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» VISIT US ONLINE @ DSNEWS.COM MOODY'S ANALYZES IMPACT OF EMINENT DOMAIN ON RMBS POOLS Investors Service concluded a widespread adoption of San Bernardino County's proposed use of eminent domain will increase losses on residential mortgage-backed securities (RMBS) pools by about 30 percent. The proposal calls for the seizure of After testing different scenarios, Moody's underwater mortgages to address the problem of negative equity. Moody's argues seizing underwater performing loans "would increase RMBS pool losses if other jurisdictions were to adopt it because it would force losses on performing loans that could otherwise have avoided default." Through the proposed program, current underwater mortgages would be taken at fair market value and then refinanced into a new mortgage with a lower payment to reflect the current value of the property. Moody's explained compensation for the analysis: all first lien performing loans for single-family, owner-occupied properties with an LTV greater than 100 (or 120) would be seized and compensation for the seized loans would be about 80 percent of the loans' property values. In the first scenario, where no jurisdictions Two assumptions were made for the adopt, losses are about 11.3 percent and the default rate is about 13.8 percent. For the second scenario, which only includes California, losses are about 11.9 percent and the default rate is about 19.5 percent. In the third scenario, losses are about 14.8 percent and the default rate is about 30.9 percent, and the fourth scenario results in losses of about 12.9 percent and a default rate of about 20.4 percent. Thus, RMBS pool losses could increase by seized mortgages would be about equal to the estimated property value minus foreclosure expenses and unpaid servicer advances. "The estimated property values would reflect the results of other distressed sales and likely be 15 percent to 20 percent lower than open market prices," Moody's stated. Proponents of the program argue this as much as 30 percent, dependent on which scenario were to play out—from Moody's current estimate of 11.3 percent losses to losses of 14.8 percent of outstanding balances under scenario three. Not only does the analysis lead Moody's to conclude losses on RMBS pools could increase by around 30 percent if all 50 states were to adopt the program, but the rating agency also stated there would be an average three-notch downgrade to ratings on investment grade RMBS. According to Moody's, the program proposal as it stands now would likely target first lien performing loans with LTVs higher than 120 percent and backed by single-family owner-occupied properties in San Bernardino County. This type of loan makes up only 0.2 percent of all performing RMBS loans. But, if the program were applied on a broader scale, the impact would be much greater. For the whole state of California, the targeted loan type would account for about 6 percent of all performing RMBS, and for the whole United States, it would be about 13.5 percent. Thus, Moody's determined limiting the program would result in few, if any additional losses to RMBS and few changes in ratings, but widespread adoption of the program would lead to double-digit increases in RMBS losses and rating downgrades. PROPERTY PRESERVATION. would provide an incentive for the homeowner to stay current and prevent future defaults and foreclosures. However, since the proposal involves only performing loans, Moody's argues it would actually force investors to take unnecessary and avoidable losses. "The program would force the write-down REAL ESTATE INSPECTION. NVMS has an app for that. NVMS, the most technologically advanced national property preser- vation and inspection management firm, has developed a custom- ized mobile application that enables our field agents to respond to inspection requests within minutes of order placement. of underwater but performing loans by seizing them from trusts, leading the trusts to realize losses on loans that in many cases would have otherwise continued to perform," Moody's said. The agency reviewed 50 prime jumbo RMBS transactions issued since 2005 and applied four scenarios to determine RMBS losses. The test scenarios were (1) no jurisdictions adopt the program; (2) California adopts the program and targets all performing loans with a loan-to-value ratio (LTV) greater than 100 percent; (3) all states adopt the program and target all performing loans with an LTV greater than 100 percent; and (4) all states adopt the program and target all performing loans with an LTV greater than 120 percent. NVMS' local field agents can respond immediately to any order by navigating to the property via the phone's built in GPS, completing the inspection form, taking pictures using the smart phone camera and uploading the completed report back to NVMS right from the site. This technology along with our web based system allows our clients to gain an unmatched advantage in their property preservation and real estate inspection divisions. National Coverage Web Based Applications Fastest Turn Time in Industry Automated Client to Field Workflow Captured Data Fields for Analysis Unmatched Quality Control For a FREE virtual tour of our system, please contact our Business Development Department at 703.361.6262 x115 or jvolk@nvms.com nvms.com 61

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