Balance of the Class A-1 Certificates equals zero; 5. to the Guarantor, the Accelerated Guaranty Fee, if any, plus interest accrued thereon; 6. to the Guarantor, reimbursement of any claims paid under the Guaranty and any other amounts payable to the Guarantor under the LH Delaware Trust Agreement and the Guaranty between the LH Delaware Trust, La Hipotecaria and the Guarantor; 7. to the Initial Purchaser and the Guarantor, certain indemnity payments; 8. to the Grantor, the Class A-1 Certificates Allocable Portion of its administrative fee; and 9. to the Residual Interest Holder (as defined in Section 3.14 of the LH Delaware Trust Agreement), any remainder. (II) the Class A-2 Certificates Allocable Portion of the payments received by the LH Delaware Trust in respect of the Series A Notes shall be applied as follows: 1. to the Grantor Trustee, any accrued and unpaid Class A-2 Certificates Allocable Portion of Grantor Trustee Fees; 2. to the Class A-2 Certificateholders, Monthly Interest as of such Payment 4

13 Date; 3. to the Class A-2 Certificateholders, Monthly Principal until the Certificate Principal Balance of the Class A-2 Certificates equals zero; 4. to the Initial Purchaser and the Guarantor certain indemnity payments; 5. to the Grantor, the Class A-2 Certificates Allocable Portion of its administration fee; and 6. to the Residual Interest Holder (as defined in Section 3.14 of the LH Delaware Trust Agreement), any remainder. Guarantor Control: Series Guaranty Fee Account: Final Scheduled Distribution Date: The Guarantor will have the right to exercise control rights with respect to all Series A Notes held by the LH Delaware Trust. On the Closing Date, the aggregate principal amount of the Series A Notes held by the LH Delaware Trust shall constitute an amount that will grant the LH Delaware Trust a controlling majority of all Series A Notes issued and outstanding. As a result, the Guarantor shall become the controlling party (the "Controlling Party"). The Controlling Party is entitled, among other things, to determine whether to accelerate and foreclose upon the occurrence of any Event of Default and whether to remove any Servicer upon a default by such Servicer (as further described in "Description of the Panamanian Transaction Documents Servicing Agreement" in this Private Placement Memorandum). The LH Delaware Trust will establish the Series Guaranty Fee Account (the "Series Guaranty Fee Account") on the Closing Date, to hold an amount equal to the maximum Guaranty Fee that may become due on any single subsequent Distribution Date. In the event that the LH Delaware Trust does not have sufficient funds to pay the Guaranty Fee when due on any Distribution Date, the Grantor Trustee will withdraw the required amount from the Series Guaranty Fee Account to pay the Guaranty Fee. For further details, see the description under "The Guaranty" in this Private Placement Memorandum. Five Business Days after the Maturity Date (such date, the "Final Scheduled Distribution Date"). On the Final Scheduled Distribution Date, the LH Delaware Trust will, to the extent of funds available, make a payment of principal in an amount equal to 100% of the Certificate Principal Balance that remains unpaid on the Series Certificates. There can be no assurance that the Series Certificates will not be paid before the Final Scheduled Distribution Date. In fact, it is expected that the Series Certificates will be repaid substantially before that date. This is because the Mortgage Loans are prepayable at any time, without penalty, and because the Series A Notes are entitled to receive payments of principal from Available Funds, prior to payment on the Series B Notes and the Series C Notes, until the Series A Notes have been repaid. In addition, the occurrence of an optional redemption (via the exercise of a clean-up call by the Servicer, as described below under "Summary of Terms of the Underlying Series A Notes Clean-up Call") or a mandatory redemption (via the occurrence of a Series A Notes Event of Default (as defined in the Series A Notes, and referred to in this Private Placement Memorandum as an Event of Default) and the declaration of an acceleration) of the Series A Notes will, in either case, result in a prepayment of the Series Certificates. The Guaranty only covers the payment of principal on the Series Certificates prior to the Final Scheduled 5

14 Distribution Date in limited circumstances. If an Event of Default has occurred, if the Guarantor has consented to an optional redemption or directed a mandatory redemption, or a Liquidation Payment (as defined in the Guaranty) is due to the LH Delaware Trust, then the Guaranty would cover the payment of principal on the Series Certificates prior to such Final Scheduled Distribution Date. Expected Final Distribution Date and Weighted Average Life: If the Servicer exercises the clean-up call described in this Private Placement Memorandum, the expected final Distribution Date of the Series Certificates is the Distribution Date on August 15, 2027 and the expected weighted average life is approximately 6.79 years (the "Expected Final Distribution Date"). If the Servicer does not exercise the clean-up call described in this Private Placement Memorandum, the Expected Final Distribution Date of the Series Certificates is the Distribution Date on November 15, 2031, and the expected weighted average life is approximately 7.09 years. There can be no assurance that the obligors on the Mortgage Loans will make payments of principal at any particular rate, including the rate assumed in determining the Expected Final Distribution Date and weighted average life, nor can there be any assurance that the Servicer will exercise the clean-up call. You should be prepared to hold your certificates until the Final Scheduled Distribution Date. See "Prepayment and Yield Consequences" in this Private Placement Memorandum. United States Tax Treatment: ERISA: Katten Muchin Rosenman LLP, as United States tax counsel to the LH Delaware Trust, is of the opinion that, subject to certain assumptions and conditions, for United States federal income tax purposes as of the Closing Date: (a) the LH Delaware Trust will not be classified as an association or a publicly traded partnership taxable as a corporation but will be classified as a grantor trust under Subpart E of Part I of Subchapter J of the Code, (b) each Series Certificateholder will be treated as the owner of a pro rata undivided interest in the LH Delaware Trust Assets and (c) the permitted activities of the LH Delaware Trust will not result in it being treated as engaged in the conduct of a trade or business in the United States. See "Certain U.S. Federal Income Tax Consequences" in this Private Placement Memorandum for important information regarding the U.S. tax consequences of an investment in the Series Certificates. The Series Certificates may not be purchased by or transferred to any person that is, or that is acting on behalf of or investing assets of, (i) an "employee benefit plan" (as defined in section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") that is subject to the fiduciary responsibility provisions of Title I of ERISA, (ii) a "plan" (as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, amended (the "Code")) that is subject to Section 4975 of the Code, (iii) any entity whose underlying assets are deemed to be assets of a plan described in (i) or (ii) by reason of such plan's investments in the entity ((i)-(iii) each, a "Benefit Plan Investor") or (iv) an employee benefit plan, a plan or other similar arrangement that is not a Benefit Plan Investor but is subject to federal, state, local, non-u.s., or other laws or regulations that are substantially similar to Section 406 of ERISA or Section 4975 of the Code. 6

15 Distribution: The Series Certificates will not be registered under the Securities Act or any state securities laws. In the United States, the Series Certificates are being sold to QIBs in accordance with Rule 144A. The Series Certificates are being offered outside the United States to non-u.s. Persons in accordance with Regulation S. Additionally, 25% of the initial Class A-1 Certificateholders and 100% of the initial Class A-2 Certificateholders, based on initial Certificate Principal Balance of the Class A-1 Certificates and the Class A-2 Certificates, respectively, on the Closing Date, (i) must be U.S. citizens or entities beneficially owned by U.S. citizens, (ii) must covenant not to sell, assign, transfer or otherwise dispose of such Class A-1 Certificate or Class A-2 Certificate, respectively, for a period of 40 days, (iii) must not be a partnership or other tax pass-through entity or, if such Class A-1 Certificateholder or Class A-2 Certificateholder is such an entity, none of the direct or indirect beneficial owners of such entity have allowed, or caused, or will allow or cause, 50% or more of the value of such interests to be attributable to its ownership of the Class A-1 Certificates (or interests therein) or Class A-2 Certificates (or interests therein), respectively, and (iv) must execute and deliver an investor letter (which includes certifications relating to clauses (i), (ii) and (iii)) which is attached as Exhibit A to this Private Placement Memorandum. The Series Certificates will not be sold or transferred to citizens of Panama, except pursuant to any exemption from the registration requirements of, and otherwise in compliance with, all relevant securities laws and regulations in Panama, or except in circumstances that do not constitute a public offering or distribution under Panama laws and regulations. The underlying Series A Notes will have been issued publicly through the Securities Exchange of Panama. Each of the Series Certificates will initially be registered in the name of a nominee of DTC and held by Citibank, N.A. on behalf of such nominee. Interests in the Series Certificates will be shown on, and transfers thereof will be effected only through, the book-entry records maintained by DTC and its direct and indirect participants (including Euroclear and Clearstream, Luxembourg). Summary of Terms of the Underlying Series A Notes Securities Issued: The Issuer Trust will issue U.S. $68,250,000 in aggregate principal amount of senior Series A Notes, U.S. $6,000,000 in aggregate principal amount of mezzanine Series B Notes and U.S. $750,000 in aggregate principal amount of subordinated Series C Notes (together with the Series A Notes and the Series B Notes, the "Notes"). The Series A Notes will be rated "BBB" by Fitch. The Series B Notes and the Series C Notes will not be rated. The Notes will be listed on the Securities Exchange of Panama (Bolsa de Valores de Panama, S.A.). U.S. $7,500,000 in aggregate principal amount of Series A Notes will be sold to investors in Panama or outside of Panama other than the LH Delaware Trust; these Series A Notes will not be property of the LH Delaware Trust and payments made on these Notes will not be available to make payments on the Series Certificates. The Grantor will cause U.S. $60,750,000 in aggregate principal amount of Series A Notes to be issued to the LH Delaware Trust. Five percent by initial principal balance of the Series A, Series B, and Series C Notes will be retained by the Grantor or by an affiliate of the Grantor. 7

16 The Series A Notes will be held by "Series A Noteholders," the Series B Notes will be held by "Series B Noteholders"and the Series C Notes will be held by "Series C Noteholders"(collectively, the "Noteholders"). The Issuer Trust and the Collateral Trust: The Notes will be issued by and constitute obligations of the Twelfth Mortgage- Backed Notes Trust (the "Issuer Trust"). The Issuer Trust has been formed under the terms and conditions of an irrevocable trust (the "Issuer Trust Agreement") entered into between La Hipotecaria, as Issuer Trustee (the "Issuer Trustee") and La Hipotecaria (Holding) Inc., a British Virgin Islands company, as the grantor of the Issuer Trust ("LH Holding" or the "Issuer Trust Grantor") The underlying Panamanian transaction utilizes a two trust structure. The first of these trusts is the Issuer Trust and its function is largely to issue and administer the Notes. The second of these trusts is called the Collateral Trust of the Twelfth Mortgage-Backed Notes Trust (the "Collateral Trust") and its function is to hold and administer the Group of Mortgages. Under the terms of the Issuer Trust, the Issuer Trust Grantor authorizes the Issuer Trustee, acting solely as a licensed trustee in Panama, to (i) issue the Notes; (ii) cause the transfer of the Group of Mortgages from La Hipotecaria, as Assignor (the "Assignor"), to BG Trust, as a licensed trustee in Panama, which is documented in the terms and conditions of the related trust agreement (the "Collateral Trust Agreement"); and (iii) establish the terms and conditions for the administration of the Notes and the Group of Mortgages as detailed in the Servicing Agreement and other Transaction Documents. The terms and conditions of the Collateral Trust Agreement establish that the Group of Mortgages is to be owned by the Collateral Trustee, as the trustee of the Collateral Trust, rather than by the Collateral Trust itself. Under Panamanian trust law, a trust is not a separate legal entity and, therefore, the assets are held by a trustee, as trustee on behalf of the Issuer Trust and the Noteholders and subject to the terms of the Collateral Trust Agreement. This step legally isolates the Group of Mortgages from the Assignor and the personal account of the Collateral Trustee. Under and subject to the terms of the Collateral Trust Agreement, the Collateral Trustee will assume certain trustee duties and responsibilities as set forth therein. Both of the Issuer Trust Agreement and the Collateral Trust Agreement are filed with the Panamanian Public Registry in Spanish and English. In each case, in the case of conflicts between the Spanish and English versions, the Spanish version takes precedence. For a further description of the Issuer Trust and the Collateral Trust, see "The Issuer Trust and the Collateral Trust" in this Private Placement Memorandum. La Hipotecaria: Banco La Hipotecaria, S.A., a Panama corporation and duly licensed bank that originates, retains, sells and services mortgages in Panama. For a further description of La Hipotecaria's history, operations, and origination and servicing practices, see "Banco La Hipotecaria" herein. 8

17 Collateral Trustee and Note Paying Agent: Settlor of the Issuer Trust: Settlor of the Collateral Trust: Beneficiaries of the Collateral Trust: Primary Servicer: Sub-Servicer: Panama Broker: Performance Bond Issuer: Eligible Mortgage Loans: BG Trust Inc. ("BG Trust"), a Panamanian corporation. LH Holding, a British Virgin Islands company and the holding company of La Hipotecaria. The Issuer Trustee. The primary beneficiaries are initially the holders of the Notes. These primary beneficiaries will be replaced by the Issuer Trustee once all the obligations of the Issuer Trust for the benefit of the holders of the Notes have been completely fulfilled. Grupo ASSA, S.A. ("ASSA"), a Panamanian insurance conglomerate. La Hipotecaria. BG Valores, S.A., a Panamanian company ("BG Valores"). ASSA Companía de Seguros, S.A., a subsidiary of ASSA and a Panamanian insurance company with a financial strength rating of A from A.M. Best Co. ("ASSA Seguros"). The Assignor selected the Group of Mortgages from a pool of 3,195 mortgages, consisting of 3,708 loans, with an aggregate principal balance, as of the Cut-off Date, of $84,180, (the "Eligible Mortgage Loans"). For a further description of eligibility criteria for the Mortgage Loans, see "Description of the Panamanian Transaction Documents Mortgage Transfer Agreement" in this Private Placement Memorandum. Group of Mortgages: The Assignor will sell to the Collateral Trustee approximately 2,766 mortgages, consisting of approximately 3,177 loans, with an aggregate principal balance of at least U.S. $75,000,000 (the "Group of Mortgages") selected from the Eligible Mortgage Loans, which have been originated by the Assignor. All of the mortgage loans in the Group of Mortgages bear interest at various rates, calculated using the simple interest method, at a gross rate (including Fiscal Credits) substantially equivalent to the Panamanian Reference Rate. The mortgage loans in the Group of Mortgages are the U.S. dollar denominated obligations of Panamanian citizens and are secured by owner occupied single family or condominium real estate in Panama. Should any of the mortgage loans that comprise the original Group of Mortgages not be timely registered in the Public Registry in favor of the Collateral Trustee, replacement mortgage loans shall be selected from among the Eligible Mortgage Loans that were not originally selected as part of the Group of Mortgages. The mortgage loans constituting part of the Group of Mortgages are sometimes referred 9

18 to as the "Mortgage Loans" herein. $55,118,406.05, or 73.5%, by principal balance of the Mortgage Loans in the Group of Mortgages, as of the Cut-off Date, are qualified under the Preferential Interest Rate Regimen. The "Preferential Interest Rate Regimen" means, with respect to any Mortgage Loan, those particular terms and conditions which subject such Mortgage Loan to Panamanian Law No. 3 of 1985, as amended. The borrower pays his or her mortgage based on the stated amortization and a subsidized interest rate. The difference between the Panamanian Reference Rate and the subsidized rate paid by the borrower is paid to the mortgage loan provider in the form of a fully transferable income tax credit called the fiscal credit (the "Fiscal Credit"). The statistical information presented in this Private Placement Memorandum, including the additional information about the Group of Mortgages set forth in Appendix A, describes the Group of Mortgages as of the Cut-off Date. The Group of Mortgages is further described in this Private Placement Memorandum under the heading "The Group of Mortgages." Servicing: The Primary Servicer has designated the Sub-Servicer to act as servicer of the Mortgage Loans pursuant to a servicing agreement among the Primary Servicer, the Sub-Servicer, the Back-up Servicer and the Collateral Trustee (the "Servicing Agreement"). The servicing and administering of the Mortgage Loans shall be conducted by the person designated from time to time as the servicer (the "Servicer") under the Servicing Agreement. Neither the Issuer Trust nor the Collateral Trust has personnel and, therefore, will rely on the Servicer for all servicing functions. The Servicer will manage, service and administer the Mortgage Loans and, subject to the terms and provisions of the Servicing Agreement, will have full power and authority to do any and all things in connection with the servicing and administration of the Mortgage Loans which it may deem necessary or appropriate. For a further understanding of the servicing of the Group of Mortgages, please see "Description of the Panamanian Transaction Documents Servicing Agreement" in this Private Placement Memorandum. Performance Bond: A Performance Bond issued by ASSA Seguros will be obtained by the Issuer Trustee, for the Collateral Trustee, and is intended to insure the timely registration of all Mortgage Loans in the Public Registry of Panama in favor of the Collateral Trustee within a 90 day period from the Closing Date. 10

19 The Performance Bond covers the positive difference, if any, between (a) $75,000, and (b) the unpaid balance of the Mortgage Loans at the expiration of the 90 day period that were successfully registered in the Public Registry of Panama in favor of the Collateral Trustee plus the amortizations of principal received by the Collateral Trust as paid by the Debtors during this same period. The Performance Bond will cover such shortfall two Business Days after the date the Collateral Trustee has filed a claim thereunder, which claim must be filed within the next five Business Days following the expiration of the 90 day registration period. Any proceeds of the Performance Bond become Available Funds. For a further understanding of the Performance Bond, please see "Description of the Panamanian Transaction Documents Performance Bond" in this Private Placement Memorandum. Payment Date: With respect to the first Payment Date, the eighth day of the month in which the first Payment Calculation Date occurs, or if such day is not a Business Day (as defined in the Issuer Trust Agreement), then the first Business Day immediately following such eighth day; and thereafter the eighth day of each month, or if the eighth day of such month is not a Business Day then the first Business Day immediately following the eighth day of such month. "Payment Calculation Date" shall mean, with respect to the first Payment Calculation Date, either (i) if the Closing Date occurs on the first through the fourteenth calendar day of a month, the fourth day of the month that immediately follows the month in which the Closing Date occurs (or if such day is not a Business Day, then the first Business Day immediately following such fourth day) or (ii) if the Closing Date occurs on the fifteenth through the last calendar day of a month, the fourth day of the month that follows the first complete calendar month after the Closing Date (or if such day is not a Business Day, then the first Business Day immediately following the fourth day of the month that follows the first complete calendar month after the Closing Date). Thereafter, the Payment Calculation Date shall be the fourth day of each month (or if the fourth day of any month is not a Business Day, then the Business Day immediately following that fourth day). Eligible Bank: Eligible Bank Account: Any commercial bank or other financial institution in the city of Panama, Republic of Panama, having, or having a direct or indirect parent corporation or guarantor that has, at least two of the following short term unsecured debt ratings of at least P-three (P-3), F-three (F-3), or A-three (A-3), from Moody's Investor Service, Inc., Fitch Ratings Ltd. or Standard & Poors Rating Services, a division of McGraw-Hill, Inc., respectively, when referring to the financial institution with which any Eligible Bank Account is established (any such bank or other financial institution, an "Eligible Bank"). Each of the bank accounts (each, an "Eligible Bank Account") established with an Eligible Bank by the Collateral Trustee in accordance with the Collateral Trust. 11

