ABS EAST INVESTOR PRESENTATION OCTOBER 2010

Transcription

1 ABS EAST INVESTOR PRESENTATION OCTOBER 2010

2 Forward-Looking Statements Statements in this presentation regarding First Marblehead s strategy, competitive position, future opportunities and growth prospects, outlook, demand for private education loans, including with regard to the future performance of securitization trusts that First Marblehead has facilitated (the Trusts ) and the Monogram loan product as well as any other statements that are not purely historical, constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of These forward-looking statements are based on our historical performance, the historical performance of the Trusts, and on our plans, estimates and expectations as of September 30, The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future results, plans, projections, estimates or expectations expressed or implied will actually be achieved. You are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, legislative, regulatory, competitive and other factors, which may cause actual results, including facilitated loan volumes, or the timing of events, to be materially different than those expressed or implied by our forward-looking statements. Important factors that could cause or contribute to such differences include: market acceptance of and demand for our Monogram loan product and fee-based service offerings; the volume, timing and performance of facilitated loan loans; the size and structure of credit enhancement provided by us in connection with our Monogram loan product; degradation of credit quality, credit enhancement or performance of the Trusts loan portfolios; economic, legislative, regulatory, competitive and other factors affecting default, recovery and prepayment rates on private student loan portfolios, including general economic conditions, the consumer credit environment, interest rates and unemployment rates; borrower defaults and the Trusts ability to recover principal and interest from such borrowers; capital market receptivity to private student loan asset-backed securities; the inability of The Education Resources Institute, Inc. (TERI), the third party guarantor of the Trusts underlying loans, which has filed a voluntary petition for reorganization under federal bankruptcy laws, to meet its guaranty obligations; developments in the bankruptcy proceedings of TERI, including the terms of any plan of reorganization; changes to bankruptcy laws that could affect the non-dischargeable status of education-related loans; and the other factors set forth under the caption "risk factors" in our annual report on Form 10-K filed with the Securities and Exchange Commission on September 2, We specifically disclaim any obligation to update any forward-looking statements as a result of developments occurring after September 30, Disclaimer The information in this presentation is intended to provide a broad overview of a portfolio of private education loans facilitated by First Marblehead. Neither First Marblehead nor any other party is offering any securities by making this presentation or soliciting any action based upon the information provided. Nothing in this presentation should be relied upon as a representation by First Marblehead, or any other person, as to the future performance of any securitization trust described in this presentation or as to any securities that may be issued in the future. The information contained herein is intended to be illustrative only, and historical collateral pools may not be representative of any future collateral pool. October

3 Table of Contents Section I: FMD Overview Section II: New Product Strategies Section III: Risk Methodology Section IV: Portfolio Management Competencies Section V: Student Loan ABS Market Snapshot October

4 Section I FMD Overview October

5 Focus. Flexibility. Innovation. Who We Are Financial services intermediary specializing in the design, management and financing of private student loan programs Industry leader with expertise stemming from over 6 million loan applications processed, over $16.5 billion in loan volume and 38 asset-backed bond securitizations totaling over $16 billion in issuance volume Geared for growth and built to last What We Do Work with lender and school clients to create responsible, affordable choices for students and their families as they prepare to meet the cost of higher education Approach credit with data-driven quantitative analysis based on over 15-years of experience Operate a highly specialized business model that derives revenue from fee-forservice operations, partnered lending platforms and capital markets execution strategies October

6 Focus. Flexibility. Innovation. How We Do It Leverage extensive private student loan performance database applying sophisticated risk analysis capabilities and high-touch portfolio management strategies designed to optimize performance Utilize a seasoned national sales force and transparent loan application process to deliver customized loan products uniquely designed to meet borrowers needs Coordinate with investment banks, rating agencies and investors to strategically deploy capital to create viable and flexible disposition strategies for clients Why We Do It Families struggle more than ever to fill the funding gap created by ever-increasing college costs, low federal loan limits and shrinking state and institutional aid Legislative changes and the credit crisis have tempered lending activities Number of competitors has diminished Ensure the right students at the right schools receive the right student loans October

7 First Marblehead Provides End-to-End Solutions Program Design Borrower Inquiry and Application Loan Origination and Disbursement Loan Financing Portfolio Management Program design Proprietary risk scoring models inform repayment terms and payment options Dissemination of loan materials and applications Application intake Customer call center management Application processing and credit underwriting Delivery of credit agreement Disbursement of funds Regulatory and legal compliance Organization of critical resources Structuring of securitization/ asset selection Negotiation with transaction parties and coordination with rating agencies Execution and reconciliation Dynamic strategy driven by data and analysis Servicing, billing, account and call center management Collections and recoveries management Trust administration October

