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2004 MBA Convention International Opportunities Panel

2004 MBA Convention International Opportunities Panel. Sponsored by The PMI Group, Inc. 2004 MBA Convention International Opportunities Panel Tony Porter EVP, Managing Director The PMI Group, Inc. Sponsored by The PMI Group, Inc. 2002 Top 10 Mortgage Markets.

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2004 MBA Convention International Opportunities Panel

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  1. 2004 MBA ConventionInternational Opportunities Panel Sponsored by The PMI Group, Inc.

  2. 2004 MBA ConventionInternational Opportunities PanelTony PorterEVP, Managing DirectorThe PMI Group, Inc. Sponsored by The PMI Group, Inc.

  3. 2002 Top 10 Mortgage Markets Mortgage Debt Outstanding: US$11.3 trillion Source: Federal Reserve, EMF, Deloitte, Reserve Bank of Australia

  4. Homeownership Rates 41% 51% 53% 56% 60% 66% 68% 69% United Kingdom 69% 81% Source: EMF, US Census Bureau, IUHF, CMHC, and internal PMI sources

  5. Mortgage Debt Outstanding/GDP 2002 Mortgage Debt Outstanding as a % of GDP 88% 82% 62% 60% 51% 50% 42% 38% 35% 19% Source: World Bank, Federal Reserve, IUHF, EMF, Deloitte, Reserve Bank of Australia

  6. Comparing Major Housing Statistics

  7. Common Questions • Why should we expand internationally? • Should we look to big markets, where there is more room to find a niche? • Should we look at emerging markets, where we can enter early and define market practices to establish dominance? • Should we focus on transition markets where the market development work is done and business is poised for growth? • Or is the best strategy simply to focus on our home market and compete where we know best?

  8. What Makes Markets Attractive? UNATTRACTIVE ATTRACTIVE Market Size Growth Rate Profit Margins Competition Legal System Borrower Quality Information Political Stability Economic Stability Can my core competencies tilt the balance?

  9. 2004 MBA ConventionInternational Opportunities PanelInternational Expansion: The Case of CountrywideMichael LeaCardiff Economic Consulting

  10. Overview of Presentation • Countrywide Financial Corp. – The Leading US Mortgage Lender • Competitive Strengths and Exportable Skills • International Expansion – Rationale, Market Selection and Business Model • UK Market Overview • Making the Business Model Work: Challenges and Solutions

  11. Intellectual Capital Loan Closing Services Banking Capital Markets Mortgage Banking Global Insurance Services Technological Capital Countrywide Financial Corp. US • Largest Mortgage Originator ($176 billion funded first half 2004) • Servicing Portfolio $726 billion (6/30/04) • More Than 500 Branches, 39,000 Staff, 30,000 Brokers • Acknowledged Technology Leader • Top 10 Mortgage Backed Securities (MBS) Dealer

  12. CFC Core Strategy To enable its employeesto deliver best-of-class and value-added products and services to its customers through superiortechnologyandprocesses.

  13. CFC Strengths • Focus: Mortgage Banking As The Core Business; Unparalleled Understanding of Mortgage Processes and Costs • Technology: Proprietary, State-of-the Art Systems • Pioneer in automated underwriting, valuation, Use of Internet • Securitization: Market Leader in MBS Issuance and Trading • Financial Strength: $22 Billion Market Capitalization; Regulated Entity

  14. Learning From US Used In Global Arena • First Point Of Entry Has Been The UK • Key attributes: size, language, open competitive market, need for cost reduction and new technology • Three Primary UK Businesses: • Global Home Loans: Market Leading Third Party Administration • UK Valuation: Market Creator and Leader in Automated Property Valuation • CFC Technology Solutions: Providers of State of the Art, End-To-End Mortgage Technology

  15. 1999 2000 2001 2002 Global Home Loans May 1999 GHL established in venture with Woolwich September 2000 Barclays acquired Woolwich April 2001 GHL facilitated launch of new Barclays products November 2002 Barclays transition GHL in 2000 • over 15,000 applications per month • $54 billion servicing portfolio • over 760,000 loans GHL in 2003 • over 26,000 applications per month • $110 billion servicing portfolio • Nearly 1.2 million loans • largest end-to-end third partyprocessor in the UK