20 Letter of Credit: Interest Reserve Account: On the Closing Date, the Collateral Trustee will cause to be issued a Standby Letter of Credit (the "Letter of Credit"), which shall be issued by an Eligible Bank. On the Closing Date, the Collateral Trustee will cause to be created and maintained an "Interest Reserve Account, " which shall be an Eligible Bank Account. Until such time as the outstanding principal balance of the Series A Notes is equal to zero, on each Payment Calculation Date, the balance in the Interest Reserve Account and the undrawn available amount under the Letter of Credit shall be equal to or exceed the Interest Reserve Required Balance on that Payment Calculation Date. Until such time as the outstanding principal balance of the Series A Notes is equal to zero on any Payment Calculation Date, the balance required to be on deposit in the Interest Reserve Account on each Payment Calculation Date shall be equal to 1.00%, multiplied by the outstanding principal balance of the Series A Notes on such date (the "Interest Reserve Required Balance"). On the Closing Date, the Interest Reserve Required Balance will be U.S. $685,000. If on any Payment Calculation Date, the Interest Reserve Account and the undrawn available amount under the Letter of Credit is less than the Interest Reserve Required Balance (the amount of any such difference shall be an "Interest Deficiency Amount"), on the Payment Date immediately following such Payment Calculation Date, an amount equal to such Interest Deficiency Amount shall be deposited into the Interest Reserve Account from Available Funds in accordance with the Priority of Payments. If on any Payment Calculation Date, the Funds Application Report reflects that the Available Funds, after applying the priority of payment are less than the Series A Interest Payment due on the immediately following Payment Date, prior to such Payment Date the Servicer shall notify the Collateral Trustee in writing of such insufficiency and shall instruct the Collateral Trustee to transfer sufficient funds from the Interest Reserve Account to the Available Funds Account so that on the corresponding Payment Date there are sufficient funds to make such Series A Interest Payment. To the extent that funds in the Interest Reserve Account are insufficient to make any Series A Interest Payment (the amount of such insufficiency being herein referred to as the "Unfunded Deficiency"), the Collateral Trustee shall draw on the Letter of Credit in the manner set forth below. In the event that there is an Unfunded Deficiency on any Payment Calculation Date, the Collateral Trustee shall deliver, on the date that is two (2) Business Days prior to the Payment Date immediately following said Payment Calculation Date, to the Letter of Credit Provider (with a copy to the Issuer Trustee and the Servicer) a certificate substantially in the form of Annex A of such Letter of Credit demanding payment in an aggregate amount equal to the lesser of (x) the amount of the Unfunded Deficiency and (y) the aggregate maximum amount available to be paid or drawn under such Letter of Credit, and deposit the moneys received in respect of such Letter of Credit in the Available Funds Account for application in accordance with the Priority of Payments. 12

21 If on any Payment Date, the Collateral Trustee (or the Paying Agent) cannot make the Series A Interest Payment due to the Series A Noteholders out of the Available Funds Account (and/or through the Paying Agent), even though there are sufficient Available Funds to make such payment, the Collateral Trustee shall deliver, on said Payment Date, to the Letter of Credit Provider (with a copy to the Issuer Trustee and the Servicer) a certificate substantially in the form of Annex B of such Letter of Credit demanding payment in an amount equal to the Series A Interest Payment. Amounts received pursuant to the foregoing shall be deposited in the Interest Reserve Account and the Collateral Trustee shall pay said amounts (or transfer such amounts to the Paying Agent for distribution) to the Series A Noteholders in accordance with the terms and conditions of the Transaction Documents. In the event that a Letter of Credit has not been renewed, extended or replaced on or prior to the date that is twenty (20) Business Days prior to the expiration of such Letter of Credit, then the Collateral Trustee shall deliver, within the next three Business Days after the aforementioned date, to the Letter of Credit Provider (with a copy to the Issuer Trustee and the Servicer) a certificate substantially in the form of Annex C of such Letter of Credit, demanding in each case the payment of an amount equal to the maximum amount available to be paid or drawn under such Letter of Credit. Amounts received pursuant to the foregoing shall be deposited in the Interest Reserve Account. Upon the payment in full of all amounts of principal of and interest on the Series A Notes (the "Letter of Credit Termination Date"), the Collateral Trustee will deliver to the Letter of Credit Provider (with a copy to the Issuer Trustee and the Servicer) a certificate substantially in the form of Annex D of such Letter of Credit and return the original Letter of Credit to the Letter of Credit Provider whereupon the Letter of Credit will terminate and cease to be in effect. Series A Interest Payment: Until such time as the outstanding principal balance of the Series A Notes is equal to zero on any Payment Calculation Date, the Series A Noteholders shall receive monthly, on each Payment Date from Available Funds, in compliance with the Priority of Payments an amount (each, a "Series A Interest Payment") equivalent to the sum of (i) the outstanding principal balance of the Series A Notes on the first day of the Accrual Period immediately prior to the corresponding Payment Calculation Date multiplied by the Series A Interest Rate, divided by 360 days and multiplied by, if there is no Event of Default that has occurred and has not been cured as of the respective Payment Calculation Date, the number of days in the related Accrual Period or, in the event there should occur an Event of Default that has not been cured as of the respective Payment Calculation Date, from and including the first day of that Accrual Period until and including the date prior to which such an Event of Default occurs; and (ii) any Series A Interest Payment unpaid from previous Payment Dates. 13

22 Upon the occurrence of an Event of Default that has not been cured as of the respective Payment Calculation Date, the Series A Noteholders shall be entitled to receive monthly, on each Payment Date from Available Funds, in compliance with the Priority of Payments, Series A Interest Payment equivalent to the sum of (i) the outstanding principal balance of the Series A Notes on the first day of the Accrual Period immediately prior to the corresponding Payment Calculation Date, multiplied by the Series A Default Interest Rate, divided by 360 days and multiplied, in the case of the first Payment Date immediately following the occurrence of an Event of Default, by the number of days from and including the day of such Event of Default and through and including the last day of the related Accrual Period, and thereafter, by the number of days in the related Accrual Period, and (ii) any Series A Interest Payment unpaid from previous Payment Dates. Series A Interest Rate: A rate per annum equal to the greater of (a) the Panamanian Reference Rate minus 1.60% and (b) 0.642% per annum. The Series A Interest Rate for each Payment Date will be determined by the Servicer on the related Notes Interest Rate Determination Date. "Notes Interest Rate Determination Date" shall mean, with respect to any particular Payment Calculation Date, the eighth day of the month immediately prior to the month in which such Payment Calculation Date occurs. Series A Default Interest Rate: Series B Interest Payment: A rate per annum equal to the Series A Interest Rate plus 2%. Until such time as the outstanding principal balance of the Series B Notes is equal to zero on any Payment Calculation Date, the Series B Noteholders shall be entitled to receive monthly, on each Payment Date from Available Funds, in compliance with the Priority of Payments, an amount (each, a "Series B Interest Payment") equivalent to the sum of (i) the outstanding principal balance of the Series B Notes on the first day of the Accrual Period immediately prior to the corresponding Payment Calculation Date, multiplied by the Series B Interest Rate, divided by 360 days and multiplied by the number of days in the related Accrual Period; and (ii) any Series B Interest Payment unpaid from previous Payment Dates. Notwithstanding the foregoing, upon the occurrence of a Trigger Event and until such time that such Trigger Event has been cured as of any Payment Calculation Date, the Series B Noteholders shall not receive Series B Interest Payments but shall accrue an amount (each, a "Series B Accrued Interest Amount") equivalent to the corresponding Series B Interest Payment for each of the aforementioned Payment Dates. The Servicer shall create a ledger account denominated the "Series B Interest Accrual Account" in which all Series B Interest Payments so accrued shall be credited. For the sake of clarity, the Series B Noteholders will not receive any Series B Interest Payment while any Trigger Event is in effect and remains uncured nor will they receive interest on any Series B Accrued Interest Amounts. 14

23 After a Trigger Event has been cured as of any Payment Calculation Date or once the outstanding principal balance of the Series A Notes is equal to zero on any Payment Calculation Date, the Series B Noteholders shall be entitled to receive monthly, on each Payment Date, all remaining Available Funds, in compliance with the Priority of Payments, up to a maximum amount equivalent to the credit balance of the Series B Interest Accrual Account (each, a "Series B Accrued Interest Payment"), upon the payment of which the Series B Interest Accrual Account shall be debited by the Servicer for any amount so paid. Series B Interest Rate: Series C Interest Payment: A rate per annum equal to the greater of (a) the Panamanian Reference Rate plus 0.75% and (b) 0.00% per annum (the "Series B Interest Rate"). The Series B Interest Rate for each Payment Date will be determined by the Servicer on the related Notes Interest Rate Determination Date. Until such time as the outstanding principal balance of the Series C Notes is equal to zero on any Payment Calculation Date, the Series C Noteholders shall be entitled to receive monthly, on each Payment Date from Available Funds, in compliance with the Priority of Payments, an amount (each, a "Series C Interest Payment") equivalent to the sum of (i) the outstanding principal balance of the Series C Notes on the first day of the Accrual Period immediately prior to the corresponding Payment Calculation Date, multiplied by the Series C Interest Rate, divided by 360 days and multiplied by the number of days in the related Accrual Period; and (ii) any Series C Interest Payment unpaid from previous Payment Dates. Notwithstanding the foregoing, upon the occurrence of a Trigger Event and until such time that such Trigger Event has been cured as of any Payment Calculation Date, the Series C Noteholders shall not receive Series C Interest Payments but shall accrue an amount (each, a "Series C Accrued Interest Amount") equivalent to the corresponding Series C Interest Payment for each of the aforementioned Payment Dates. The Servicer shall create a ledger account denominated the "Series C Interest Accrual Account" in which all Series C Interest Payments so accrued shall be credited. For the sake of clarity, the Series C Noteholders will not receive any Series C Interest Payment while any Trigger Event is in effect and remains uncured nor will they receive interest on any Series C Accrued Interest Amounts. After a Trigger Event has been cured as of any Payment Calculation Date or once the outstanding principal balance of the Series A Notes and the Series B Notes is equal to zero on any Payment Calculation Date, the Series C Noteholders shall be entitled to receive monthly, on each Payment Date, all remaining Available Funds, in compliance with the Priority of Payments, up to a maximum amount equivalent to the credit balance of the Series C Interest Accrual Account (each, a "Series C Accrued Interest Payment"), upon the payment of which the Series C Interest Accrual Account shall be debited by the Servicer for any amount so paid. Series C Interest Rate A rate per annum equal to the greater of (a) the Panamanian Reference Rate plus 4.00% and (b) 0.00% per annum (the "Series C Interest Rate"). The Series C Interest Rate for each payment date will be determined by the Servicer on the related Notes Interest Rate Determination Date. 15

24 Panamanian Reference Rate: Accrual Period: Series A Target Principal Payment: Collection Period: Trigger Event: Cumulative Default Trigger: Cumulative Default Ratio: Established by law in 1985 and is calculated and published quarterly by the Banking Superintendence of Panama. The rate represents the weighted average of the interest rates charged on mortgage loans not subject to any subsidy by the five private banks and one state-owned bank with the largest residential mortgage portfolio at the beginning of each calendar year. The Panamanian Reference Rate can be accessed on the Bloomberg L.P. subscription service under the symbol "PNMR." With respect to the first Accrual Period and based on a month consisting of 30 days, the number of days commencing on and including the Closing Date and ending on and including the last calendar day (regardless of whether such calendar day is a Business Day or not) immediately preceding the fifth Business Day after the Payment Date of the month in which the first Payment Calculation Date occurs; and thereafter, with respect to each subsequent Payment Calculation Date and related Accrual Periods, 30 days. Until such time as the outstanding principal balance of the Series A Notes is equal to zero, the Series A Noteholders shall be entitled to receive from Available Funds the following (each, a "Series A Target Principal Payment"): (i) on the first Payment Date, the difference between the Performing Principal Balance of the Group of Mortgages on the Cut-off Date, multiplied by 91%, and the Performing Principal Balance of the Group of Mortgages on the close of the last Business Day of the first Collection Period, multiplied by 91%; and (ii) on each Payment Date thereafter, the difference between the Performing Principal Balance of the Group of Mortgages on the close of the Business Day immediately prior to the first day of the Collection Period immediately prior to the respective Payment Date, multiplied by 91%, and the Performing Principal Balance of the Group of Mortgages on the close of the Business Day of the last day of the Collection Period immediately prior to the respective Payment Date, multiplied by 91%, plus any Series A Target Principal Payments unpaid from previous Payment Dates. With respect to the first Payment Calculation Date following the Closing Date, the period commencing on and including the Cut-off Date for principal, and on the Closing Date for interest, and ending on and including the last day of the month immediately prior to that Payment Calculation Date; thereafter, with respect to each subsequent Payment Calculation Date, the period commencing on and including the first day of each successive month and ending on and including the last day of each successive month. The occurrence of a Cumulative Default Trigger, a Credit Enhancement Trigger or an Event of Default. A condition under which, as of a Payment Calculation Date, the Cumulative Default Ratio equals or exceeds ten percent. The ratio of (i) the sum of the principal balances of all Defaulted Mortgages (calculated for each Defaulted Mortgage on the date on which it becomes a Defaulted Mortgage) and (ii) the Cut-off Date Principal Balance. 16

25 Credit Enhancement Trigger: Cut-off Date Principal Balance: Defaulted Mortgage Loan: Performing Principal Balance: Series A Additional Principal Payment: Available Funds: Series B Principal Payment: Series C Principal Payment Priority of Payments: A condition under which, as of a Payment Calculation Date, the positive difference between the Performing Principal Balance of the Mortgage Loans and the outstanding principal balance of the Series A Notes is less than 6.75% of the principal balance of the Mortgage Loans as of the Cut-off Date. The principal balance of the Mortgage Loans at the close of the day immediately preceding the Cut-off Date after the application to each Mortgage Loan of all payments of principal received on or before such date. The Cut-off Date Principal Balance is U.S. $75,000, (i) a Mortgage Loan that is more than 180 days delinquent, or (ii) a Mortgage Loan that is subject to a judicial foreclosure proceeding or (iii) a Mortgage Loan that is subject to a deed in lieu of judicial foreclosure. The sum of the principal balance of the Group of Mortgages, less the principal balance of Mortgage Loans more than 180 days delinquent. The Series A Noteholders will be entitled to receive monthly, on each Payment Date, all Available Funds remaining after payment of senior amounts in accordance with the Priority of Payments, up to a maximum amount equivalent to the remaining outstanding principal balance of the Series A Notes on the Payment Calculation Date immediately preceding such Payment Date. "Available Funds" means, with respect to any particular Payment Calculation Date, the credit balance of the account established and maintained as an eligible account pursuant to the Collateral Trust Agreement (the "Available Funds Account") on and including the last day of the Collection Period immediately prior to that particular Payment Calculation Date, plus any funds deposited into the Available Funds Account from the Interest Reserve Account. The Series B Noteholders shall be entitled to receive monthly, on each Payment Date, all remaining Available Funds, in compliance with the Priority of Payments below, up to a maximum amount equivalent to the remaining outstanding principal balance of the Series B Notes on the Payment Calculation Date immediately preceding such Payment Date. The Series C Noteholders shall be entitled to receive monthly, on each Payment Date, all remaining Available Funds, in compliance with the Priority of Payments below, up to a maximum amount equivalent to the remaining outstanding principal balance of the Series C Notes on the Payment Calculation Date immediately preceding such Payment Date. The Note Paying Agent will make distributions on each Payment Date from Available Funds in the following priority (the "Priority of Payments"): 1. to the respective parties entitled thereto, Senior Fees and Expenses (as defined below); 2. pro rata, (a) to the Series A Noteholders, the Series A Note Interest Payment 17

26 and (b) to the appropriate taxing authority, any "Taxes" (as defined in the Series A Note); 3. to the Interest Reserve Account, the Interest Deficiency Amount, if any; 4. to the Series A Noteholders, the Series A Target Principal Payment 5. as long as a Trigger Event is not in effect, to the Series B Noteholders, the Series B Interest Payment; 6. as long as a Trigger Event is not in effect, to the Series B Noteholders, the Series B Accrued Interest Payment; 7. as long as a Trigger Event is not in effect, to the Series C Noteholders, the Series C Interest Payment; 8. as long as a Trigger Event is not in effect, to the Series C Noteholders, the Series C Accrued Interest Payment; 9. to the Series A Noteholders, the Series A Additional Principal Payment; 10. to the Series B Noteholders, the Series B Principal Payment; 11. to the Series C Noteholders, the Series C Principal Payment; 12. to the respective parties entitled thereto, Subordinated Fees and Expenses (as defined below); and 13. to the Issuer Trustee, the Issuer Trustee Incentive Fee (as defined below). Senior Fees and Expenses: Commission of the Collateral Trustee: The sum of the following amounts to be paid pro rata ("Senior Fees and Expenses"): the Commission of the Collateral Trustee, the Servicing Fee, the Commission of the Note Paying Agent, any indemnifications of the Collateral Trustee, the Servicer or the Note Paying Agent pursuant to the Collateral Trust Agreement, the Servicing Agreement and the Paying Agency Agreement, respectively, any taxes (including Value-Added Taxes on Certain Fees), levies, imposts, deductions, charges or withholdings, additions to tax, interest, penalties and all similar expenses incurred by the Collateral Trustee (excluding Taxes as defined in Section 4 of the Series A Note, but including Other Taxes as defined in Section 4 of the Series A Note), the local supervision fee of the Superintendencia del Mercado de Valores de Panama and any fee payable to the Public Securities Exchange of Panama (as defined in the Servicing Agreement) basis points per annum (plus Value-Added Taxes on Certain Fees), payable monthly on an actual/360 basis, on the aggregate principal balance of the Mortgage Loans at the close of the Business Day immediately preceding the Collection Period for a given Payment Date. 18