8 Derive Revenue from Three Inter-related Business Models Fee-for-Service Enable clients to choose from a suite of vertically Integrated fee-based loan products and services operated and managed by FMD Partnered Lending Develop loan programs with clients in which FMD provides credit enhancement in exchange for portion of loan spread Capital Markets Long term loan disposition strategies for lenders with the option of earning structural advisory fees and spread income and retaining residual interests in facilities October

9 Market Opportunities Still Exist PLUS/Grad PLUS loan utilization has been stagnant Stafford loan limits fail to keep pace with tuition increases Private loans remain the gap filler October

10 Why First Marblehead Extensive Experience Industry Leader Attractive & Innovative Products Geared for Growth EXCEPTIONAL STOCKHOLDER VALUE October

11 Section II New Product Strategies October

12 Monogram Incorporates all of FMD s Core Competencies 1st Generation Product School Focused (GATE) Customized program design 2nd Generation Product Consumer Focused (NCSLT) Active portfolio management Monogram Dedicated sales support 3rd Generation Product Credit Focused (Monogram) Capital markets expertise Credit-driven loan origination process October

13 The Loan Process Includes a 12-month Selling Season Traditional School Channel Selling Season Year 1 Year 2 Sep Yr 1 Oct Yr 1 Nov Yr 1 Dec Yr 1 Jan Yr 1 Feb Yr 1 Mar Yr 1 Apr Yr 1 May Yr 1 June Yr 1 July Yr 2 Aug Yr 2 Sep Yr 2 FMD Launches school sales campaigns Mini-Peak 2 nd semester loans Beginning of loan application season 1st school disbursements scheduled to go out Schools begin lender list decisions Private schools complete lender list decisions Public schools complete lender list decisions Schools start sending out aid packages The cycle between sales and volume is 6 12 months The selling season & decision cycle for private schools is short October

14 Application Process Must be Transparent to Borrowers Integration of Delivery and Pricing 1 Choice of repayment option and repayment term will impact borrower s price 3 Borrowers will see, in realtime, how changing the combination of these attributes will affect APR and monthly payment Real-time comparison and analysis available Borrowers can adjust the 1 approved loan amount lower if they decide they don t need the requested amount 4 Borrower benefits can be tied to any of the three product attributes to influence portfolio composition October

15 Section III Risk Methodology October

16 Five Core Principles of Credit Risk for Private Student Loans Data and Analytics must be a Priority Effective, Quantitative Underwriting Market Responsibly to Students Complex asset class requires sophisticated analytical capabilities Integration of historical data with prospective modeling Evaluate both obligors on an application student and cosigner and do not rely on FICO alone Approve schools based on risk parameters Seek to avoid adverse selection Prevent over-borrowing Dynamic Portfolio Management Ongoing Effort to Determine LTV for Student Loans Involve the cosigner early and often Apply adaptive strategies to fit borrowers changing credit profiles Ideally, assign a value to the student s education Challenge is pursued through data gathering and analysis of borrower behavior October

17 Robust Dataset Yields Better Analytics Multiple FMD Proprietary Scorecards in Use Our suite of risk models are used throughout the life cycle of a loan to optimize profitability and best manage risk Credit Scoring Fraud Mitigation Prepayment (at origination, during deferment, during repayment) Drop-Out Probability Early Awareness Collectability Recoverability Monthly Default Risk Score October

18 Sample Internal/External Validation and Controls Subject to regulation and oversight by the SEC and NYSE as a publicly traded corporation Subject to OTS supervision and examination as a thrift holding company Maintain a dedicated Enterprise Risk Management staff Internal control structure is regularly audited by KPMG and Corporate Audit staffs Third-party external review and validation of proprietary rank order model Third-party external review and validation of method of performance data analysis October

19 Section IV Portfolio Management Competencies October

20 Performance Driven Portfolio Management Strategy Enhanced Analytics and Flexible Operations Applied Throughout the Loan Lifecycle Highly segmented account strategy driven by risk-based scoring model outcomes Proactive borrower contact strategies yield favorable repayment performance Aggressive early delinquency coordination with servicer decreases roll rates Rigorous collections agency management combined with enhanced reporting improves transparency and liquidation rates Robust skip tracing techniques increase success in locating borrowers Efficient recovery process results in greater and faster loss mitigation Granular performance-based portfolio reporting improves transparency October

21 More Granular Portfolio Risk Segmentation NCSLT Portfolio Distribution and Assumptions Example: old methodology used only WA approach June 30, 2010 NCSLT Portfolio Segment 1 Segment 2 Segment 3 Distribution by original loan amount 25.5% 27.0% 47.5% Distribution by total outstanding loan amount(1): Not in repayment(2) In repayment Gross default rate(3) Recovery rate(3) Net default rate(3) Prepayment rate(3) 6.9(4) 4.9(4) 3.1(4) 1) Outstanding aggregate principal and capitalized interest balance as of June 30, ) Loans not in repayment include loans in deferment or forbearance status as of June 30, ) Using projected defaults, net defaults and recoveries over the lives of the trusts as a percentage of original outstanding aggregate principal and accrued interest balance. 4) Amount presented is the weighted average conditional prepayment rate (CPR) over the next ten years. The CPR is an estimate of the likelihood that a loan will be prepaid during a period given that it has not previously defaulted or been repaid in full. Source: FMD 10-K filed 9/2/10 October