  16. Global Technology • CFC Technology Solutions/GHL Have Developed a Comprehensive Suite of Mortgage Processing Systems For UK Market • Systems Based On Leading Edge Technology Investments Made By Countrywide In The US • Systems Cover Complete Mortgage Chain • Designed To ‘Plug And Play’ With Legacy Systems • Systems Use Proven Technologies

  17. UK Market Overview

  18. The UK Mortgage Market Is the World’s Third Largest

  19. The UK Market Has Enjoyed Robust Growth in Recent Years UK mortgage loan balances outstanding (£bn) Gross lending and redemptions (£bn) CAGR = 24.7% CAGR = 10.9% CAGR = 22.0% Source: Bank of England, Council of Mortgage Lenders

  20. The UK Market Is Concentrated 2002: Source CML

  21. UK Mortgage Market Drivers

  22. Low Interest Rates Have Contributed to Market Growth

  23. Securitization Is Growing

  24. Most UK Mortgages Are Variable Rate

  25. The Outsourcing Challenge • Over 30% Of the UK Market Uses Outsourcing • Major lenders have made their decisions • Regulation Has Slowed the Adoption of Outsourcing • Lenders Are Seeking a Large Reduction In Cost Which Is Difficult to Achieve in the UK • Off-shore processing is a way to do this • Opportunities Exist With Component Processing and Smaller Lenders • New products, purchased portfolios • Special servicing, master servicing • European Outsourcing Has Formidable Challenges • Labor is a fixed factor of production

  26. 2004 MBA ConventionInternational Opportunities PanelTony GillExecutive DirectorMacquarie Bank Limited Sponsored by The PMI Group, Inc.

  27. MBL, MSL and the PUMA program Macquarie Bank Limited (MBL) • Regulated & Licensed Australian Bank and Authorised Deposit Taking Institution • Rating: A / A2 / A+ (S&P / Moody’s / Fitch) A1 / P1 / F1 (S&P / Moody’s / Fitch) • Total assets (Mar 04) = A$44 billion • Additional Assets Under Management (Mar 04) = A$63 billion • Over 5,700 Employees located in 23 countries, including operations throughout Asia, Europe and North America • Established in 1991 • Acts as master servicer, program manager and arranger of bond issues • Australia’s largest and one of the most frequently issuing RMBS programs (A$23.6 bn issued to date) 100% MBL Subsidiary Macquarie Securitisation Limited (MSL) Manager PUMA Program

  28. Diverse global asset portfolio & operations USA Assets include: • Detroit Windsor Tunnel • SR125 South – San Diego • Parking Company of AmericaAirports • Michigan Electric Transmission Co. • Macquarie Prologis USA Operations include: • Corporate finance & advisory • Infrastructure finance & advisory • Infrastructure funds management • Metals & mining finance, structuring and trading • Agricultural commodities marketing, trading & structuring • Golf course / residential development • Mortgage origination Canada • 407 ETR - Toronto • Cardinal Power UK • M6 Toll road • Bristol Airport • Birmingham Airport Sweden • Arlanda Express Rail Link Portugal • Algarve toll road • Norte Litoral toll road Germany • Warnow Tunnel South Korea • Soojungsan Tunnel • Kwangju toll road • Daegu-Busan Expressway • Baekyang Tunnel • Machang Bridge Australia • Sydney Airport • Eastern Distributor • M2, M4, M5, westlink M7 toll roads Africa • N3 toll road • N4 toll road • Kilimanjaro Airport (Tanzania) • Airport Co. of SA Italy • Rome Airport • Genoa Airport • Lamezia Terme Airport “Largest owner of toll roads in the world”

  29. Macquarie Securitised Lending • North America • Established 2002 • Correspondent and wholesale lending • Currently 21 states, 30 states by 03/05 • 128 employees • Settled loans US$1.4bn • Europe • Target 2005 • China • Established 2001 • Joint venture business • 45 staff • Introductory business agent in Shanghai • Settled loans >1,500 P.A. Memphis Shanghai • Australia • Established in 1991 • Mortgages and Equity Lending • 400+ staff • Portfolio > AUD$15bn • PUMA securitisation program Sydney

  30. Australia & the mortgage market • Population 20 million in an area size of USA • Approx 69% of residences are owner occupied • Wide range of products in a competitive market • Doubling of property values since 1998 has fuelled mortgage market • Investment loans accounted for nearly 1/3 of all loans in 2003 • Full recourse to the borrower in event of default Currently AUD$15bn per month Source: Australian Bureau of Statistics