27 The Servicing Fee: The Commission of the Note Paying Agent: Value-Added Taxes on Certain Fees Subordinated Fees and Expenses: An amount equal to the product of (i) the aggregate principal balance of the Mortgage Loans at the close of the Business Day immediately preceding the Collection Period for a given Payment Date, multiplied by (ii) 45 basis points (plus Value-Added Taxes on Certain Fees); divided by twelve or, in the case of the Collection Period immediately following the Cut-off Date, divided by 360 and multiplied by the number of calendar days from and including the Cut-off Date to and including the last day of the Collection Period immediately prior to the Payment Date basis points per annum (plus Value-Added Taxes on Certain Fees), payable monthly on an actual/360 basis, on the aggregate principal balance of the Mortgage Loans at the close of the Business Day immediately preceding the Collection Period for a given Payment Date. Value-added taxes equal to 7.00% of each monthly payment of the Commission of the Collateral Trustee, each monthly payment of the Commission of the Note Paying Agent and each monthly payment of the Servicing Fee will be paid to the applicable Panamanian taxing authorities (such tax, "Value-Added Taxes on Certain Fees"). Notwithstanding anything to the contrary in this Private Placement Memorandum, Senior Fees and Expenses payable on any Payment Date may not exceed the amount resulting from dividing (i).75% of the principal balance of the Group of Mortgages on the last day of the Collection Period preceding such Payment Date by (ii) twelve. Any Senior Fees and Expenses in excess of said maximum, as well as any other fees and expenses owed to or incurred by the Issuer Trustee, the Collateral Trustee, the Servicer or the Note Paying Agent arising from or related to any Panamanian Transaction Document that does not constitute Senior Fees and Expenses, including any reimbursable expenses (as described below) shall be deemed "Subordinated Fees and Expenses" and shall be paid in accordance with the Priority of Payments. In case there are not sufficient funds to pay to each beneficiary of the Senior Fees and Expenses the totality of their respective share of the Senior Fees and Expenses, the funds available to pay Senior Fees and Expenses will be distributed pro rata between the beneficiaries thereof, with each party being entitled to receive said percentage of the Senior Fees and Expenses that their respective fees and expenses represent of the totality of the Senior Fees and Expenses. Those expenses reimbursable under the Servicing Agreement include costs the Collateral Trustee covenants to pay to the Servicer (or reimburse the Servicer) from Available Funds for all documented expenses, disbursements and advances reasonably incurred or made by or on behalf of the Servicer under the Servicing Agreement or other Transaction Documents (except if such expenses arise due to the Servicer's breach of the Servicing Agreement or any expenses attributable to the Collateral Trustee's own gross negligence or willful misconduct). Issuer Trustee Incentive Fee: The Issuer Trustee shall be entitled to receive on each Payment Date, subject to the Priority of Payments above, all remaining Available Funds calculated on each Payment Calculation Date. 19

28 Cut-off Date: Maturity Date: Clean-up Call: The beginning of the day on July 15, 2014 (such date, the "Cut-off Date"). November 24, 2042 or upon the last stated maturity of the Mortgage Loans, whichever occurs first. On or after any Payment Date on which the outstanding principal balance of the Series A Notes has been reduced to fifteen percent or less of the outstanding principal balance thereof on the Closing Date, the Servicer will have the option, but not the obligation, to purchase all of the Mortgage Loans at that time outstanding and composing the Collateral Trust Assets at an aggregate price at least equal to a sum that represents the aggregate principal balance of the Mortgage Loans purchased at the close of business on the day immediately preceding the date of purchase (the "Date of Purchase"), plus any interest accrued but not collected with respect to the Mortgage Loans up to and including the day immediately preceding the Date of Purchase and in any event, sufficient to pay the full amount of principal and interest due and payable on the Series A Notes, the Series B Notes and the Series C Notes on the Payment Date following the Date of Purchase. In addition, under the Collateral Trust Agreement, the Servicer may, at its option at any time, elect to sell the Mortgage Loans to a third party and terminate the transaction, unless the Series A Noteholders then holding at least 51% of the outstanding principal balance of the Series A Notes (the "Majority Series A Noteholders"), within 30 days of advance notification of the proposed sale, instruct the Collateral Trustee not to proceed with the sale. Event of Default Each of the following shall be an event of default (each, an "Event of Default") with respect to the Series A Notes (and all defined terms used but not otherwise defined in this subsection will have the meanings assigned thereto in the Series A Note): (a) If on the Maturity Date or any Payment Date the Issuer Trust or the Paying Agent fails to make any Series A Interest Payment and such failure to pay continues for two Business Days; or (b) If on the Maturity Date or any Payment Date the Issuer Trust or the Paying Agent fails to make any Series A Target Principal Payment or a Series A Additional Principal Payment for which the balance in Available Funds as of the respective Payment Calculation Date was sufficient and therefore such payment was due on such Maturity Date or Payment Date, and such failure to pay continues for two Business Days; or (c) If on any Payment Date, after taking into account all payments of principal to be made on account of the Series A Notes on such Payment Date, the outstanding principal balance of the Series A Notes exceeds the Performing Principal Balance; or (d) Any representation or warranty made by the Issuer Trust under or in connection with the issuance, sale and purchase of the Note or with any Transaction Document or under any certificate delivered pursuant to the Note or such Transaction Document, shall prove to have been incorrect in any respect which was material when made; provided, such misrepresentation shall not be an Event of 20

29 Default described in this clause (d) to the extent that (i) the Issuer Trust was not aware that the representation was incorrect at the time that it was made, (ii) the underlying circumstances giving rise to such misrepresentation are capable of cure, (iii) such misrepresentation (or the facts or circumstances underlying such misrepresentation) has not resulted in and could not reasonably be expected to result in a Material Adverse Effect and (iv) such misrepresentation shall be remedied within 30 days after the Issuer Trust has knowledge of such misrepresentation; or (e) The Issuer Trust shall fail to perform or observe (i) any term, covenant or agreement contained in Sections 6(a), (i), (k) or Section 7 of the Series A Note; or (ii) any other term, covenant or agreement contained in the Series A Note (excluding any term, covenant or agreement covered by Section 8(a) of the Series A Note) or any other Panamanian Transaction Document if, solely with respect to clause (ii) above, such failure shall remain unremedied for the shorter of (A) 45 days after the date on which such failure occurs and (B) fifteen days after the date on which (x) a responsible officer of the Issuer Trust becomes aware of such failure or (y) written notice thereof shall have been given to the Issuer Trust by the Collateral Trustee; provided, that such fifteen day period may be extended by an additional 30 days so long as (I) the failure to perform or observe such term, covenant or agreement is capable of cure, (II) the Issuer Trust is diligently pursuing a cure and (III) no Material Adverse Effect has occurred during the initial cure period or could reasonably be expected to occur in the extended cure period); or (f) If the Issuer Trust shall become insolvent or make an assignment for the benefit of creditors or declare itself or be declared bankrupt, or if any governmental authority having the power to do so orders the seizure or liquidation of the Issuer Trust's assets or the cessation or suspension of its business operations. Acceleration and Liquidation: If an Event of Default specified in clause (a) above has occurred and is continuing and is not cured during the applicable cure period, then in every such case the Collateral Trustee may and, at the written request of the Majority Series A Noteholders shall, declare the principal of, together with accrued but unpaid interest, if any, plus any other amounts due under all of the Notes, to be due and payable immediately, and upon such declaration the aggregate outstanding principal amount of all the Notes, together with accrued but unpaid interest, if any, plus any other amounts due under the Notes, shall become immediately due and payable. Upon the occurrence with respect to the Issuer Trust of any Event of Default referred to in clause (f) above, the aggregate outstanding principal amount of all the Notes, together with accrued but unpaid interest, if any, plus any other amounts due under the Notes, shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are expressly waived by the Issuer Trust under the terms of the Series A Note. 21

30 If any other Event of Default specified above (other than an Event of Default described in clauses (a) or (d) above) has occurred and is continuing and is not cured during any applicable cure period, then and in every such case the Collateral Trustee shall, at the written request of the Majority Series A Noteholders or, if no Series A Notes remain outstanding, the Majority Series B Noteholders or if no Series A Notes and no Series B Notes remain outstanding, the Majority Series C Noteholders shall declare the principal of, together with accrued but unpaid interest, if any, plus any other amounts due under all of the Notes, to be due and payable immediately, and upon such declaration the aggregate outstanding principal amount of all the Notes, together with accrued but unpaid interest, if any, plus any other amounts due under the Notes, shall become immediately due and payable. In case that the payment of the Notes is accelerated, the Collateral Trustee will issue a declaration of anticipated maturity (the "Declaration of Anticipated Maturity"), which will be communicated to the Issuer Trustee and to every Noteholder. As of the date of the Declaration of Anticipated Maturity, the Issuer Trust will be obligated to pay on such date all sums of interest, principal and any other amounts owed under the terms and conditions of the Notes and the other Transaction Documents. Once the notice of Declaration of Anticipated Maturity has been made, the Collateral Trustee will proceed: (1) to take all the necessary steps in order to have under its control, or under the control of an administrator of its choice (who can be the Servicer), the administration of the Mortgage Loans; (2) to take all the steps which it judges necessary to sell the Mortgage Loans to the highest bidder and (3) to put at the disposition of the Payment Agent the product of the sale of the Mortgage Loans and the cash which constitutes the rest of the Collateral Trust Assets to pay the principal and interest and any other sums owed in accordance with the terms of conditions of the Notes and the other Transaction Documents in accordance with the Priority of Payments. Additionally, the Servicer has the right under the Collateral Trust Agreement to notify the Collateral Trustee of its recommendation that the sale of some or all of the Mortgage Loans would be in the best interests of the Series A Noteholders. Upon written receipt of any such notification, the Collateral Trustee must provide notice thereof to the Series A Noteholders. The Controlling Party and the Majority Series A Noteholders would have 30 days from the receipt of such notice to object to the proposed sale. If no such objection is raised and the Servicer proceeds with the sale of the Mortgage Loans, such sale would result in prepayment of the Certificates. Panamanian Tax Treatment: No stamp or other issuance or transfer taxes or duties and no capital gains, income, withholding or other taxes are payable to the Republic of Panama or any governmental authority thereof (a) in connection with the execution and/or delivery of the Panamanian Transaction Documents or the performance or enforcement of any provision thereof, (b) by or on behalf of a purchase in connection with the offering, sale and/or delivery of the Notes (or beneficial interests therein) to such purchaser or to subsequent purchasers, or (c) other than the Value-Added Taxes on Certain Fees, with respect to any principal, interest, premium, fees or other amounts paid by the Issuer Trustee (including any interest on the Notes) under the 22

31 Panamanian Transaction Documents. Interest payments on the Notes are currently exempted from Panamanian income tax based upon certain tax incentives provided for in Panama's securities laws as further described in this Private Placement Memorandum under "Certain Panamanian Tax Considerations." However, there can be no assurance that these tax benefits will not be changed or revoked by the Panamanian government in the future. Any and all payments made by the Issuer Trust under the Notes shall be made free and clear of and without deduction of taxes, levies, or withholdings, and all other liabilities with respect thereto imposed by the Republic of Panama or any other jurisdiction or authority from which or through which the Issuer Trust makes any payment thereunder. If the Issuer Trust is required by law to deduct any Taxes (as defined in the Series A Notes) from or in respect of any sum payable under the Notes to any Noteholder, (i) the sum payable will be increased as may be necessary so that after making all required deductions, such Noteholder receives an amount equal to the sum it would have received had no such deductions been made (the amount of such increase, the "Additional Amounts"), (ii) the Issuer Trust will make such deductions and (iii) the Issuer Trust will pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. In addition, the Issuer Trust will pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made under the Notes or from the execution, delivery or registration of, or otherwise with respect to, the Notes. U.S. Transaction Documents: Panamanian Transaction Documents: Governing Law: The Guaranty, the LH Delaware Trust Agreement, the escrow instruction, the Certificate Purchase Agreement and the Series Certificates (collectively, the "U.S. Transaction Documents"). The different agreements, instruments, contracts and documents that are executed by the parties taking part in carrying out certain aims and intentions of the Issuer Trust and the LH Delaware Trust and shall include, among others: (i) the Issuer Trust, (ii) the Collateral Trust, (iii) the Servicing Agreement, (iv) the Mortgage Transfer Agreement, (v) the Notes, (vi) the Panama Broker Agreement, (vii) the Note Payment Agent Agreement, (viii) the Performance Bond, (ix) the Panama Escrow Agreement and (x) the Letter of Credit (collectively, the "Panamanian Transaction Documents" and together with the U.S. Transaction Documents, the "Transaction Documents"). The Series Certificates and the LH Delaware Trust Agreement will be governed by, and construed in accordance with, the internal law of the State of Delaware. The Guaranty will be governed by, and construed in accordance with, the internal law of the State of New York. The Panamanian Transaction Documents will be governed by, and construed in accordance with, the laws of the Republic of Panama. 23

32 Distribution: The Notes have been registered with the Panamanian Securities Market Superintendence (Superintendencia del Mercado de Valores) under Panama's securities laws and may be publicly offered in Panama. The Notes have been listed with the Securities Exchange of Panama (Bolsa de Valores de Panama, S.A.). Each of the Notes will initially be registered in the name of Central Latinoamericana de Valores, S.A. ("LatinClear"), a custodian. Beneficial interests on the Notes will be shown on, and transfers thereof will be effected only through, the book-entry records maintained by LatinClear and its direct and indirect participants (including Euroclear and Clearstream, Luxembourg). 24

33 RISK FACTORS An investment in the Series Certificates is subject to a high degree of risk. The following list summarizes certain of such risks, each of which, among others, may materially affect a Certificateholder's receipt of the principal and interest on the Series Certificates in full at or before their Final Scheduled Distribution Date. The following section does not describe all the risks of an investment in the Series Certificates. Before making any investment decision, prospective investors should carefully read this Private Placement Memorandum in its entirety, including the risk factors set forth therein. The order of presentation of the risk factors below does not indicate the likelihood or the scope of any potential impairment that these risks might cause to the Series Certificates. These risks could be realized individually or cumulatively. RISKS ASSOCIATED WITH SERIES CERTIFICATES Limited Liquidity There is currently no secondary market for the Series Certificates and there can be no assurance that a secondary market for the Series Certificates will develop. Consequently, you may not be able to sell the Series Certificates readily or at prices that will enable you to realize your desired yield. The market values of the Series Certificates are likely to fluctuate. Any of these fluctuations may be significant and could result in significant losses to you. Restrictions on Transfer The Series Certificates are being offered in a private placement to a limited number of QIBs and non-u.s. Persons, and will not be registered under the Securities Act or any state securities laws. No transfer of any Series Certificate or interest therein may be made by an investor unless that transfer is made pursuant to an effective registration statement under the Securities Act and effective registration or qualification under applicable state securities laws, or is made in a transaction that does not require such registration or qualification. Additionally, as a condition of the provision by the Guarantor of the Guaranty, 25% of the initial Class A-1 Certificateholders and 100% of the initial Class A-2 Certificateholders, based on initial Certificate Principal Balance of the Class A-1 Certificates and the Class A-2 Certificates, respectively, on the Closing Date, (i) must be U.S. citizens or entities beneficially owned by U.S. citizens, (ii) must covenant not to sell, assign, transfer or otherwise dispose of such Class A-1 Certificate or Class A-2 Certificate, respectively, for a period of 40 days, (iii) must not be a partnership or other tax pass-through entity or, if such Class A-1 Certificateholder or Class A-2 Certificateholder is such an entity, none of the direct or indirect beneficial owners of such entity have allowed, or caused, or will allow or cause, 50% or more of the value of such interests to be attributable to its ownership of the Class A-1 Certificates (or interests therein) or Class A-2 Certificates (or interests therein), respectively, and (iv) must execute and deliver an investor letter (which includes certifications relating to clauses (i), (ii) and (iii)) which is attached as Exhibit A to this Private Placement Memorandum. As those investors constituting (a) the group of 25% of the initial Class A-1 Certificateholders and (b) 100% of the initial Class A-2 Certificateholders, based on the respective initial Certificate Principal Balances, may not sell, assign, transfer or otherwise dispose of such Series Certificates for a period of 40 days, a subsequent transfer of those Series Certificates is more restricted than similar transfers by investors who do not constitute the group of 25% of initial Class A-1 Certificateholders or and 100% of the initial Class A-2 Certificateholders. 25

