2 nd Lien Mortgage Deb t

1. 2nd Lien Mortgage Debt

2. Who Is Redwater Funding Group? Redwater Funding Group, LLC (RFG) was formed in March of 2009, to fund the opportunity available in 2nd lien mortgage debt notes. RFGspecializes in unique and innovative opportunities for our clients. Our programs are tailored to offer a minimum of double digit annual returns and are not tied to the stock or bond markets.

3. 2nd Lien Mortgage Debt Opportunity (RFG) is offering individuals the opportunity to purchase unsecured, non-performing, 2nd lien mortgage debt pools through traditional secondary markets. This type of debt is typically available only to institutional buyers. This debt is available at historically deep discounts due to the prior collapse of the real estate markets, which will be discussed later in greater detail. When partnered with the right debt restructuring or collection firm, the purchaser of this debt can expect to generate high gross returns and significant cash flow for many years.

4. Facts… • Average 2nd lien note is $60,000 @ face value • Most of the debt is from California, New York, Florida, Nevada, etc. • Our clients purchase the notes for one cent on the dollar. • Minimum purchase of $10,000 = $1,000,000 in debt • 2nd lien notes only • Non-performing notes • Unsecured notes • Our Initial offer to the debtor is to settle for a minimum of 20% of the value of the note. Example $60,000 = $12,000 • The $60,000 note cost the investor $600 • Down payment and monthly payment programs are available to the debtor • The debtor will receive significant credit rehabilitation when they agree to pay the note, and make their initial payment.

5. Between 2003 and 2007, over $1 trillion in U.S. 2nd lien mortgages were underwritten. These included Purchase Money Loans, Home Equity Lines of Credit (HELOC), Cash Outs and Home Improvement Loans.  • As is well known, very lax mortgage underwriting standards ($3 trillion in subprime by 2007), coupled with inflated property values, produced a classic financial bubble – a colossal bubble that was blown dangerously thin by derivatives (credit default swaps). $ • The first hole in the bubble appeared in February 2007 and quickly set off a chain reaction of foreclosures. • Delinquencies in subprime mortgages increased six-fold. • With derivatives (in the $Trillions$ by 2007) acting as an accelerant, the secondary mortgage market collapsed, and the bubble burst.

6. By the fourth quarter of 2008, the deterioration of the U.S. and world economy, especially in the consumer real estate sector, placed banks and other lenders under stresses unknown since “The Great Depression”. Where there is Panic there is Profit! Banks began selling off this toxic debt (TARP) at historically low discounts to clear their books and charge off this debt. Heritage Pacific (HP Debt Exchange)- a member of FDIC - began buying this debt in large multi-million dollar blocks in September of 2008. HPwould then break these blocks down to smaller blocks and sell to joint venture partners.

7. Results In January of 2009, our initial investors funded the first purchase of blocks of 2nd lien debt. Heritage Pacific would then clean out the bankruptcies and break the debt into smaller blocks; mark the debt up and “flip” it to joint venture partners. Joint venture partners are investors with significant funds who wanted to get into the 2nd lien business, but did not have direct buying access to FDIC notes. Between January of 2009 and August of 2009, our initial clients earned a return on their investment totaling 101% while “flipping” this debt to the joint venture partners.

8. State of the Art Debt Service Heritage Pacific opened a debt servicing division in April of 2009 to service their joint venture clients. Relying initially on out-bound calling, they had about 100 representatives working 3 shifts. Trial and error proved that the best formula was to send out demand letters before making out-bound calls. These demand letters produced a high amount of in-bound calls, greatly reducing the number of in-house collectors. Heritage Pacifictheninitiated the development of custom software to manage the debt servicing division. Theyalso designed an extremely efficient skip tracing system, including the use of in-house employees as well as third party vendors.

9. Debtors are always treated with the utmost respect! After the first payment is received, the debtor will receive a “Thank You” call from Heritage Pacific! The Debt is immediately removed from their credit report, which could increase their score by as much as 100 points! By September 2009, RFG determined that the Heritage Pacificcollection process had progressed to the point of being very efficient in collecting 2nd lien debt. At that time, RFG’sclients began to purchase $10,000 units of 2nd lien debt ($1,000,000 of debt at face value), with the option of using Heritage Pacificto service their debt. Results to date have confirmed the expectations of far above average returns and monthly cash flow.

