Many consumers that have the ability to secure credit (mortgages, consumer loans, auto loans) may not have a traditional credit file or score. Not having a credit history precludes these consumers from securing credit approval even though they are an acceptable risk and have the ability to repay the loan. This presentation explores risk and performance of loans with regard to consumers and loans employing Alternative Credit.

1. 1Confidential Information – Copyright © First American Credco 2006
MANAGING RISK AND PERFORMANCE
IN EMERGING MARKETS
ADDRESSING PERFORMANCE CONCERNS
Risk Summit 2006
Mark F. Catone
Senior Vice President, First American Credco

2. 2Confidential Information – Copyright © First American Credco 2006

3. 3Confidential Information – Copyright © First American Credco 2006
Market Dynamics/Opportunities
The Disparity Continues to Widen
Lower Costs of
Origination
Reduced Cost of
Credit
Easier Access
New Products
Increasing Relative
Costs
Excluded from “New
Model” scoring
systems
Subject to Abusive
Lending Practices
Prime Market
Borrowers
Emerging Market
BorrowersDisparity

4. 4Confidential Information – Copyright © First American Credco 2006
Market Dynamics/ Opportunities Marketing Implications
Market Contraction and Growth 2000 - 2020
(4,000)
(2,000)
0
2,000
4,000
6,000
White Black Asian Hispanic
ThousandsofFamilies
45 to 54
35 to 44
25 to 34
Under 25
Brookings Institute White Paper Source: Thomas G. Exter, Ph.D.

5. 5Confidential Information – Copyright © First American Credco 2006
Emerging Market Borrowers Across All Income Levels
are Concentrated in Subprime Pools
Refinanced Mortgage Loans in U.S. - 2002
Percent Subprime by Income Level
11.2% 9.7%
7.6%
5.2%
38.5%
33.2%
27.8%
19.6%19.9% 20.7% 19.4%
13.4%
0%
10%
20%
30%
40%
50%
Low Moderate Middle Upper
White African-American Latino
Source: Separate and Unequal: Predatory Lending in America, Published by Acorn 2004

6. 6Confidential Information – Copyright © First American Credco 2006
The Consumer Portion
• Pre-Loan Credit Counseling
• Homeownership Planning
• Monitoring
• Loan Buyback as a Risk Management Strategy

7. 7Confidential Information – Copyright © First American Credco 2006
Market Dynamics/ Opportunities are Enormous
32
22
0
10
20
30
40
50
60
Borrowers
MillionsofPotentialBorrowers
No File
Thin File

8. 8Confidential Information – Copyright © First American Credco 2006
The Credit Portion
• Favorable to the Consumer
– Add, Supplement, Build Credit
– Keys Off of Housing as Predictive
– Qualify for Best Loan Possible
• Lender Risk Management
– Data Scrubbing & Integrity
– Identity, Status Verification

9. 9Confidential Information – Copyright © First American Credco 2006
Case Study #1
• Consumer A “Thin” file
– Full File contents (before):
• 4 closed accounts & 1 open account
• 19 months of recent current history
• FICO scores 684, 605, 628
• Fraud Alert
– Anthem File contents (after):
• 4 closed accounts & 5 open accounts
• 29 recent months of current history ; min. 12 mo. rent
• 91 months total recent, open history
• FICO scores 684, 605, 628
• Anthem Score 701
• Consumer contacted directly

10. 10Confidential Information – Copyright © First American Credco 2006
Case Study #2
• Consumer B
– Full File contents (before):
• Trades: 1 open, current; 1 closed; 7 collections (5 open)
• 1 civil judgment (> 4 years)
• 14 months of recent current history
• FICO scores 611, 609, 486
– Anthem File contents (after):
• Trades: 4 open, current; 1 closed; 7 collections (5 open)
• 1 civil judgment (> 4 years)
• 31 recent months of current history ; min. 12 mo. rent
• 65 months total recent, open history
• FICO scores 611, 609, 486
• Anthem Score 589

11. 11Confidential Information – Copyright © First American Credco 2006
Case Study #3
• Consumer C – “No file”
– Full File contents (before):
• Trades: 1 open, current; 3 closed (1990’s); 1 closed
collection
• 58 months of recent current history
• FICO scores 658, 608, 649
– Anthem File contents (after):
• Trades: 3 open, current; 3 closed; 1 closed collection
• 58 recent months of current history ; min. 12 mo. rent
• 95 months total recent, open history
• FICO scores 658, 608, 649
• Anthem Score 648

12. 12Confidential Information – Copyright © First American Credco 2006
Percent Meeting Alternative Credit Minimums x FICO
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
0-459
460-479
480-499
500-519
520-539
540-559
560-579
580-599
600-619
620-639
640-659
660-679
680-699
700-719
720-739
740-759
760-779
780-799
800+
Score Range
PercentSatisfyingRequirements
Anthem FICO
• Requirements:
– At least 4 sources of NT data with at least 12 months of reported history.
– Minimum of 12 months of rental history [Estimated].
– Maximum 1 X 30 day delinquency on a rental tradeline.
– Maximum 2 X 30 or 1 X 60 day delinquency on any tradeline.

13. 13Confidential Information – Copyright © First American Credco 2006
Total Delinquencies Affordable s Market (quarter end)
• Over this time period NHSA’s high LTV 1st mortgage Private Label LLC
loans total delinquency outperformed FHA by 507% & Prime by 107%
Total Delinquency LLC vs Market (balances)
0.00%
5.00%
10.00%
15.00%
Mar-01
Jul-01
Nov-01
Mar-02
Jul-02
Nov-02
Mar-03
Jul-03
Nov-03
Mar-04
Jul-04
Nov-04
Mar-05
Jul-05
Total Private Label MBAA FHA MBA Prime

14. 14Confidential Information – Copyright © First American Credco 2006
Total Delinquencies High LTV sales vs. Market (quarter end)
• Over this time period NHSA’s high LTV 1st mortgage GSE loans
total delinquency performed at 94% of Prime loans
High LTV GSE Sales vs Market (balances)
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
Mar-01
Jul-01
Nov-01
Mar-02
Jul-02
Nov-02
Mar-03
Jul-03
Nov-03
Mar-04
Jul-04
Nov-04
Mar-05
Jul-05
Total GSE MBA Prime

15. 15Confidential Information – Copyright © First American Credco 2006
Foreclosure % by Credit type (quarter end)
Foreclosure Balances
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Mar-01
Jul-01
Nov-01
Mar-02
Jul-02
Nov-02
Mar-03
Jul-03
Nov-03
Mar-04
Jul-04
Nov-04
Mar-05
Jul-05
Portfolio Private Label GSE
MBAA Nonprime MBAA FHA MBA Prime

16. 16Confidential Information – Copyright © First American Credco 2006
Credit Cascade
All Layered On Top of Existing Loan Underwriting
• Best Rate = Yes, Then Complete
• Best Rate = No, Do Until Best Rate
– Full file
• Update Balances
– Rescore
• Update Disputed Derogatory Data
– Rescore
– Thin File
• Build Rent 1
• Build Rent Utilities 2
• Build Rent Services 3
– No File
• Build Rent
• Build Rent Utilities
• Build Rent Services
• Build Insurance

17. 17Confidential Information – Copyright © First American Credco 2006
Thank You

18. 18Confidential Information – Copyright © First American Credco 2006