34 Complex Securities The Series Certificates are complex securities, in which the amount and timing of distributions on the Series Certificates may be subject to significant variations from period to period over the life of the Series Certificates. An investment in the Series Certificates involves substantial risks and uncertainties and should only be considered by sophisticated institutional investors with substantial investment experience, who, either alone or with their financial, tax and legal advisors, have the expertise to evaluate: the information in this Private Placement Memorandum, the prepayment, reinvestment, credit, liquidity and market risks, ERISA and tax consequences and other attributes of the Series Certificates and the underlying Series A Notes and the interaction of these attributes, and complex asset securitization structures. Limited Assets The proceeds from the underlying Series A Notes (except for the $7,500,000 aggregate principal balance of the Series A Notes sold primarily to local investors in Panama and not transferred to the LH Delaware Trust) and the Guaranty are the only sources to make payments on the Series Certificates. The Series Certificates do not represent an interest in or obligations of, and are not insured or guaranteed by, the Initial Purchaser, the Grantor, the Grantor Trustee or any other person except the Guarantor to the extent described in this Private Placement Memorandum. Ratings of the Series Certificates The ratings of the Series Certificates will be based on Fitch's assessment of the underlying Series A Notes and, in the case of the Class A-1 Certificates, the financial strength of the Guarantor. A rating of the Series Certificates is not a recommendation to purchase, sell or hold a security inasmuch as such rating does not comment on the market price of the Series Certificates or their suitability for a particular investor. In addition, there can be no assurance that a rating of the Series Certificates will remain for any given period of time or that a rating will not be downgraded or withdrawn entirely by Fitch if, in its judgment, circumstances so warrant. A downgrade or withdrawal of a rating by Fitch is likely to have an adverse effect on the market value of the Series Certificates, which effect could be material. Prepayment Risk The yield to final payment of the Series Certificates depends on the prepayment rate of the Group of Mortgages securing the underlying Series A Notes. The timing of principal payments and the final payment of the Series Certificates will be affected by: the rate at which principal amounts are received on the underlying Group of Mortgages, the payment performance of the Mortgage Loans including any prepayments, delinquencies and losses, the mandatory or optional repurchase of any Mortgage Loan by the Assignor pursuant to the underlying Panamanian Transaction Documents, 26

35 the payment of proceeds of the Performance Bond in respect of a failure to record the assignment of a mortgage within the period provided therefor, and any optional redemption or mandatory redemption of the underlying Series A Notes pursuant to the underlying Panamanian Transaction Documents. Risks Related to Disclosure Panama's securities laws governing publicly-traded debt or equity securities impose disclosure requirements that differ from those in the U.S. in certain important respects. The issuer of the underlying Series A Notes will also be required to submit to the Superintendencia del Mercado de Valores, or in English, the Securities Market Superintendence of Panama ("SMV"), information that must be made available to the public including all holders of the Notes specifically, audited financial statements on an annual basis accompanied by the report of independent accountants and an annual report of its activities and developments, and unaudited financial statements on a quarterly basis along with a quarterly report of its activities and developments. As a result, investors in the Series Certificates may not obtain information equivalent to that which is generally available from issuers subject to U.S. securities laws. Minimum Alternative Income Tax of the Issuer Trust Panamanian trusts used to securitize mortgage loans under terms and conditions of those utilized in this transaction are entitled to receive exoneration from the Minimum Alternative Income Tax upon the presentation of a formal application for such exoneration as specified under Article 133E and 133F of Legal Decree 170 of 1993 and Executive Decree 185 of Such application for exoneration cannot be considered by the Panamanian tax authorities until after the commencement of the operation of the structure that comprises this transaction and thus after the Closing Date of this transaction. Should such an exoneration not be granted, the Issuer Trust could incur extraordinary costs that could adversely impact the amount of Available Funds and the payment of the Series A Notes and thus the Series Certificates. Combination or "Layering" of Multiple Risk Factors Although the various risks discussed in the Private Placement Memorandum are generally described separately, prospective investors should consider the potential effects of the interplay of multiple risk factors. Where more than one significant risk factor is present, the risk of loss to an investor may be significantly increased. RISKS ASSOCIATED WITH THE SERIES A NOTES Forward-Looking Statements Certain statements in this Private Placement Memorandum contain "forward-looking" information that involves risks and uncertainties, including, but not limited to, the implications for La Hipotecaria and the Issuer Trust of general economic conditions in Panama. Actual future investments, results and trends may differ materially depending upon a variety of factors discussed in this Private Placement Memorandum, changes in the Panamanian or the global economy or the economies of countries with which Panama and Panamanian entities do business, regulatory conditions and Panamanian political and legal developments. 27

36 Political Risks Political changes in Panama may affect the Issuer Trust, the Collateral Trust and the laws of Panama. The Issuer Trust and the Collateral Trust are constituted in Panama under Panamanian Law. Each Mortgage Loan comprising the Collateral Trust Assets (as defined in the Servicing Agreement) is subject to Panamanian law. Significant changes to Panamanian trust, tax or consumer law could have a material and adverse effect on the Series A Notes and, therefore, the Series Certificates. Enforcement of Judgments and Service of Process The Panamanian Transaction Documents are governed by Panamanian law, and the parties to those agreements, including the Issuer Trustee, the Collateral Trustee, the Primary Servicer, the Sub-Servicer and the issuer of the Performance Bond, have not submitted to the jurisdiction of the United States. As a result, it will likely not be possible to bring a legal action against such parties in a court in the United States. In addition, because of the structure of the transaction, neither the Series Certificateholders nor the Guarantor will have contractual privity with these parties, and their enforcement rights will be limited to those of the LH Delaware Trust which run to it as the owner of the Series A Notes. See "Governing Law" in this Private Placement Memorandum. Potential Conflicts of Interest Although obligated to act in its specific role, the Sub-Servicer of the Group of Mortgages, and the Assignor of the Group of Mortgages are the same company. In addition, ASSA owns 4.88% of the common stock of Grupo Financiero BG, S.A., the holding company that owns Banco General, S.A., and 4.62% of the common stock of Empresa General de Inversiones, S.A., a holding company that owns 61% of Grupo Financiero BG, S.A. There are common directors among ASSA, ASSA Seguros, LH Holding, La Hipotecaria and Banco General, S.A. The issuer of the Performance Bond is ASSA Seguros, a subsidiary of ASSA. Limited Assets; Limited Recourse Obligations The Series A Notes will be limited recourse obligations of the Issuer Trust, with recourse being limited to the property of the Collateral Trust, which primarily consists of the Group of Mortgages, and the Interest Reserve Account. There will be no recourse to the Assignor in connection with the sale and assignment by it of the Group of Mortgages to the Collateral Trust, other than a limited repurchase obligation in respect of the breach of certain representations and warranties. The Series A Notes will not be an obligation or responsibility of, or guaranteed by, any other person or entity, including La Hipotecaria (except for the breach of certain representations and warranties mentioned above), ASSA, Banco General, the Initial Purchaser, BG Valores or any state or federal government. There can be no assurance that the distributions on the assets of the Collateral Trust will be sufficient to make payments on the Series A Notes. None of the Series Certificateholders, the Guarantor or the Grantor Trustee will have the ability to take direct action against the Debtors under the Mortgage Loans in the case of a default thereunder. 28

37 RISKS ASSOCIATED WITH THE GROUP OF MORTGAGES Political and Economic Risks Substantially all of the Debtors on all of the mortgage loans comprising the Group of Mortgages are individuals residing in Panama and most of the Debtors are Panamanian citizens. All real estate properties securing the payment of such loans are located in Panama. Accordingly, the business, financial condition and results of operation of La Hipotecaria, as well as the payments on the mortgage loans comprising the Group of Mortgages, are affected by economic, political and social developments in Panama, including, among others, any political or social instability in Panama, changes in the rate of economic growth or contraction, an increase in the Panamanian inflation or interest rates, changes in Panamanian taxation and any amendments to existing Panamanian laws and regulations. La Hipotecaria's default and delinquency rates could increase as a result of several factors, including factors which cannot be foreseen at this time. Panama's growth rates since 2004 are a result of policy continuity centered on the expansion of the Panama Canal and the positioning of the country as a regional logistics hub. This strategy has driven a public and private investment-led growth cycle that has protected the economy from external shocks over the last eight years when Panama's five year average growth has consistently outperformed that of its peers. Higher inflation and deterioration in current account deficits reflected some macroeconomic tensions that have built up over the last few years during the period of rapid growth. However, the flexibility of Panama's economy, and its ability to adjust to shocks, has helped to mitigate the imbalances and prevented them from becoming problematic. According to its press release of March 7, 2014, titled "Fitch affirms Panama's Rating at 'BBB'; Outlook Remains Stable," Fitch expects growth to converge to a more sustainable rate of 6% by 2015 as certain investment projects come to completion. Panamanian government estimates indicate that the economy expanded at a real rate of 8.5% in However, adverse changes from the positive economic conditions in Panama in recent years could adversely affect the creditworthiness of the Debtors of the Group of Mortgages and the value of the properties serving as collateral for the Group of Mortgages. Debtors May Default in their Payment Obligations The ability of the Issuer Trust to continue to make payments on the Series A Notes depends directly upon the payment of the Mortgage Loans by each Debtor within the Group of Mortgages. As is the situation in any mortgage loan business, some or all Debtors may be late in making, or fail to make altogether, payments thereunder. If this occurs, the Servicer will be required to take action as necessary to collect the amounts owed on the applicable Mortgage Loans. If necessary, the Servicer may have to foreclose on the collateral of the defaulted Mortgage Loan. However, the proceedings for foreclosure of property in Panama may be subject to lengthy delays. There also can be no assurance that the Servicer would be successful in selling the collateral and recovering all amounts due under the defaulted Mortgage Loan plus expenses. To date, La Hipotecaria has experienced minimal net losses following the default of its mortgage loans. This has been attributable to La Hipotecaria's ability to obtain deeds in lieu of foreclosure and arrange to have a new Debtor assume the responsibility for the loan. Of the approximately $560 million in aggregate principal balance of Panamanian mortgage loans originated by La Hipotecaria since its inception, defaults have totaled approximately $3.7 million, resulting in net losses of approximately $171,600. The 2007 Eighth Mortgage Trust, La Hipotecaria's first cross border securitization (totaling $90,000,000 of unpaid principal balance), has experienced approximately $1.3 million of deemed defaults and approximately $25,000 of net losses in 87 months of reporting periods. There can be no assurance that recent or current rates of delinquency, defaults, foreclosures or losses will either continue in the future or be reflected in the performance of the Mortgage Loans as serviced by the 29

38 Sub-Servicer. The 2010 Tenth Mortgage Trust, La Hipotecaria's second cross border securitization (totaling $96,000,000 of unpaid principal balance), has experienced approximately $327,500 of deemed defaults and no losses in 44 months of reporting periods. There can be no assurance that recent or current rates of delinquency, defaults, foreclosures or losses will either continue in the future or be reflected in the performance of the Mortgage Loans as serviced by the Sub-Servicer. Subsidized Mortgage Loans As of the Cut-off Date, 73.5% of the Group of Mortgages, by principal balance, are subsidized by the Republic of Panama through the quarterly issuance of Fiscal Credits. The Servicer must apply quarterly for these Fiscal Credits. The Fiscal Credits subsidize the interest rate and are equal to the difference between the interest rates on the Mortgage Loans and a mortgage market rate (subject to certain maximums) referred to as the Panamanian Reference Rate. Upon receipt of a Fiscal Credit, such instrument, which is freely transferable, will be sold by the Servicer within Panama to third parties. In marketing the Fiscal Credits, the Servicer will be obligated to employ the customary practices that it employs in selling Fiscal Credits for its own account or for the account of third parties, and to diligently market to the largest possible universe of potential buyers in an attempt to obtain the highest possible sales price at the time of sale. The cash received from the sale will be distributed on the next Payment Date subject to the Priority of Payments for the Issuer Trust. Interest on the Series A Notes is based on the Panamanian Reference Rate. The interest rate paid by the Debtors on the subsidized Mortgage Loans in the Group of Mortgages is materially lower than the Panamanian Reference Rate. If the issuance of Fiscal Credits is suspended, or if there are delays in receiving and/or selling Fiscal Credits, amounts to be distributed in respect of the Series A Notes could be reduced and, therefore, the amount available to make distributions on the Series Certificates would be similarly reduced. The subsidy for the subsidized mortgage loans is available for ten years, which period is shorter than the Maturity Date of the Series A Notes. At the end of the subsidized period, the interest rate paid by the Debtor will most likely rise, which in turn will most likely result in an increase in the Debtor's monthly payment. This may negatively impact the ability of the Debtor to pay his Mortgage Loan or may increase the likelihood that he will voluntarily prepay his Mortgage Loan. On March 12, 2010, the Panamanian Government modified Article 6 of the Preferential Interest Rate Law, extending the subsidy period from 10 years to 15 years, to mortgages subject to the Preferential Interest Rate whose disbursement is registered in the Public Registry of Panama, effective as of July 1, As of the Cut-off Date, the Group of Mortgages consisted of 384 loans with U.S. $8.6 million of principal balance with a ten-year subsidy period and 1,503 loans with U.S. $46.5 million of principal balance with a fifteen year subsidy period. Nevertheless, should the Mortgage Loans become subject to the extended subsidy period, the prepayment assumptions presented in this document may change. Further, there can be no assurance that the Servicer will be able to sell the Fiscal Credits to third party purchasers at a price that is sufficient to offset the subsidy in interest rates described above. As part of its ongoing business, La Hipotecaria originates "cash out" refinance loans on mortgages subject to the Preferential Interest Rate Regimen. In this situation, La Hipotecaria underwrites two loans, one at the current principal balance of the original mortgage and a second one which is equal to the cash out amount. By originating loans in this fashion, the borrower maintains the Preferential Interest Rate Regimen treatment on the original loan balance and then pays a market rate on the extra amount. These "loan pairs" are tied together and secured by one mortgage (with a first perfected security interest) and count as one loan in the loan count contained in statistical information within this Private Placement Memorandum. Refinancing these loans may increase the chances of a borrower defaulting on such 30

39 mortgages. As of the Cut-off Date, the Group of Mortgages consisted of 822 paired loans with U.S. $5.2 million of remaining principal balance subject to the Preferential Interest Rate Regimen, and U.S. $6.6 million of remaining principal balance being subject to market rates. Geographic Concentration; Social, Economic, Meteorological and Geological Factors Although the frequency and severity of a major man-made or natural disaster cannot be predicted, Panama is generally not as exposed to catastrophic events characteristic of other countries in the region. Panama is generally out of the track of hurricanes and is not considered to be contained in a geologic area subject to severe seismic activity. Low-lying areas in Panama are subject to flooding. Damage to real property is insured for flood damage; however, the contents of the home are generally not insured. The Group of Mortgages does not include any residential property within a quarter-mile distance of the coastline. Nevertheless, there can be no assurance that a catastrophic event will not occur that will significantly and adversely impact the Group of Mortgages. Panama has been socially stable relative to some other countries in the region. Panama does not have a significant socialist movement; however, there can be no assurance that one might not develop in the future. Such a movement could negatively impact the financial system in Panama, the economy, and the ability and willingness of Debtors to repay their Mortgage Loans. Although the Mortgage Loans are diversified throughout the country of Panama, there is a concentration of 59.9% of the Group of Mortgages by outstanding principal balance as of the Cut-off Date in the Province of Panama. The occurrence of a major negative economic, social, geological or meteorological event in this area could have a negative and adverse effect on the payments of the Mortgage Loans and the performance of the Series A Notes. Mortgage Loan Servicing Risk Failure by the Servicer to perform its obligations could have an adverse effect upon the Issuer Trust's ability to repay the Series A Notes. If ASSA or La Hipotecaria fails to satisfy its obligations under the Servicing Agreement, the Collateral Trustee may, or shall at the direction of the majority holders of the underlying Series A Notes, replace ASSA or La Hipotecaria as the Servicer. Banco General, S.A. has agreed to serve as Back-up Servicer in the event of the failure of ASSA or La Hipotecaria to perform the duties of the Primary Servicer under the Servicing Agreement. The Back-up Servicer was selected by taking into consideration various factors, including the Back-up Servicer's servicing capabilities in the Panamanian housing industry for mortgage loans similar to the Group of Mortgages. Should servicing be transferred to the Back-up Servicer, several different procedures must be followed by the Back-up Servicer, depending on how the Mortgage Loan is being collected at the time of such transfer of servicing. In the case where the Debtor is paying by the direct discount method, the Back-up Servicer must contact each of the Debtors' employers with a written notification that the Mortgage Loan is now being serviced by the Back-up Servicer and that future payroll deductions under the direct discount method should be made in the name of the Back-up Servicer. Furthermore, in some cases, the Debtor's employers may require additional documentation to substantiate the legal change of the Servicer. In the cases where the Mortgage Loan is being serviced by the ACH method, the Back-up Servicer will need to solicit from each individual Debtor the signing of a new ACH debit card authorizing the Back-up Servicer to begin debiting the Debtor's bank account. In the case where the Mortgage Loan is being serviced by the voluntary payment method, the Back-up Servicer will need to inform the Debtor to begin making voluntary payments to the Back-up Servicer. 31

40 There can be no assurance, however, that the transfer of servicing of the Mortgage Loans to the Back-up Servicer, or the servicing of the Mortgage Loans by the Back-up Servicer, will not result in reduced amounts being payable under the Mortgage Loans, the Series A Notes or under the Series Certificates or delays in the receipt of such amounts. Originators and Servicers may be Subject to Litigation, Governmental Proceedings or Adverse Economic Conditions The mortgage lending and servicing business involves the collection of numerous accounts and compliance with various Panamanian laws that regulate consumer lending. Lenders and servicers like La Hipotecaria may be subject from time to time to various types of claims, legal actions (including class action lawsuits), investigations, subpoenas and inquiries in the course of their business. It is impossible to predict the outcome of any particular action, investigation or inquiry or the resulting legal and financial liability. If any legal or governmental proceeding were determined adversely to the Servicer of the Mortgage Loans included in the Group of Mortgages and were to have a Material Adverse Effect on its financial condition, or if the Servicer were to experience severe financial difficulties, the ability of the Servicer to service the Mortgage Loans in accordance with the Servicing Agreement could be impaired. Variable Rate Mortgage Loans The Mortgage Loans in the Group of Mortgages bear interest at a variable rate of interest. The rates of interest on the Mortgage Loans are not contractually indexed to any published rate (such as LIBOR or U.S. Prime Rates) but are free to be changed monthly at the discretion of the Servicer, subject to the following parameters set forth in the Servicing Agreement: the Servicer will maintain the interest rates that are not subject to the Preferential Interest Rate Regimen at a rate equal to, or higher than, the Panamanian Reference Rate in force on the related interest rate determination date for the Mortgage Loans, subject to the terms of the related credit agreements governing each such Mortgage Loan; and the Servicer will maintain the gross interest rate of the Mortgage Loans that are subject to the Preferential Interest Rate Regimen at a rate equal to the Panamanian Reference Rate in force on the related interest rate determination date for the Mortgage Loans, subject to the terms of the related credit agreements governing each such Mortgage Loan. Real Estate Taxes and Assessments and Servicer Advances Real property with a purchase price of U.S. $120,000 or greater is subject to real estate taxes and assessments. Liens on real property securing unpaid real estate taxes and assessments are superior to the lien of the related mortgage. In the event a property is foreclosed upon and sold to a third party, the proceeds of the sale will be applied first to pay real estate taxes and assessments (and any other priority claims), second, to reimburse the Servicer for Servicer Advances and third, to the extent such proceeds are sufficient therefor, to pay the unpaid principal amount and accrued interest and other charges due on the related Mortgage Loan. Risk of Commingling Payments on the Mortgage Loans will be made by the Debtors to the Servicer. All collections received by the Servicer are required to be transferred to the Collateral Trustee by the close of the following Business Day for deposit in the Available Funds Account held by the Collateral Trustee in 32