10. September 6.42% October 4.01% November 3.41% December 1.64% January 1.75% February 2.69% March 2.85% April 3.13% May 2.84% June 2.58% July 3.24% August 3.01% The figures above represent a monthly return on the initial investment, for the past 12 months; 9/01/2009 to 8/31/2010 3.13% Average Monthly Return 37.62% Annual Return The returns above, DO NOT include judgments, and are NETafter paying the collection costs. We anticipate the ROI will increase as the judgments are secured. The judgment process takes at least 90 to 120 days.

11. Profit Sharing Heritage Pacificcharges $0.30 of every dollar collected to fund the servicing company, which covers their cost. $0.70 of every dollar collected goes to investor or owner of the debt. Once the initial investment is recovered, the collections are split 50/50. The numbers on the previous page are net after 30% was paid to Heritage Pacific.

12. Investors are Paid Monthly RFG clients are paid on collections every month, on the 10th business day, for the prior month’s collections. The 1st check is received in 45 – 60 days, depending on which day of the month the funds cleared for the initial purchase of debt.

13. Fraud = Judgment It is estimated that over 90% of the loans contain fraud. Fraud can be overstated income, or misleading statements about homestead or investment purposes. Every attempt is made to settle the debt in the first 90 days, for a Minimum of 20% of note. Lawsuits are filed by the Heritage Pacific’s in-house attorney after 90 days when fraud is found. Once fraud is proven and the judgment status is achieved, the debt cannot be dismissed through bankruptcy. Heritage Pacific is able to garnish wages in 47 states. Judgment debt is worth 400 to 700 basis points (4 to 7 cents on the dollar) immediately on the market. The debtor is now ready to settle.

14. Redwater Debt $50K $10K $25K $100K $250K $500K RedwaterDebt =$400 Million + UPB

15. Principal Protection Our primary concern is Principal Protection for our clients! There are 3 main factors in protecting the principal with 2nd lien debt. • COST!…Our clients purchase debt at the low cost of one penny on the dollar. • FRAUD! ...This opportunity is “Excellent” as it is, but when fraud is proven and judgments are awarded, the returns are expected to increase! • Redwater debt…the law of large numbers.

16. Collection Process Data Entry:Data is entered into the system Quality Control Level 1: All data inspected for accuracy and scrubbed for bankruptcies Research Analyst: Full skip tracing - including 3rd party vendor Quality Control Level 2:All data inspected again for accuracy Pre-Law Suit:Loans go to in-house legal team for review, based on legal strategy Quality Control Level 3:All data inspected again for accuracy Lawsuits:  Loans enter Legal System

17. Process Flow Chart

18. Frequently Asked Questions Q. What am I buying? A. 2nd lien charged off notes that have no security interest (unsecured). You receive the original note and collateral files which are held in trust by the collection company. Q. How much does the debt cost? A. The market values this debt at 100 basis points, or 1% of the unpaid balance (UPB), or a penny on the dollar. A minimum purchase of $10,000 buys $1 million in debt. This price is subject to change at any time based on market conditions. Q. What makes unsecured 2nd lien notes collectable and valuable? A. Unlike 1st lien notes, which are usually forgiven at the time of foreclosure, 2nd lien notes become an unsecured note similar to a credit card. The collection company pursues the 2nd lien borrower for the deficiency.

19. Frequently Asked Questions (cont.) Q. Which collection company should I use? A. As the buyer, you may choose any debt collection company to assist you in the collection process. RFG recommends Heritage Pacific Financial because of their expertise in 2nd lien mortgage debt. Q. How long will it take to make back my purchase price? A. Audited results predict that it will take approximately 36 months, on average, to recover the initial investment. Q. How long does the collection company collect on these loans? A. Industry research shows that the total collectable value of this type of debt is between 4% and 6% of the UPB. RFG expects that purchasers of this debt will be able to collect monthly distributions at least 5 to 7 years, and possibly up to 20 years, as fraud and monthly payouts become a factor.

20. Frequently Asked Questions (cont.) Q. How often can I receive distributions? Monthly. Q. Can I purchase debt from my IRA, SEP, or other qualified retirement plan? Yes. The investment direction must come from an established custodian for qualified retirement plans. We use SunWest Trust located in Albuquerque, NM. Q.Are there any additional or recurring costs associated with the ownership of the debt? No (unless it is IRA – annual custodial fee) Q. Can I reinvest my distributions? Yes.