22 Portfolio Management Strategies Improve Performance NCSLT Portfolio Improved Performance Through June 30, 2010 Portfolio Seasoning: 76.8% of the portfolio is in repayment or forbearance as of June 30 Defaults: Annualized charge-off rates declined by 60% from 3Q09 to 2Q10 Delinquencies: Percentage of the portfolio days delinquent declined 310 bps between 2Q09 and 2Q10 Prepayments: Voluntary prepayment rates have remained historically low and stable at under 2% CPR $1.4 Gross Recoveries (in millions) - Secondary (6-12 Months Post-Default) 14.0% Comparison of DBRS PSL Default Index to NCSLT Portfolio $ % $ % $ % $0.6 $0.4 $0.2 $0.0 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Source: FMD 6.0% 4.0% 2.0% 0.0% Sep-09 Dec-09 Mar-10 Jun-10 Sources: FMD; DBRS PSL Index (gross) NCSLT (gross) October

23 Section V Student Loan ABS Market Snapshot October

24 The ABS Marketplace 2010 YTD ABS Issuance - Breakdown by Volume StLns - Private 6.1% Stranded Asset 1.1% Structured Settlements 0.1% Taxes 0.1% Timeshare 1.5% Auto Fleet 2.2% Auto Leases 7.8% StLns - FFELP 14.2% Auto Non Prime 8.0% Servicer Advances 1.3% Premium Finance 2.0% Floorplan 9.1% Equip - SmTkt 1.0% Equip - Heavy 3.4% Source: JPMorgan Excludes tax-exempt student loan issuance CrCds - Retail 2.9% CrCds - Bank 4.4% Containers 0.3% Auto Trucks 2.0% Auto Prime 32.4% Collateral Type # of Deals % of Volume Auto Fleet 5 2.2% Auto Leases 5 7.8% Auto Non Prime % Auto Prime % Auto Trucks 2 2.0% Containers 1 0.3% CrCds - Bank 6 4.4% CrCds - Retail 6 2.9% Equip - Heavy 3 3.4% Equip - SmTkt 2 1.0% Floorplan % Premium Finance 3 2.0% Servicer Advances 3 1.3% StLns - FFELP % StLns - Private 5 6.1% Stranded Asset 3 1.1% Structured Settlements 1 0.1% Taxes 1 0.1% Timeshare 4 1.5% Total: 104 October

25 The Student Loan ABS Marketplace Student Loan Issuance by Volume (ABS +TE) StLns - Private 28% StLns - Private TE 3% Student Loan Issuance by Deal Count (ABS + TE) StLns - Private 5 StLns - Private TE 4 StLns - FFELP TE 1% StLns - FFELP 68% StLns - FFELP TE 1 StLns - FFELP 19 Source: JPMorgan; MuniOS Source: JPMorgan; MuniOS No new FFELP loan volume being originated FFELP transactions include seasoned collateral or re-securitization of existing collateral backing ARS SLCLT 2010-B and SLMA 2010-A executed via the TALF 4 tax-exempt transactions from state agencies included 100% private loans October

26 Private Student Loan Performance Market Comparison ABS Sector - Annualized Losses 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 PSL Index(gross) CC Index(net) Auto Index(net) Source: Q Private Student Loan Performance Report - DBRS 8/26/2010, Fitch Prime Credit Card Index, Fitch Ratings Auto ABS Annualized Net Loss Index - Prime October

27 2010 YTD Private Student Loan ABS Transactions Date Issuer Series Class Amount WAL Spread Benchmark Moody's S&P Fitch DBRS 7/13/10 SLMA 2010-B A mL Aaa AAA A n/a 1mL Aaa AAA A n/a 1mL Aaa AAA /30/10 SLMA 2010-C A mL Aaa AAA A mL Aaa AAA A mL Aaa AAA A mL Aaa AAA A mL Aaa AAA 1, /27/10 ACCSS 2010-A A mL Aaa AAA /4/10 SLCLT 2010-B A Prime Aaa AAA A mL Aaa AAA /29/10 SLCLT 2010-A A Prime Aaa October

28 Capital Markets Contacts Gary Santo, Jr. Managing Director Capital Markets (617) Dana Arvidson Vice President Capital Markets (617) David Hartung Vice President Capital Markets (617) Lee Jacobson Vice President Capital Markets (617) Ray Morel Vice President Capital Markets (617) October