41 Panama. All Fiscal Credits owned by the Collateral Trustee on behalf of the Collateral Trust are issued by the Panamanian government in the name of La Hipotecaria as Servicer and sold for cash by La Hipotecaria. All cash received from the sale of these Fiscal Credits is required to be transferred immediately to the Collateral Trustee for deposit into the Panama local Available Funds Account. Pending such transfer to the Collateral Trustee, such collections may be temporarily commingled with the Servicer's own funds. If the Servicer is unable or fails to remit such collections, whether as a result of the Servicer's insolvency or otherwise, the ability of the Collateral Trustee to obtain such collections may be impaired. Public Registry First priority security interests in Panama are perfected by recording the mortgages in favor of the lien holder at the Registro Público de Panamá, an autonomous governmental agency duly authorized by the Panamanian government to receive, register and custody various types of legal documents (the "Public Registry"). The mortgages that comprise the Group of Mortgages will have been registered in the Public Registry prior to the Closing Date but will list the Assignor as the mortgagee thereof. The transfer of the mortgages from the Assignor to the Collateral Trustee will not be registered in the Public Registry on or prior to the Closing Date, but rather will be registered in the Public Registry no later than 90 days from the Closing Date. Given that the aggregate loan balance of the mortgages in the group of Eligible Mortgage Loans exceeds the minimum loan balance required for the Group of Mortgages, should any particular mortgage not be able to be registered in the Public Registry within the time period described above, that particular mortgage will not be included in the Group of Mortgages, but rather another mortgage from the Eligible Mortgage Loans will be selected and registered in its place. The Performance Bond covers the positive difference, if any, between (a) $75,000, and (b) the unpaid balance of the Mortgage Loans at the expiration of the 90 day period that were successfully registered in the Public Registry of Panama in favor of the Collateral Trustee plus the amortizations of principal received by the Collateral Trust as paid by the Debtors during this same period. The Performance Bond will cover such shortfall two Business Days after the date the Collateral Trustee has filed a claim thereunder, which claim must be filed within the next five Business Days following the expiration of the 90 day registration period. Any proceeds of the Performance Bond become Available Funds. The issuer of the Performance Bond is ASSA Compañía de Seguros, S.A. ("Assa Seguros" ), a Panamanian Insurance Company with a financial strength rating of "A" from A.M. Best Co. If the Performance Bond fails to operate according to its terms, the Public Registry would show that some or all of the mortgages that comprise the Group of Mortgages would not reflect the assignment thereof to the Collateral Trustee, thus potentially jeopardizing the Collateral Trust's first lien rights to the mortgages not registered. Furthermore, a draw on the Performance Bond would result in the prepayment of principal of the Series A Notes and, therefore, on the Series Certificates. Composition of Group of Mortgages The Mortgage Loans in the Group of Mortgages, having an aggregate principal balance as of the Cut-off Date of U.S. $75,000,125.49, were selected from the Eligible Mortgage Loans. 33

42 RISKS ASSOCIATED WITH THE REPUBLIC OF PANAMA General Economic Risks Related to Panama Panama is a developed financial center of trade and finance in Latin America. Panama's sovereign debt is currently rated "BBB+" by Fitch, "BBB" by S&P and "Baa2" by Moody's. S&P has rated Panama with a "AAA" Transferability risk. Panama's high growth rates since 2004 are a result of policy continuity centered on the expansion of the Panama Canal and the positioning of the country as a regional logistics hub. This strategy has driven a public and private investment-led growth cycle that has protected the economy from external shocks over the last eight years, during which Panama's five year average growth has consistently outperformed that of its peers. Higher inflation and deterioration in current account deficits reflected some macroeconomic tensions that have built up over the last few years during the period of rapid growth. However, the flexibility of Panama's economy, and its ability to adjust to shocks, has helped to mitigate the imbalances and prevented them from becoming problematic. If Panama's economic model is well administered, the country could enjoy sustainable growth over the medium term. According to its press release of March 7, 2014, titled "Fitch affirms Panama's Rating at 'BBB'; Outlook Remains Stable," Fitch expects growth to converge to a more sustainable rate of 6% by 2015 as investment projects come to a completion. Government estimates indicate that the economy expanded at a real rate of 8.5% in The Panamanian economy is small and relatively undiversified, being largely focused on the service sector, which currently represents approximately approximately 75% of the country's GDP. According to the Contraloría General de la República, Panama's GDP grew at a rate of 8.5% during Despite strong growth, Panama's fiscal consolidation has been relatively slow, partly reflecting the government's commitment to its ambitious investment plan. Consequently, public debt reduction has been driven more by the country's fast growth rate rather than by a focus on fiscal consolidation. Debt-to-GDP fell to 38.4% in 2013 from 39.2% in 2012, representing the slowest pace of reduction since 2006 (except in the 2009 global financial crisis). Future consolidation challenges include a slowing economy as well as continued social spending pressures. A significant portion of Panama's economic activity is linked directly or indirectly to the Panama Canal, shipping and port activities, a large free-trade zone, an international banking center and tourism. Due to the small size and limited focus of the Panamanian economy, adverse developments in Panama could have a more pronounced effect than would be the case if the developments occurred within the context of a larger, more diversified economy. Further potential delays in projects to expand the Panama Canal could make fiscal consolidation harder for the future administration as the fiscal windfall coming from the enlarged canal takes longer to materialize. The Panama Canal expansion is already one year behind schedule due to delays on the construction of the third set of locks, the main project of the expanded canal. On February 27, 2014 the Panama Canal Authority ("ACP") the autonomous agency in charge of managing the canal operations, reached an agreement with the locks' construction consortium to resume work after two weeks of stoppage. The canal expansion will be completed by December 2015 and start operating in 2016 (per ACP's February 2014 updated estimate) with some margin of cost overruns. While the assumed completion date could suffer further delays, it is unlikely to undermine the canal's value proposition in the medium term. Furthermore, the ACP has the financial and technical flexibility to support any possible cost overruns. Substantially all of the individual Debtors are employed in the Panamanian economy and, therefore, changes in Panama's economic climate could adversely affect their ability to pay their Mortgage Loans as contracted. Furthermore, a portion of the cash flows that support this transaction are dependent on the Servicer's ability to receive and sell Fiscal Credits issued by the Panamanian government in the Panamanian economy. Therefore, the Issuer Trust's ability to repay the Series A Notes and, therefore, the LH Delaware Trust's ability to repay the Series Certificates, is substantially dependent on economic conditions prevailing from time to time in Panama. 34

43 General Political Risks Related to Panama Panama's economy has experienced different types of government and governmental policies. From its birth as a nation in 1904 until 1968, Panama generally maintained a functioning constitutional democracy. In 1968, the country's military overthrew the democratically elected government and assumed power in Panama until 1987, when a political crisis erupted among the then ruling military dictator, General Manuel Antonio Noriega, civilian organizations, political parties and the business community, which had been agitating for a return to democratic rule. In December 1989, Mr. Noriega was deposed, largely as a result of U.S. military intervention, and Guillermo Endara, who had been elected by an overwhelming majority of Panama's population in a popular vote earlier in the year, was sworn in as President. Since the end of 1989, the Panamanian government has maintained political and economic stability under successive democratically elected governments, and favorable relations with the U.S. have been fully restored. Even with a return to democratic rule, the Panamanian government exercises substantial influence over economic developments in Panama and many aspects of the private sector such as changes in import and export practices, regulatory policy and taxation. In view of the country's past political instability and the government's influence over the economy, it must be noted that adverse changes in Panama's political climate could adversely affect the Issuer Trust's ability to repay the Series A Notes and, therefore, the LH Delaware Trust's ability to repay the Series Certificates. Presidential and legislative elections took place in Panama on May 4, Partido Panameñista candidate Juan Carlos Varela, the then-current vice-president, won the elections with 39.1% of the votes. Overall policy continuity is likely under the new government. Risks Associated with the Panamanian Monetary System Since 1904, Panama has used the U.S. dollar as legal tender and its sole paper currency, using the Balboa only as coinage and as a unit of account with an exchange rate set at parity with the U.S. Dollar. Although there is no indication of any official action of Panama moving toward its own or any other alternative currency, there is no assurance that the United States dollar will continue to remain the currency of Panama. The Panamanian monetary system is dependent on the U.S. Dollar and any downturns in the U.S. economy may adversely affect the Panamanian economy. Panama's monetary system is such that it is limited in its ability to achieve stimulus through monetary policy and can finance public sector deficits only through borrowing. As a result, Panama has enjoyed low inflation commensurate with levels of inflation generally prevailing in the U.S. Panama had nearly no inflation from 2003 (0.1%), to 2004 (0.5). The inflation rate in Panama averaged 4.98 Percent from 2008 until 2014, reaching an all-time high of % in September 2008 and a record low of 0.49% in September The inflation rate in Panama was recorded at 3.50% in April As a result, inflation continues to hold above historically low levels. Due to the county's dollarized economy, authorities lack the freedom to use monetary policy or exchange rate adjustments to reduce inflation. The inflation rate in Panama is reported by the Instituto Nacional de Estadística y Censo - Panamá. Higher inflation and deterioration in current account deficits reflected some macroeconomic tensions that have built up over the last few years during a period of rapid growth. However, the flexibility of Panama's economy, and its ability to adjust to shocks, has helped to mitigate the imbalances and prevented them from becoming problematic. In addition, given the relationship of the Panamanian monetary system to the U.S. dollar and, indirectly, Panama's dependence on the U.S. economy, there can be no assurance that appreciation or depreciation of the U.S. dollar against other Euro-covered currencies or the existence of sustained higher levels of inflation in the U.S. economy (and the resultant effect on the value of the U.S. dollar) or increases or decreases in interest rates 35

44 in the U.S. will not adversely affect the Panamanian monetary system, the value of the underlying collateral and the Issuer Trust's ability to repay the Series A Notes and, therefore, the LH Delaware Trust's ability to repay the Series Certificates. THE LH DELAWARE TRUST La Hipotecaria Panamanian Mortgage Trust , a Delaware statutory trust, will be governed pursuant to an Amended and Restated Grantor Trust Agreement, dated as of the Closing Date, among the Grantor, the Grantor Trustee and the Certificate Paying Agent (also acting in the capacity of the Transfer Agent and the Authenticating Agent therein). The LH Delaware Trust will be created and administered under the laws of the state of Delaware for the purpose of engaging in the following activities: (i) (ii) (iii) (iv) (v) (vi) to issue and sell the Series Certificates pursuant to the LH Delaware Trust Agreement; to deliver the net proceeds of the sale of the Series Certificates as consideration for the assignment of the LH Delaware Trust Assets; to hold the underlying Series A Note, to enforce its rights thereunder and to distribute to the Certificateholders and the Guarantor any proceeds thereof remitted to the LH Delaware Trust; to obtain the Guaranty, which Guaranty will be held by the Grantor Trustee for the benefit of the LH Delaware Trust and the holders of the Class A-1 Certificates; to enter into and perform its obligations under the Transaction Documents to which it is or is to be a party; using the proceeds of the LH Delaware Trust Assets and the Guaranty during the Guaranty Term (as defined in this Private Placement Memorandum) to make distributions on the Series Certificates; (vii) to maintain the LH Delaware Trust's existence as a statutory trust under the laws of the State of Delaware; and (iv) taking such other actions as are necessary to give effect to the foregoing. Citicorp Trust Delaware, National Association will act as Grantor Trustee of the LH Delaware Trust and Citibank, N.A. will act as the Certificate Paying Agent. The LH Delaware Trust Assets will consist of approximately U.S. $60,750,000 in aggregate principal amount of the Series A Notes, which amount will, as of the Closing Date, constitute a controlling majority of all Series A Notes issued and outstanding. THE ISSUER TRUST AND THE COLLATERAL TRUST The Notes will be issued by and constitute obligations of the Twelfth Mortgage-Backed Notes Trust (the "Issuer Trust"). The Issuer Trust has been formed under the terms and conditions of an irrevocable trust (the Issuer Trust Agreement) entered into between La Hipotecaria, as Issuer Trustee, and LH Holding, as the Issuer Trust Grantor. Since under Panamanian Trust Law, the trustee cannot be the same as the Grantor, LH Holding is the grantor under the Issuer Trust. 36

45 The Issuer Trustee, acting for and on behalf of the Issuer Trust and in accordance with the terms of the Issuer Trust Agreement, will be authorized to: (i) (ii) issue the Notes, constitute the Collateral Trust, (iii) cause the execution of one or more Escrow Agreements in order to ensure the legal transfer, free of liens, of the Group of Mortgages to the Collateral Trustee on the Closing Date, (iv) take all action necessary to ensure that the Collateral Trustee shall be able to exercise all rights as holder of the Mortgage Loans in accordance with the terms of the Credit Agreements in order to use the payments it receives on the Mortgage Loans to fulfill the obligations under the terms of the Notes, as well as to pay the expenses associated with the servicing of the Mortgage Loans and all other related expenses, (v) (vi) (vii) procure the Performance Bond, execute the Note Payment Agency Agreement, contract for or cause the contracting for the Letter or Credit, and (viii) cause the transfer of the Group of Mortgages by La Hipotecaria, as Assignor, to BG Trust (as defined in this Private Placement Memorandum), as Collateral Trustee, under the terms and conditions of a separate Panamanian Trust, thus providing the collateral that will guarantee the obligations of the Issuer Trust to make payments on the Notes The Collateral Trust The Collateral Trust has been formed under the terms and conditions of an irrevocable trust (the Collateral Trust Agreement) entered into between the Issuer Trustee, as grantor, and BG Trust, as Collateral Trustee. The purpose of the Collateral Trust is to establish an independent patrimony to hold collateral in favor of the Noteholders, the Issuer Trustee, the Collateral Trustee, the Servicer and the Note Paying Agent (together, the "Secured Parties") to secure the following obligations (collectively, the "Secured Obligations"): (i) the full and punctual payment at maturity (whether at the agreed upon maturity date or prior thereto upon being declared due and payable in advance of the maturity date or otherwise) of each and every one of the obligations (including, without limitation, principal, interest, default interest, indemnities, commissions, fees, expenses and other amounts) owed by the Issuer Trustee to the Noteholders or to the other Secured Parties arising from or in connection with the Notes and the other Panamanian Transaction Documents, in each case, direct or indirect, primary or secondary, fixed or contingent, now or hereafter arising out of or relating to any such document or agreement; and the due performance and compliance on the part of the Issuer Trustee of all of the terms, conditions and agreements as provided in the Notes and the other Panamanian Transaction Documents; (ii) the full and punctual payment of each and every one of the amounts owed or the obligations contracted by the Collateral Trustee or any other Secured Party, by virtue of any Panamanian Transaction Document to which a Secured Party is a party in order to preserve, maintain, defend, protect, administer and safeguard the Collateral Trust Assets (including, without limitation, any fees and expenses of any Secured Party incurred in connection with the foregoing), in each case as provided herein and in the other Panamanian Transaction Documents; (iii) in the event of any judicial or extra-judicial process being commenced to collect or enforce any obligations, debts and commitments as referred to in paragraphs (i) and (ii) above, any expenses of assessing, preparing for sale, selling, assigning, taking advantage or otherwise disposing 37

46 of the Collateral Trust Assets and, in general, any other expenses incurred in connection therewith; as well as any expenses incurred by the Collateral Trustee or any other Secured Party in the exercise or defense of its rights by virtue of any of the Panamanian Transaction Documents to which a Secured Party is a party (including, without limitation, lawyers' fees and costs, judicial expenses, insurance premiums, bonds and others), in any such case with interest thereon at the rate provided in the Series A Notes as of the date on which said payment shall be required; and (iv) any other amounts to be paid by the Issuer Trustee to any Secured Party pursuant to the Transaction Documents to which any Secured Party is a party; and once those Secured Obligations are fulfilled, distribute the Collateral Trust Assets to the Secondary Beneficiary. Without affecting the foregoing, the Issuer Trustee constitutes the Collateral Trust so that the Collateral Trustee (i) receives in trust the Mortgage Loans, and any balance of the proceeds of the issuance of the Notes after paying for the Mortgage Loans pursuant to the Mortgage Transfer Agreements, (ii) enters into the Servicing Agreement for the administration and collection of the Collateral Trust Assets, (iii) collects, through the person designated as servicer pursuant the Servicing Agreement (the "Servicer"), all the Mortgage Loans and exercises, through the Servicer, all the other rights that correspond to the Collateral Trustee as mortgagee of the Mortgage Loans in accordance with the Credit Agreements, (iv) uses the payments received under the Mortgage Loans and proceeds from the other Collateral Trust Assets to comply with the obligations of the Issuer Trust in accordance with the Notes, as well as the expenses related to the servicing of the Mortgage Loans and other obligations stipulated in the Servicing Agreement and the other Transaction Documents, (v) invests the other Collateral Trust Assets in accordance with the terms and conditions of the Collateral Trust; and (vi) once the Secured Obligations are fulfilled distribute the Collateral Trust Assets to the Issuer Trustee or, in case of breach of the Secured Obligations, distribute to the Secured Parties the proceeds of the sale of the Group of Mortgages pursuant to the Priority of Payments set forth in "Summary of Terms of the Underlying Notes Priority of Payments" in this Private Placement Memorandum. As of the Closing Date, the Assignor will have sold Panamanian Mortgage Loans with an aggregate principal balance of at least U.S. $75,000,000 (as of the Cut-off Date) to the Collateral Trustee. Panamanian trusts are established by a "grantor," and agreed to by a "trustee"/"fiduciario," who upon acceptance thereof is obligated to act for the trust, for the benefit of a "beneficiary" and in accordance with related trust documents. Trust documents, such as the Issuer Trust and the Collateral Trust, are filed with the Public Registry memorializing their contents and upon filing, the assets of the trust will be considered legally isolated and no longer the property of the Assignor. Since trusts in Panama are contractual in nature and not separate legal persons, as is the case with certain business trusts in the United States, the Trustee has legal ownership of the assets. Since banks, which are the predominant trustees in Panama, have been reluctant to take on the "publicity risk" of a non-affiliated company, La Hipotecaria has obtained a Panamanian trust license for the purpose of acting as the Issuer Trustee on this and previous similar transactions. To give an investment grade entity ownership of the Collateral Trust assets, the Assignor has adopted a two trust structure, whereby a Collateral Trust is established to provide for ownership of the Group of Mortgages in the Collateral Trustee. Although the Collateral Trustee, BG Trust, is not rated, BG Trust is a 100% subsidiary of BG Investment Co., which is a 100% subsidiary of Banco General, S.A., which is rated "BBB-" by S&P and "BBB" by Fitch. The Collateral Trustee is a company incorporated under the laws of the Republic of Panama. BANCO LA HIPOTECARIA Banco La Hipotecaria, S.A. (or as also referred to herein, the "Bank" or "La Hipotecaria") began operations as a financing company, in May of John Rauschkolb, La Hipotecaria's current CEO, founded the company. Formerly named La Hipotecaria, S.A., La Hipotecaria 38

47 is a wholly owned subsidiary of La Hipotecaria (Holding) Inc. The Bank is also owner of La Hipotecaria, S.A. de C.V., a residential mortgage originator and servicer with operations in the Republic of El Salvador and La Hipotecaria Compañía de Financiamiento, a residential mortgage originator and servicer with operations in Colombia. La Hipotecaria (Holding) Inc. is a subsidiary of Groupo ASSA, S.A. ("Assa") a company with shareholder equity of approximately U.S. $799 million and is owner of one of the region's most important insurance companies; ASSA Seguros, rated "A" by A.M. Best. La Hipotecaria's relationship with ASSA began in 1997 when they chose ASSA to be the underwriter of their collective fire and life insurance policies that were offered to their mortgage clients. The Bank's relationship with ASSA broadened when, in 1999, it issued its first mortgagebacked securities of $15,000,000 and ASSA purchased about $2,000,000 of the MBS for its investment portfolio. As the volume of ASSA Seguros' collective fire and life insurance policies with La Hipotecaria grew, ASSA became more interested in their MBS as investments and in La Hipotecaria as a company. After acquiring a non-controlling interest in La Hipotecaria (Holding) Inc. in the year 2000, in January of 2002 ASSA acquired 87% of the company. During 2009, ASSA increased its ownership of LH Holding to 90% with the remaining shares held by the management of the Bank. On December 18, 2009, the International Finance Corporation (IFC), a member of the World Bank Group, acquired a 14.99% ownership stake in La Hipotecaria (Holding) Inc. by means of a direct investment of new capital into the company. Currently, the shareholding distribution is 69.02% Grupo ASSA, 13.5% IFC and 17.48% the management of the Bank. On June 7, 2010, La Hipotecaria began operations as a fully-licensed bank (previously the company operated as a financing company) under a license granted by the Superintendencia de Bancos de Panamá (Banking Superintendence of Panama). This new categorization as a financial institution requires the company to operate under a fully-regulated environment, and provides the ability to diversify its funding sources with deposits received from the general public. Today, the operating companies owned by LH Holding employ 247 people in LH Holding's nine offices in Panama, El Salvador and Colombia and administer a residential loan portfolio of over 19,600 mortgage loans. Banco La Hipotecaria in Panama and its subsidiary operations in El Salvador and Colombia enjoy the support of many local, international and multilateral banks that provide it with warehousing lines of credit totaling $165 million and the support of numerous institutional investors who invest in the various financial instruments issued in their respective local markets by Banco La Hipotecaria, S.A. and its subsidiaries. Banco La Hipotecaria, acting as trustee of various issuer trusts, has successfully issued eleven mortgage-backed securities transactions totaling $318,000,000, two of which are cross-border transactions, at a rate of approximately one issue per year since

48 Corporate Structure and Business Plan Current Corporate Structure. Corporate Structure La Hipotecaria's Directors include: Lorenzo Romagosa L. President and Chairman. Mr. Romagosa obtained a B.S. degree in Business Administration from the University of Notre Dame (1973). Later, he obtained an MBA from Florida State University (1975). Mr. Romagosa is an active member of the Board of Directors and Executive Committee of ASSA, ASSA Seguros, Planeta Verde, S.A., and serves on the organizing committee of Expocomer. He is an advisor to the Cámera de Commercio e Industrias de Panamá. He was born on October 14, John D. Rauschkolb. Executive Vice President and CEO. Mr. Rauschkolb obtained his bachelor's degree in Business Administration from Pepperdine University (1983) (summa cum laude), an MA in International Management from the Lauder Institute at The University of Pennsylvania (1994) and an MBA in Finance from The Wharton School at The University of Pennsylvania (1994). 40

49 Mr. Rauschkolb began his mortgage banking career in California in 1983, where he worked nine years at George Elkins Company, a west-coast mortgage company where he eventually became head of mortgage operations and was responsible for a servicing portfolio in excess of $1.4 billion dollars and the supervision of 120 employees in five offices extending from San Diego to Seattle. He left this position to begin graduate studies, and upon finishing such studies, he became Director of Mortgage Operations for Invermexico, Banco Mexicano, the third largest Mexican bank at the time. In 1997, Mr. Rauschkolb founded La Hipotecaria, where he has served as CEO since inception. He is a member of the Board of Directors of Bolsa de Valores de Panama and Central Latinoamericana de Valores (Latinclear). Mr. Rauschkolb is an active member of member of YPO (Young Presidents Organization, Panama Chapter). Mr. Rauschkolb was born on July 23, Salomón V. Hanono. Treasurer. Mr. Hanono obtained his B.S. in Business Administration from the American University (1989). He is the CEO of the different companies that comprise the group Empresas Vicsons, a Panamanian real estate development and investment company. Mr. Hanono is a member of the Board of Directors and Executive Committee of ASSA and ASSA Seguros. He was born on July 23, Nicolás Pelyhe V. Secretary. Mr. Pelyhe attended courses at the Accounting School at the University of Panama. Before joining ASSA, Mr. Pelyhe worked for six years as an auditor for the accounting firm, KPMG, where he specialized in banking and insurance and formed part of its training group. Although he retired from ASSA in 2011 after nearly 30 years of service, Mr. Pelyhe serves as Vice President of Finance and Investments at ASSA Seguros, and several of its subsidiary companies. Mr. Pelyhe was born on October 5, Juan A Castro de la G. Vice President. Mr. Castro graduated with a B.S. degree in Finance from Louisiana State University, Baton Rouge, Louisiana. He began his professional career working in the corporate finance department of Banco Continental de El Salvador with a specialization in telecommunications and energy. He was promoted to the position of Assistant Vice-president of Commercial Banking at Banco Continental de El Salvador. During his eight year career with Banco Continental, he was involved in structuring and syndicating more than $1 billion in private and public transactions. During the second half of 2007 and the first half of 2008, he served as Vice-president of Corporate Finance for Mundial Servicios Financieros, S.A., during which time he was in charge of structuring financial instruments for the capital markets. Currently he is employed in the treasury department of Inversiones Bahia LTD. Mr. Castro is Salvadoran, and was born on August 15, Eduardo Fabrega. Vice President. Mr. Fabrega obtained his B.S. in Business Administration from Texas A&M University (1993). Later he obtained a MBA from Nova Southeastern University (1997). Currently, Mr. Fabrega is the Executive Vice President and General Manager of ASSA Seguros, and prior to that he served as VP General of Branches, Director of the Company Insurance Division, Technical Manager and Finance Manager, among other positions, in the same company. He was born on November 5, Rodrigo Cardoze. Vice President. Mr. Cardoze obtained his B.S. of Arts from Duke University (2000). Later he obtained the degree of Juris Doctor from Washington University in Saint Louis, Missouri (2003). Professionally, he serves as an International Associate of the Arias, Fabrega & Fabrega law firm. He is recognized as a licensed attorney in the State of Florida. He is a Director of the Bolsa de Valores de Panama and of Central Latinoamericana de Valores, S.A.. He was born on January 4,

50 La Hipotecaria's Directors Name Education Other Directorships Held Lorenzo Romagosa BS Business Administration (Notre Dame) ASSA, Café Durán Number of Years on the Board Areas of Specific Expertise 14 years Insurance and Management John D. Rauschkolb BS Business Administration (Pepperdine University), MBA & MA (University of Pennsylvania, Wharton) Bolsa de Valores, Central Latinoamericana de Valores 17 years Real Estate Finance Nicolás Pelyhe Accounting Studies (University of Panama) Desarrollo El Dorado, Metropolitana Compañía de Seguros, Profuturo 14 years Finance, Accounting and Insurance Salomón V. Hanono BS Business Administration (American University) ASSA, Empresas Vicsons, S.A. 14 years Finance, Insurance and Real Estate Juan Castro Eduardo Fabrega BS Finance (Louisiana State University) BS Business (Texas A&M University) MBA (Nova Southeastern University) None 4 years Finance None 4 years Insurance and Management Rodrigo Cardoze BS of Arts (Duke University) Juris Doctor (Washington University) Bolsa de Valores, Central Latinoamericana de Valores 4 years Lawyer 42

51 Principal Executives of La Hipotecaria Name Education Current Position in Company John Rauschkolb MBA in Finance, MA in International Management, BS in Business Administration Chief Executive Officer Boris Oduber BS in Business Administration Chief Operating Officer Time in Present Position Years Employed by Company Key Positions held with Other Companies 17 years 17 years Appraiser, Loan Officer, Branch Manager 12 years 12 years Investment Officer, Risk Manager Giselle de Tejeira MBA BS in Finance Chief Financial Officer 6 years 6 years VP Treasurer, Correspondent Banking, Financial Institutions Raúl Zarak BS in Mechanical Engineering, MBA in Finance Country Manager, Panama 9 years 9 years Risk Manager Adán Palma BS in Systems Engineering Assistant VP, Technology Fernando Ruiz MBA in International Management Assitant VP, Corporate Finance Miguel Padilla BS in Accounting, (CPA) Assistant VP, Finance 2 years 2 years Systems Engineer 6 years 6 years Account Officer 6 years 6 years Finance Officer Jean Ávila BS in Banking and Finance MBA, Marketing and Management Assistant VP, Loan Production 3 years 3 years Collection Officer and Credit Analyst 43

52 La Hipotecaria's Business Plan La Hipotecaria's business goals are to maintain interest and servicing margins while growing the total size of the mortgage loan portfolio, broaden securitization efforts and continue to shift revenues from net interest margin to servicing margin, increase loan production volume so as to increase accompanying placement fees, maintain asset quality to insure low levels of delinquency and reduce recurring operating costs as a proportion of recurring servicing income. La Hipotecaria plans to remain in the same market niche with the same products, namely, first-lien mortgage loans on primary residences given to lower- to middle-income borrowers and a limited focus in personal loans exclusively for existing mortgage loan clients. Today, the average original mortgage size at origination is approximately $40,000. Marketing efforts will continue to be focused approximately 48% on purchases of new homes, 48% on the purchase of existing homes or refinances of existing mortgage loans and 4% on the origination of personal loans for existing mortgage loan clients. La Hipotecaria's goal is to become the region's most cost-efficient provider of mortgage products and to capitalize on its advantage of market-niche specialization by focusing entirely on mortgage operations. La Hipotecaria has continuous employee training to build their knowledge of La Hipotecaria's niche product, and emphasizes continuous improvement in La Hipotecaria's operational processes with special emphasis on the continued development of La Hipotecaria's proprietary technological platform. It is La Hipotecaria's plan to continue internal, organically-driven growth in its market niche, rather than grow through acquisition, while methodically expanding loan origination efforts regionally. Funding La Hipotecaria has available warehouse lines of credit for Panamanian originations exclusively, in the aggregate principal amount of U.S. $48,800,000. Its warehouse lines of credit for originations in all jurisdictions (Panama, El Salvador and Colombia) have an aggregate principal amount of $165,000,000. It also has the support of numerous institutional investors who invest in the various financial instruments issued by it in local markets. La Hipotecaria funds its warehousing needs through a combination of bank lines, medium term notes, a one year commercial paper program and, since becoming a licensed banking entity in June 2010, client deposits. Banks providing warehousing lines include a cross-section of international, regional and local banking entities. ASSA serves as guarantor on some of La Hipotecaria's warehousing lines and as guarantor receives a guaranty fee that ranges from 0.125% to 0.25% per annum. In addition to the guaranty by ASSA, bank warehousing lines are usually secured by a pledge of mortgage assets, either through trust agreements or direct assignment of assets. In both cases, assets pledged represent approximately 125% of the monies lent by the banks. In 2009, La Hipotecaria issued medium term notes approved by the local Securities and Exchange Commission (Comision Nacional de Valores de Panamá) in the amount of U.S. $40,000,000. This program of medium term notes allowed La Hipotecaria to issue in terms of 18 months to five years. The notes are secured by a pledge of mortgage assets placed in trust. La Hipotecaria's commercial paper program offers commercial paper through five separate programs approved by the local Securities and Exchange Commission. The five programs allow La Hipotecaria to issue up to $150 million of commercial paper in total. All commercial paper is issued for a one year term with quarterly interest payments. In contrast to bank financing or medium term notes, no tangible assets are pledged with respect to the commercial paper program. These obligations are general obligations of La Hipotecaria. Since La Hipotecaria obtained a banking license, it has the ability to diversify its funding sources by receiving deposits from the public and currently offers time deposits and savings accounts 44

53 through a recently created private banking department. Time deposits are offered with a minimum tenor of one year and savings accounts, which are at call, only pay interest to balances of $5,000 to $1 million. As of the date of this document, La Hipotecaria has raised approximately $135 million in deposits from a variety of private banking clients. Due to the nature of La Hipotecaria's business model, there will always exist a mismatch between the maturity of La Hipotecaria's assets and liabilities. Nevertheless, La Hipotecaria is involved in an ongoing securitization program in which long term assets are routinely sold to repay short-term liabilities. Since La Hipotecaria's inception in May of 1997, it has completed eleven mortgage loan securitizations, in which the loans sold have remained as assets on La Hipotecaria's balance sheet or affiliates' balance sheets for an average of approximately twenty months. Laws that Affect the Industry La Hipotecaria is a fully-licensed bank and is regulated by the Banking Superintendence of Panama and the applicable Banking law, Law 9 of 1998, reformed by Law 2 of This law establishes minimum capital requirements and paid-in capital, liquidity requirements, loan classification and provisioning rules, maximum related party ratios, restrictions on equity participation in other companies, know-your-customer policies and anti-money laundering requirements, corporate governance and reporting requirements, among others. La Hipotecaria holds a fiduciary license and its fiduciary activities are regulated by the Fiduciary Law of Panama and supervised by the Banking Superintendence of Panama. This law establishes the norms for operating as a Fiduciary (trustee) in the Republic of Panama including minimum guaranties that must be established and periodic reporting requirements. La Hipotecaria is a user of credit reporting data which is regulated by Consumer Protection laws in Panama. This law gives guidelines as to the legal use of credit information published by the local Panamanian credit bureau. As of the Cut-off Date, 87.0% of the Mortgage Loans in the Group of Mortgages are serviced using the Direct Discount law, Panamanian Law 55 of 1976 which provides the legal framework for an obligatory payroll deduction of the monthly mortgage loan payments. According to Law 55, every borrower that acquires a mortgage loan in Panama may irrevocably authorize their employer to deduct their monthly mortgage loan payment from their paycheck. A large portion of the mortgage loans that are originated by La Hipotecaria is subject to the Preferential Interest Rate Regimen. This law establishes an important incentive for the purchase of residential real estate in certain price ranges. For newly constructed residential real estate that serves as the purchaser's primary residence, the government of Panama has established three ranges of rate reduction, depending on the price of the home. On March 12, 2010, the Panamanian Government modified Article 6 of the Preferential Interest Rate Law, extending the subsidy period from 10 years to 15 years. This modification applies to mortgages subject to the Preferential Interest Rate Law whose disbursement is registered in the Public Registry of Panama, effective as of July 1, As of the Cut-off Date, the Group of Mortgages consisted of 384 loans with U.S. $8.6 million of principal balance with a ten year subsidy period and 1,503 loans with U.S. $46.5 million of principal balance with a fifteen year subsidy period. The Preferential Interest Rate Law has been operating successfully in Panama since 1985 and the Servicer and Back-up Servicer have extensive knowledge regarding servicing loans of this type. The following table sets forth certain information, based on information provided by La Hipotecaria, concerning La Hipotecaria's realization rate on the sale of Fiscal Credits over the course of the past 15 months. The data presented in the following table is for illustrative purposes only. 45

54 Month Resolution Number Principal Amount ($) Sale Price (%) February , % February , % February , % February , % March , % March , % March , % March , % March , % May , % May , % October , % October , % October , % October , % October % October , % October , % October , % November , % November , % November , % November , % November , % November , % November , % November , % November , % November , % November , % November , % November , % November , % November % November % November % November % November % November % November % November % November , % November , % November , % November , % November , % November , % November , % November , % January , % January ,155, % January , % January , % April , % April , % April % April % April % April % April % April , % April , % April ,192, % April % April , % April , % 46

55 A large portion of the interest generated by the mortgage loans made by La Hipotecaria under the Preferential Interest Rate Regimen is the product of the sale of a Fiscal Credit as compensation for having made a mortgage loan at a below-market interest rate. However, this foregone interest is not an obligation of the Panamanian Government since the Panamanian Government has no payment obligation to La Hipotecaria. Differing agencies of the Panamanian Government are involved in the review and validation of presented data and the issuance of a Fiscal Credit. La Hipotecaria, as Servicer, is responsible for the preparation and presentation of data to the Panamanian Government and La Hipotecaria is responsible for selling the Fiscal Credits to private taxpaying companies. It is the sale of the Fiscal Credit to private taxpaying companies that produces the cash that replaces the foregone interest. Panamanian law allows any individual taxpayer to pay its entire income tax obligation with Fiscal Credits. For reasons of efficiency, La Hipotecaria focuses on selling Fiscal Credits to large taxpayers such as banks, private utility companies, or other large blue-chip Panamanian companies. The advantage of paying one's taxes with a Fiscal Credit is that Fiscal Credits can be purchased at a slight discount, thus creating a direct savings for the taxpayer. As with monthly mortgage loan payments received by borrowers, monies received from La Hipotecaria from the sale of Fiscal Credits are segregated on a loan-level basis and promptly credited to the accounts of the various trusts for which it services the mortgage loans. Loan Origination, Methodology and Credit Risk Evaluation The Origination of Mortgage Loans. All mortgage loans are originated by mortgage advisors employed by La Hipotecaria. Mortgage advisors either serve clients purchasing new homes that are primarily referred to La Hipotecaria by homebuilders constructing housing projects or serve clients that purchase existing homes and clients that are refinancing their homes. The mortgage advisors operate out of La Hipotecaria's branch offices or in offices that are physically separated from the credit functions of La Hipotecaria in Panama. Underwriting of the Group of Mortgages The general risk mitigation strategy of La Hipotecaria is to maintain compliance with its credit policies and to maintain an effective division between the loan origination efforts of the mortgage advisors who originate mortgages and the credit analysts who decide whether a mortgage loan request is presented to La Hipotecaria's loan committee. Although La Hipotecaria's credit policies have varied slightly over time to accommodate changing market conditions and incorporate additional knowledge gained through practical experience, the Mortgage Loans for this transaction were generated using the following criteria: 1. Only first-mortgage loans on principal borrower residences; generally singlefamily homes. 2. Maximum loan size of approximately $120, Borrowers must physically live in the house for their income to be considered in the loan analysis. 4. Total Mortgage Loan payments do not exceed 35% of gross family income at the time of loan approval and only reached this maximum level depending on a number of factors outlined in the La Hipotecaria's credit policies. 5. Total mortgage and non-mortgage debt do not exceed 55% of gross family income at the time of loan approval. 6. All income was verified using certain official documentation defined in La Hipotecaria's credit policies. Although the Mortgage Loans include a limited 47

56 number of self-employed borrowers, the income verification and other underwriting criteria were even more stringent and such self-employed borrowers currently comprise less than 5% of the Mortgage Loans. 7. All borrowers are insured with a life insurance policy and all homes are insured with a hazard and fire policy. The majority of borrowers also have an unemployment insurance policy. 8. Borrowers must have had a minimum of two years in their jobs or two year job continuity, subject to a number of conditions outlined in La Hipotecaria's credit policies. 9. At the time of origination, those Mortgage Loans approved for the purpose of the purchase of a new home were required to have made a minimum 1% down payment. All Mortgage Loans approved for the purpose of used home purchases were required to have made a minimum 10% down payment. All Mortgage Loans approved for the purpose of refinance were subject to minimum LTV requirements of 90%. However, subject to a number of factors outlined in La Hipotecaria's credit policies, in many cases, the down payments were larger and the LTVs were lower. All Mortgage Loans for the purpose of refinancing have unpaid principal balances equal to or less than 85% of the appraised value of the related property at the time of origination and all Mortgage Loans for the purpose of acquisition of new homes have unpaid balances equal to or less than 98% of the lesser of the original purchase price and the appraised value of the related property. The weighted average original LTV of the Group of Mortgages as of the Cut-off Date was 90.7%. 10. In calculating family income, only incomes from first-blood relationships or legal unions or married couples were considered. (For example, a sister and mother were able to qualify for a mortgage together by pooling their incomes, but two friends or two cousins were not.) 11. All companies where the borrowers work have passed a stringent set of requirements outlined in La Hipotecaria's credit policies. 12. All borrowers had good credit references at the time of approval as per the guidelines set in La Hipotecaria's credit policies. Willingness to pay depends on the borrower's credit history, which is provided through use of a local credit bureau called Asociación Panameño de Crédito or APC. The Bank generally imposes a minimum numerical requirement for a case to be approved, but each case is analyzed individually. The basic terms as outlined in the Credit Manual have not changed significantly since it was originally written in Nevertheless, the Credit Manual has grown substantially in size as La Hipotecaria continues to attempt to remove much of the subjectivity in the credit approval process by clarifying issues in writing and providing clear guidelines for many specialized circumstances. Other procedures La Hipotecaria uses for risk mitigation include regular external audits performed by La Hipotecaria's auditors, internal audits performed by the internal auditing department of La Hipotecaria and the implementation of an anti-money laundering policy. La Hipotecaria maintains a Financial Institution Surety Bond with coverage that includes a fidelity guaranty, cash guaranty and electronic fraud protection. Types of Mortgage Loans. All mortgage loans originated by La Hipotecaria are first-lien mortgage loans. The term of most of the mortgage loans is 30 years (maximum term permitted) and the loans are fully amortizing 48

57 with no balloon payment. The loans are floating rate loans and loan documents specify that rates can be adjusted at any time. The mortgage loans are not contractually indexed off of any specific index (i.e., LIBOR, U.S. Prime or U.S. Treasuries) but are changed at La Hipotecaria's discretion. The ability to change rates is influenced by market forces, specifically market mortgage loan rates and the prevailing cost of funds. A large percentage of the mortgage loans originated by La Hipotecaria are subject to an interest rate subsidy under Panama's Preferential Interest Rate Regimen described above. Mortgage loan payments are applied to the unpaid principal balance using the Daily Simple Interest Method, described below in "Delinquency and Loss." Valuation Procedures and Appraisal Methodology. La Hipotecaria uses only appraisals performed by licensed engineers or architects duly registered with the "Junta Técnica de Ingenería y Arquitectura de Panamá," the Panamanian governing body that supervises the activities of engineers and architects. There is no appraisal license or separate appraisal designation in Panama. La Hipotecaria employs a full-time registered appraiser who performs appraisals for La Hipotecaria, reviews appraisals from third party appraisers, and maintains a complete database of all housing projects in Panama, their sales prices, and physical descriptions. In most instances, La Hipotecaria uses its in-house appraiser. When La Hipotecaria finances newly constructed homes in a tract development in which there are only selected models and the same home repeated many times, it obtains one "master appraisal" for each model of home being sold. When a credit request is presented to La Hipotecaria, La Hipotecaria's in-house appraiser compares the sales price to the value of the "master appraisal" of that model. When the sales price is less, La Hipotecaria uses the lower sales price. When the sales price is more, it is the responsibility of the in-house appraiser to determine the reason why. If no logical explanation exists, La Hipotecaria only recognizes the lesser appraised value. Sales prices must be consistent with all other recent sales prices in that project. This data is made available to all mortgage advisors and credit analysts in La Hipotecaria through special access on La Hipotecaria's website, which is constantly maintained by the in-house appraiser. Although each loan file does not contain a copy of the "master appraisal," the sales price must be verified by the Credit Department using the data in the website and signed off by the Credit Officer processing the case. In the case of the purchase or refinance of an existing home, La Hipotecaria requires an individual appraisal for each home as well as a personal inspection of the home by an employee of La Hipotecaria. All third-party appraisals must also be approved by La Hipotecaria's in-house appraiser. Appraisal values are compared against existing sales on a comparable per square meter basis, after adjustments are made to account for differences between comparables and the subject property. As with new homes, La Hipotecaria only recognizes the lower of the sales price or appraised value to make its final valuation determination. Loan Collections General Collection Policies. La Hipotecaria's complete loan servicing policies are controlled by a proprietary servicing platform designed for the specific needs of servicing mortgage loans in Panama. The servicing efforts of La Hipotecaria are handled by servicing agents, who are full-time employees of La Hipotecaria. Servicing agents are assigned a designated portfolio of loans for which they are responsible. Performance of each servicing agent's portfolio is measured against the portfolios of the other servicing agents in La Hipotecaria and predetermined goals for loan performance and maximum delinquency. 49

58 Procedures for Collection of Payments. Borrower monthly payments are collected by La Hipotecaria in the following three ways: (1) the Direct Discount Method representing the vast majority of collection efforts and 87.0% of the Group of Mortgages as of the Cut-off Date; (2) 0.5% through authorization of debit to a borrower's bank account or (3) 12.5% through voluntary payments. Under the Direct Discount Method, La Hipotecaria sends messengers to retrieve payments from the borrower's employer that have been deducted from the borrower's paycheck by the borrower's employer. In some cases, payments are sent electronically to La Hipotecaria using the Automated Clearing House ("ACH") system, which is described below, or deposited directly into bank accounts of La Hipotecaria. In many cases, more than one borrower will be employed with a single employer and in such cases the employer will provide payment and a report of the payroll deductions included in the check. In the case of borrowers that are employed by the largest Panamanian employers or in the case of public employees that are paid by the Panamanian Central Government, the payment is provided together with a list of the borrowers and payment. These reports are compared to process payments and identify borrowers whose payments are missing. Any missing payment quickly triggers a series of loan servicing actions which are described below. On occasion it is more efficient to debit the borrower's bank account through the ACH national network. Under this method, a borrower may authorize La Hipotecaria, using a standardized form, to automatically debit the borrower's bank account for a specified amount under an authorized frequency and to send monies debited to an account in the name of La Hipotecaria. Any bank accounts that do not have sufficient funds trigger a series of loan servicing actions described below. In the case of non-salaried or unemployed borrowers, the borrower may make voluntary payments at a teller window at its home office in Panama City. Borrowers may also deposit monthly voluntary payments into La Hipotecaria bank accounts at two banks with more than 100 branches throughout Panama, through an authorized collector located in a major supermarket chain serving clients with business hours seven days a week, or through an authorized money transfer company with a nationwide presence serving clients seven days a week with business hours. The servicing systems of La Hipotecaria automatically signal any missed payment, regardless of the three servicing methods utilized. Upon discovering that a borrower has missed a scheduled payment, it is the responsibility of the servicing agent to follow the following guidelines for loan collections: 1. If the borrower is five days past due, the borrower and its company of employment are called to determine the reason for the missed payment and a payment promise is obtained; 2. if the borrower is fifteen days past due, the borrower and its company of employment are called to follow up on the reason for the missed payment and a second payment promise is obtained; 3. if the borrower is thirty days past due, a written notice is sent to the borrower's home requesting its presence in the offices of La Hipotecaria within twenty-four hours to discuss the reason for the missed payment and to obtain a payment promise; 4. if the borrower is forty-five days past due, the servicing agent makes a personal visit to the home of the borrower to discuss the reason for the missed payment and obtain a payment promise; 5. if the borrower is sixty days past due, a letter is delivered to the home of the borrower stating that the case will proceed to foreclosure unless a payment is received or the payment promise is complied with; 50

59 6. if the borrower is seventy-five days past due, the servicing agent, often with the help of an officer of the collection department, makes a personal visit to the home of the borrower and attempts to negotiate a satisfactory payment plan or to encourage the borrower to cede the home to La Hipotecaria without the need for a judicial foreclosure; and 7. if the borrower is ninety days past due, if no satisfactory agreement is reached to bring the loan out of delinquency during a reasonable time, generally not to exceed thirty additional days, the loan is sent to the company's attorney and the foreclosure process begins. Procedures for Foreclosure and Recovery of Guaranties. In the case where a borrower is unable to pay its mortgage and must forfeit its home, historically approximately 57% of La Hipotecaria's borrowers have opted to sign a deed in lieu of foreclosure. In such cases La Hipotecaria will agree to forego the "judicial foreclosure" note in favor of a "delinquent cancellation" note in the Panamanian Credit Bureau, thus mitigating the damage to the borrower's credit references. Other incentives offered to accept a deed in lieu of foreclosure include providing moving services. La Hipotecaria maintains an inventory of clients that are looking for homes and, in the majority of the cases of deed in lieu of foreclosure, La Hipotecaria gives a new loan to a new qualified buyer and the home is transferred directly from the delinquent borrower to a new qualified buyer, thus avoiding a double 2% transfer tax should the home be legally deeded first to La Hipotecaria and then to a new buyer. In cases where a borrower does not accept a deed in lieu of foreclosure, Panamanian law allows mortgage documents to contain rights of antecresis, or the lender's right to evict a borrower and begin to rent the home during the foreclosure process. This right is contained in all La Hipotecaria loan documents and is used in most cases. An antecresis judgment is usually obtained prior to a foreclosure sale. The foreclosure process generally takes from four to eight months. Panamanian law permits the lender to claim all capital, accrued interest, legal costs and other costs in the foreclosure proceedings. Should there be a shortfall and a lender loss in a foreclosure sale, La Hipotecaria's loan documentation and Panamanian law permit the possibility of continued legal remedies against the borrower. When the property is acquired by the buyer or lender in foreclosure, there is no need to pay the 2% transfer tax. Delinquency and Loss The following table sets forth certain information, based on information provided by La Hipotecaria, concerning recent delinquency and foreclosure experience on residential mortgage loans serviced by La Hipotecaria for itself and for securitization trusts. The data presented in the following table is for illustrative purposes only and may not reflect future performance or performance specific to the Group of Mortgages. 51

60 Delinquency Foreclosure and Loss Experience (1) As of June 30, 2014 As of December 31, 2013 As of December 31, 2012 Number of Loans Balance of Loans Number of Loans Balance of Loans Number of Loans Balance of Loans Total Loans 14,566 $387,654,159 14,061 $366,935,379 13,118 $330,889,944 Current 12, ,362,411 12, ,332,853 11, ,476, Days 1,360 34,221,851 1,143 29,244,624 1,207 29,492, Days 317 7,928, ,083, ,313, Days 95 2,537, ,015, ,508, Days , , , Days 8 225, , , Days 8 190, , , or More Days Past Due , , ,006 Total Delinquent Loans 1,842 46,291,748 1,642 41,602,527 1,830 44,413,380 Percent of Loans Delinquent 12.65% 11.94% 11.68% 11.34% 13.95% 13.42% Deed in Lieu (2) 81 2,084, ,084, ,003,986 Deed in Lieu Ratio 0.56% 0.54% 0.58% 0.57% 0.59% 0.61% Foreclosure (3) 61 1,656, ,467, ,330,357 Foreclosure Ratio 0.42% 0.43% 0.38% 0.40% 0.37% 0.40% Total 142 3,741, ,552, ,334,342 Total Ratio (4) 0.97% 0.97% 0.96% 0.97% 0.96% 1.01% Net Losses 171, , ,262 Net Loss Ratio 0.04% 0.05% 0.05% Prepayment (5) 8,596,279 17,359,154 13,256,300 Prepayment Ratio (6) 2.22% 4.73% 4.01% (1) Percentages in the table are shown to the nearest 0.01% and are based on the total number of loans or dollar amount of loans outstanding. (2) Cumulative loans that have been cancelled via deed-in-lieu. (3) Cumulative loans that have been cancelled due to the initiation of foreclosure proceedings. (4) Cumulative foreclosures and deed-in-lieu as a percentage of the total number of loans or dollar amount of loans outstanding at the end of each period. (5) Includes loans that have been cancelled due to prepayment during that period. Prepayment shall be defined as the sum of all amortizations made from the date on which a borrower begins to make extraordinary payments (defined as payments of more than 20% of the outstanding principal balance) until such time as the loan was cancelled; provided, however, that amortizations will only be considered as prepayments if they occur within 270 days of the cancellation date. (6) Prepayments during that period as a percentage of the dollar amount of loans outstanding at the end of each period. There can be no assurance that the delinquency and foreclosure experience on the Mortgage Loans included in the Collateral Trust will be similar to that set forth above. The information should not be considered to reflect the credit quality of the Mortgage Loans included in the Group of Mortgages, or as a basis for assessing the likelihood, amount or severity of losses on the Mortgage Loans. The statistical data in the table is based on all of the residential mortgage loans in La Hipotecaria's 52

61 servicing portfolio. The Mortgage Loans may have characteristics which distinguish them from other loans in La Hipotecaria's servicing portfolio. USE OF PROCEEDS The LH Delaware Trust will use the proceeds of the sale of the Series Certificates as consideration for the assignment of the Series A Notes from the Issuer Trust, and to pay the other expenses of the offering of the Series Certificates. The underlying Issuer Trust will use the proceeds of the sale of the Series A Notes to fund the purchase of the Group of Mortgages from the Assignor. PREPAYMENT AND YIELD CONSEQUENCES The weighted average life of, and the yield to maturity on, a Series Certificate will be directly related to the rate of payment of principal of the Group of Mortgages, including for this purpose voluntary payments in full of Mortgage Loans prior to stated maturity, liquidations due to defaults, casualties and condemnations, claims received from life insurance companies that have insured the lives of the Debtors of the Mortgage Loans, and repurchases of or substitutions of Mortgage Loans by the Servicer as required or permitted under the Panamanian Transaction Documents. The actual rate of principal prepayments on Mortgage Loans is influenced by a variety of economic, tax, geographic, demographic, social, legal and other factors and, although such prepayments in Panama have remained at relatively constant levels, there can be no assurance that this trend will continue. No assurance can be given as to the level of prepayments that the Group of Mortgages will experience. In addition, the rate of principal prepayments may differ among the Mortgage Loans at any time because of specific factors relating to the Mortgage Loans, including, among other things, the age of the Mortgage Loans, the expiration of the Preferential Interest Rate Regimen subsidy, the extent of the mortgagors' equity in such properties, and changes in the mortgagors' housing needs, job transfers and unemployment. The rate of prepayments has increased slightly in recent years with the increase in liquidity in Panama and the proliferation of "cash out refinance" loans. All Mortgage Loans in the Eligible Mortgage Loans charge a variable rate of interest with no caps or floors. The mortgages contain no initial fixed rate period or below market initial rate (not including the Preferential Interest Rate Regimen) generally referred to as "teaser rate loans" that may become more likely to refinance as it approaches its initial adjustment date. Currently the mortgage market has very little availability of fixedrate mortgage loans; should a fixed rate mortgage market develop it may result in increased prepayment rates. As indicated above, the yield to maturity on a Series Certificate will be affected by the rate of the payment of principal on the related Mortgage Loans. If the actual rate of payments on the related Mortgage Loans is slower than the rate anticipated by an investor who purchases a Series Certificate at a discount, the actual yield to such investor will be lower than such investor's anticipated yield. If the actual rate of payments on the related Mortgage Loans is faster than the rate anticipated by an investor who purchases a Series Certificate at a premium, the actual yield to such investor will be lower than such investor's anticipated yield. Expected Final Distribution Date The Expected Final Distribution Date for the Series Certificates is monthly period 156 occurring on August 15, 2027, assuming the clean-up call is exercised and monthly period 207 occurring on November 15, 2031, assuming that the clean-up call is not exercised. 53

62 The Expected Final Distribution Date for the Series Certificates is the last date on which the initial Certificate Principal Balance of the Series Certificates set forth on the cover page hereof is expected to be reduced to zero. This expectation is based on the assumptions that the Mortgage Loans prepay at 100% of the Prepayment Assumption (as defined below), that default occurs at 100% of the Default Assumption (as defined below) and recoveries take place at 100% of the Recovery Assumption (as defined below). Final Scheduled Distribution Date The Final Scheduled Distribution Date of the Series Certificates is five Business Days after the Maturity Date. The Expected Final Distribution Date with respect to the Series Certificates should occur significantly earlier than the Final Scheduled Distribution Date because: prepayments, including, for this purpose, prepayments attributable to foreclosure, liquidation and repurchase on the Mortgage Loans are likely to occur, the overcollateralization provisions of the Issuer Trust transaction result in the application of excess interest and sequential principal payments on the underlying Series A Notes (see the section "Summary of Terms of the Underlying Series A Notes"), and the Servicer may, at its option as described in this Private Placement Memorandum, call the Series A Notes in connection with a "clean-up call" redemption as described under "Description of the Panamanian Transaction Documents-Servicing Agreement Clean-up Call". Modeling Assumptions The cash flow runs in Appendix D have been prepared on the basis of the following modeling assumptions: the related Mortgage Loans voluntarily prepay at 100% of the Prepayment Assumption as set forth below, payments on the Series Certificates are received in cash on the 15 th day of each month, regardless of the day on which the payment date actually occurs, commencing in September 2014, the related Mortgage Loans default at 100% of the Default Assumption and such defaulted mortgages recover principal at 100% of the Recovery Assumption, no modifications, waivers or amendments respecting the payment by the debtors of principal and interest on the Mortgage Loans occur, scheduled payments for the Mortgage Loans are assumed to be received evenly throughout the Collection Period commencing on the Cut-off Date, the Series Certificates are issued on July 29, 2014, the insurance fees, if any, will be 0.6%, and the trustee fees will be 0.042% per annum, the level of the Panamanian Reference Rate remains constant at 5.75%, 54

63 the initial Certificate Principal Balances of the Series Certificates and initial principal balances of the Notes are as set forth on the cover of this Private Placement Memorandum, the model assumes a 98% realization on the Preferential Interest Rate Regimen tax credit with a three month lag, and the Mortgage Loans are assumed to have the following characteristics (each line below referred to herein as a "Loan Group") as of the Cut-off Date: Loan Description Number of Mortgage Loans Principal Balance Weighted Average Original Term (Months) Weighted Average Remaining Term (Months) Weighted Average Interest Rate (%) Weighted Average Subsidy Expiration (Months of) 10 year Preferential Interest Rate Regimen Loans 384 $8,660, % 31 Non- Preferential Interest Rate Regimen 1,290 $19,881, % N/A 15 year Preferential Interest Rate Regimen Loans 1,503 $46,457, % 153 Weighted Average Life The expected weighted average life of the Series Certificates is 6.79 years, assuming the clean-up call is exercised and approximately 7.09 years, assuming that the clean-up call is not exercised. Weighted average life refers to the average amount of time that 100% of the initial Certificate Principal Balance is outstanding. It provides for the comparison of an amortizing debt to a debt where 100% of the principal balance is paid on the final maturity date. The weighted average life of the Series Certificates will be influenced by the rate at which principal of the related Mortgage Loans is paid, which may be in the form of scheduled amortization or prepayments for this purpose, the term "prepayment" includes liquidations due to default. The weighted average life of a Series Certificate is determined by (a) multiplying the amount of the reduction, if any, of its Certificate Principal Balance on each Distribution Date by the number of monthly periods from the date of issuance, (b) summing the results, (c) dividing the sum by the original principal balance of the Series Certificate and (d) dividing by

64 Default, Recovery and Prepayment Assumptions. Defaults on Mortgage Loans are commonly measured relative to a default standard or model. The model used in this Private Placement Memorandum uses a default assumption (the "Default Assumption") which represents an assumed rate of defaults each month relative to the then outstanding principal balance of the Group of Mortgages for the life of such Mortgage Loans. The Default Assumption for all the Mortgage Loans assumes a constant default rate of 0% per annum of the outstanding principal balance of such Mortgage Loans in the first six months of the transaction and 0.25% per annum until the 11 months prior to the end of the Weighted Average Remaining Term (Months) of each Loan Group. Recovery amounts of defaulted mortgages are commonly measured to a standard or model. The model used in this Private Placement Memorandum uses a recovery assumption (the "Recovery Assumption") of 85% of a defaulted mortgage's remaining principal balance at the time of default with a lag to recovery of one year. The Default Assumption and Recovery Assumption is not intended to be a historical description of involuntary prepayment experience or a prediction of the anticipated rate of involuntary prepayment of any pool of mortgages, including the Group of Mortgages. Prepayments on Mortgage Loans are commonly measured relative to a prepayment standard or model. The model used in this Private Placement Memorandum, the prepayment assumption (the "Prepayment Assumption") which represents an assumed rate of prepayment each month relative to the then outstanding principal balance of the Group of Mortgages for the life of such mortgage loans. The Prepayment Assumption for all the Mortgage Loans assumes a constant prepayment rate, or "CPR," of 5.0% per annum of the outstanding principal balance of all Mortgage Loans. The Prepayment Assumption is not intended to be a historical description of prepayment experience or a prediction of the anticipated rate of prepayment of any pool of mortgage loans, including the Group of Mortgages. The Grantor believes that no existing statistics of which it is aware provide a reliable basis for the Series Certificateholders to predict the amount or the timing of receipt of prepayments on the Mortgage Loans. The following exhibit portrays changes to the weighted average life of the Series Certificates and the related Expected Final Distribution Dates under different factors of the base case scenario and different voluntary CPR assumptions: Series Certificates 0 CPR 3 CPR 5 CPR 8 CPR 10 CPR 15 CPR 20 CPR Weighted average life no call (years) Expected Final Distribution Date 3/15/2035 4/15/ /15/2031 9/15/2029 5/15/2028 8/15/2025 8/15/2023 Weighted average life call (years) Expected Final Distribution Date 10/15/2032 8/15/2029 8/15/2027 4/15/2025 2/15/ /15/2021 5/15/

65 REPORTING The Servicer will make available on its website no later than the 5 th business day of every month, the monthly servicer reports prepared in accordance with the Servicing Agreement. The Grantor Trustee will also make such reports available on its website, AMENDMENT The Grantor and the Grantor Trustee may (with the written consent of the Guarantor unless a Certificate Guarantor Default (as defined below) has occurred and is continuing) from time to time and at any time without the consent of any of the Series Certificateholders or the rating agency enter into an amendment of the LH Delaware Trust Agreement for one or more of the following purposes: (i) to add to the covenants of the Grantor or to surrender any right or power therein conferred upon the Grantor, (ii) to cure any ambiguity or to correct or supplement any provision contained in the LH Delaware Trust Agreement or in the Series Certificates, and (iii) to make certain other amendments as the Grantor and the Grantor Trustee may deem necessary or desirable and that do not materially adversely affect the interests of the Series Certificateholders; provided, that an Opinion of Counsel will be addressed and delivered to the Grantor Trustee and the Guarantor opining that such amendment: (i) does not materially adversely affect the interests of the Series Certificateholders, (ii) will not cause the LH Delaware Trust to be treated as an association taxable as a corporation or a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes and (iii) will not increase the discretionary authority of the Grantor Trustee without the consent of every Series Certificateholder. The Grantor and the Grantor Trustee may (with the written consent of the Guarantor or, if a Certificate Guarantor Default has occurred and is continuing, of the Majority Certificateholders (as defined in the LH Delaware Trust Agreement)), from time to time and at any time, enter into an amendment to the LH Delaware Trust Agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the LH Delaware Trust Agreement or any Series Certificate or of modifying in any manner the rights of the Series Certificateholders in respect thereof; provided that no such amendment will, without the consent of every Series Certificateholder: (i) reduce in any manner the amount of, or delay the timing of, any distributions that are required to be made therein on any Series Certificate, or change any date of payment on any Series Certificate, or change the place of payment where, or the coin or currency in which, any Series Certificate is payable, or impair the Grantor Trustee's right to institute suit for the enforcement of any such payment or distribution, (ii) permit the disposition of the LH Delaware Trust Assets or any portion thereof, or otherwise deprive any Series Certificateholder of the benefit of the LH Delaware Trust's ownership of the Series A Notes, (iii) reduce the percentage of the aggregate Certificate Principal Balance of the Series Certificates that is required for any such amendment, or reduce such percentage required for any waiver or instruction provided for in the LH Delaware Trust Agreement, (iv) modify the amendment provisions of the LH Delaware Trust Agreement, 57

66 (v) cause the LH Delaware Trust to be treated as an association taxable as a corporation or a publicly traded partnership taxable as a corporation for United States federal income tax purposes (as confirmed by an Opinion of Counsel), or (vi) materially increase the discretionary authority of the Grantor Trustee. "Certificate Guarantor Default" shall mean the occurrence and continuance of a failure by the Certificate Guarantor to make a payment required under the Guaranty in accordance with its terms and such failure shall not have been cured within two Business Days. AMENDMENTS TO SERIES A NOTES AND PANAMANIAN TRANSACTION DOCUMENTS If the Grantor Trustee, as the holder of the Series A Notes, receives a request for a consent to any amendment, modification, waiver or supplement in respect of the Series A Notes or any other Panamanian Transaction Document, then the Grantor Trustee will send a notice of such proposed amendment to the Guarantor and each Series Certificateholder that is registered on the Register as of such date. The Grantor Trustee will request from (x) if a Certificate Guarantor Default will not have occurred and be continuing, the Guarantor, or (y) if a Certificate Guarantor Default is continuing, the Series Certificateholders, directions as to: (a) whether or not the Grantor Trustee should take or refrain from taking any action that it has the option to take, (b) whether or not to give or execute any waivers, consents, amendments, modifications or supplements that it is entitled to give or execute and (c) how to vote the Series A Notes if a vote has been called for with respect thereto. Provided such a request for direction will have been made, in directing any action or casting any such vote or giving any such consent, the Grantor Trustee will vote only as directed by the appropriate party as described in the prior sentence. Notwithstanding the foregoing, without the consent of every Series Certificateholder and the Guarantor, the Grantor Trustee will not consent to any amendment, modification, waiver or supplement to the Series A Notes that would: (i)(a) cause the LH Delaware Trust to be treated as an association taxable as a corporation or a publicly traded partnership taxable as a corporation for United States federal income tax purposes; (B) cause the Series A Notes not to be treated as indebtedness for United States federal income tax purposes or (C) materially increase the discretionary authority of the Grantor Trustee, in each case as evidenced by an Opinion of Counsel delivered to the Grantor Trustee, and (ii)(a) release any of the Mortgage Loans (except as otherwise specifically described below under "Description of the Panamanian Transaction Documents Servicing Agreement Clean-up Call") or (B) reduce in any manner the amount of, or delay the timing of, any distributions that are required to be made with respect to the Series A Notes, change the date of any such payments, or change the place of payment where, or the coin or currency in which, the Series A Notes are payable. ACQUISITION OF THE SERIES A NOTES BY THE LH DELAWARE TRUST The Grantor will cause the LH Delaware Trust to acquire the Series A Notes pursuant to the terms of the LH Delaware Trust Agreement, which is governed by the laws of Delaware. The LH Delaware Trust Agreement contemplates that the LH Delaware Trust will take delivery of the Series A Notes, initially, by its opening a securities account in Panama with BG Valores, and having the Series A Notes credited to such account on the Closing Date. Subsequent to the Closing Date, the LH Delaware Trust will elect to hold the Series A Notes in physical form through the Grantor Trustee, which will take custody of the physical note in trust for the LH Delaware Trust in the State of New York. Holding the Series A Notes will entitle the LH Delaware Trust to receive payments on the Series A Notes from the Note Paying Agent directly, rather than receiving such payments through the LatinClear system. 58

67 THE GROUP OF MORTGAGES As of the Closing Date, the Collateral Trustee will own U.S. dollar denominated mortgage loans whose aggregate principal balance as of the Cut-off Date is at least U.S. $75,000,000. All Mortgage Loans in the Group of Mortgages are originated by the Assignor, secured by first liens on owner occupied single family and condominium real property located in Panama, owned by Panamanian citizens, and will be selected from the Eligible Mortgage Loans. Approximately 73.5% by principal balance of the Group of Mortgages as of the Cut-off Date were qualified under the Preferential Interest Rate Regimen. Should any of the mortgage loans that comprise the original Group of Mortgages not be timely registered in the Public Registry, replacement mortgage loans shall be selected from among the Eligible Mortgage Loans that were not originally selected as part of the Group of Mortgages. The Group of Mortgages pay a floating rate of interest, calculated on the simple interest method, at a gross rate (including Fiscal Credits) substantially equivalent to the Panamanian Reference Rate. Each Mortgage Loan consists of a credit agreement (a "Credit Agreement") and all mortgage guaranties, "antecresis" rights, actions guaranties and privileges that belong to or are derived from the Credit Agreement. Each Credit Agreement is a loan contract associated with a mortgage loan executed by an individual person or persons (a "Debtor"), specifying the terms and conditions under which a collateralized borrowing relationship is established. As of the Cut-off Date, the Group of Mortgages consisted of 2,766 mortgages, consisting of 3,177 loans, with an aggregate principal balance of $75,000, The mortgage loans consist of conventional, floating rate, first lien mortgage loans provided to Panamanian persons, primarily middleincome individuals, denominated in U.S. Dollars, with terms to maturity of not more than 30 years and an original principal amount of no more than U.S. $80,000. The statistical information relating to the Group of Mortgages presented in this Private Placement Memorandum and in Appendix A to this Private Placement Memorandum is computed as of the Cut-off Date. As of the Cut-off Date, 91.6% by principal balance of the Mortgage Loans in the Group of Mortgages had original terms of 360 months and 5.6% by principal balance of the Mortgage Loans in the Group of Mortgages had original terms of 300 months. The weighted average original term of the Group of Mortgages as of the Cut-off Date was 355 months with a weighted average remaining term of 304 months. The interest rates on the Mortgage Loans can be changed at any time at the discretion of the Servicer, except that under the Servicing Agreement: the Servicer will be required to maintain the interest rates that are not subject to the Preferential Interest Rate Regimen at a rate equal to, or higher than, the Panamanian Reference Rate in force on the related interest rate determination date for the Mortgage Loans, subject to the terms of the related credit agreements; and the Servicer will maintain the gross interest rate of the Mortgage Loans that are subject to the Preferential Interest Rate Regimen at a rate equal to the Panamanian Reference Rate in force on the related interest rate determination date for the Mortgage Loans, subject to the terms of the related Credit Agreements. As of the Cut-off Date, 73.5% by principal balance of the Mortgage Loans in the Group of Mortgages receive an interest subsidy provided by the government of Panama. The remaining 59

68 Mortgage Loans have a market rate of interest. The subsidized Mortgage Loans are eligible, for the first ten years following origination, to receive a quarterly tax credit equal to the difference between the Panamanian Reference Rate and the rate of interest actually charged, subject to the terms of the Preferential Interest Rate Regimen. This tax credit is issued by the Panamanian government each calendar quarter upon the preparation by the Servicer, on a quarterly basis, of a standardized report which outlines all mortgages which generate this tax credit. These tax credits may be used to pay up to 100% of an individual's or company's personal or corporate income tax obligations at the moment of payment, including obligations to pay alternative monthly minimum corporate income tax payments and quarterly estimated income tax payments. Upon receipt of the Fiscal Credit, such instrument, which is freely transferable, will be sold by the Servicer within Panama to third parties. In marketing the Fiscal Credits, the Servicer will be obligated to employ the customary practices that in employs in selling Fiscal Credits for its own account or for the account of third parties, and to diligently market to the largest possible universe of potential buyers in an attempt to obtain the highest possible sales price at the time of sale. The proceeds of any sale of these tax credits by the Servicer on behalf of the Issuer Trust are referred to herein as the "Fiscal Credit Proceeds." Since the Preferential Interest Rate Regimen's beginning in 1987, an active market exists for these tax credits since when they are sold to third parties they trade at slight discounts and thus lower the actual tax burden of the purchaser. In agreed upon procedures, the Assignor's independent auditors will, prior to the Closing Date, (i) review and verify a sample of Mortgage Loans selected at random to achieve, based on KPMG sampling methodology, the accuracy of certain key provisions and documentation of such Mortgage Loans and (ii) review and verify a sample of Mortgage Loans selected at random to achieve, based on KPMG sampling methodology, the accuracy of certain other key provisions and documentation of such Mortgage Loans. This should not be construed as a 100% review of the validity and accuracy of the Mortgage Loans in the Group of Mortgages. 60

69 EXAMPLES OF HOMES IN PANAMA FINANCED BY LA HIPOTECARIA Loma Linda San Francisco Santa Isabel Mirador Bosque Hacienda Molinos Los Guayacanes 61