  31. Low interest rate environment • Typical loan is floating rate • Rate is set at lender’s discretion – not linked to any specific index • Fixed rates: • are available for a set period usually 1,3 or 5 years • reverts to variable or re-fix • mark to market prepayment costs are charged to the borrower • Interest paid is tax deductible for investment loans only

  32. Market still dominated by Major banks Other lenders Wholesale lenders 4% 15% Permanent building societies 3% Banks 78% • Lending sourced by brokers has increased significantly to approx 30% of all new loans • Expected to increase to 50% within next 3 years • Asset retention due to churn is a key challenge

  33. MSL – Single largest issuer in Australia • RMBS account for 90% of all Australian Securitisation • Roughly 1 in 5 loans are securitised • Lenders mortgage insurance is a key factor in securitisation • PUMA Total issuance of A$23.6b, through 25 separate issues since 1994 (Domestic, Euro & Global) • Combination of private warehouse, commercial paper, bond issue AUD Issuances USD Issuances

  34. 600 500 400 300 200 100 - Jul.00 Jul.01 Jul.02 Jan.00 Jan.01 Jan.02 Mar.00 Mar.01 Mar.02 Jan.03 Mar.03 Sep.02 Nov.02 May.03 Jul.03 May.00 May.01 May.02 Sep.00 Nov.00 Sep.01 Nov.01 MSL – Key success factors Growth in monthly approvals as percentage of January 00 Core competencies • Product Innovation • Distribution expertise • End-to-end service provider • Flexible business philosophy • Servicing of brokers & borrowers. Rated the No. 2 service provider by the Australian mortgage broking industry Macquarie Market %

  35. International expansion criteria Market Structure • Niche opportunities in established market • Changing regulatory environment • Lenders mortgage insurance Product & Distribution Housing & Mortgage Market • Size • Mortgages vs. GDP • Ease of entry & exit • Product types/range • Distribution networks • Opportunity to innovate Funding/Securitisation Risk Management • Supportive regulatory framework • Good title • Acceptable credit data

  36.     MSL expansion into US market Market Structure • Niche opportunities in established market • Changing regulatory environment • Lenders mortgage insurance Product & Distribution Housing & Mortgage Market • Size • Mortgages vs. GDP • Ease of entry & exit • Product types/range • Distribution networks • Opportunity to innovate Funding/Securitisation Risk Management Risk Management • Supportive regulatory framework • Good title • Acceptable credit data

  37. China & the mortgage market Key data Pop. China = 1.2 billion Pop. USA = 294 million Several “tier 2” cities with population of 8 to 10 million Shift from government to private home ownership • Risk management framework still developing • 21 independent title registration offices in Shanghai alone • No formal credit data • Securitisation non-existent • Heavily regulated – products, interest rates, lenders, repayment terms • Mortgage market established 1999 • Outstanding mortgage balance at 2003 RMB 1.2 trillion (USD 145bn) • No concept of non bank lending

  38. Two tier market

  39. Property values are fuelling market growth • Recent share market losses mean investors favouring property • Capital growth over the last 3 years ranged from 20-50% P.A. • Not uncommon for investors to purchase property purely for capital growth. Properties remain unoccupied • Greater than 10% year to date growth despite government policy to introduce more controlled growth • Government imposed restrictions to limit growth to 15-18% in Shanghai market

  40. MSL in China Market Structure  • Niche opportunities in established market • Changing regulatory environment – WTO 2007 • Lenders mortgage insurance  Product & Distribution Housing & Mortgage Market ?  • Size • Mortgages vs. GDP • Ease of entry & exit • Product types/range • Distribution networks • Opportunity to innovate X  ? X  Risk Management Funding/Securitisation  • Supportive regulatory framework ? • Good title • Acceptable credit data ?

  41. Where next? China • Continually assess changing market for opportunities in preparation for entry into WTO in 2007 US • Controlled growth through geographical expansion and product innovation Europe • Commence operations by 2005 Further expansion • “Horizon scanning” for opportunities that match exportable core competencies Australia • Client service, client service, client service • Continued focus on quality brokers and originators • Product diversification

  42. GMAC-RFCBusiness Overview Prepared for: International Panel - MBA Convention Chris Nordeen – President, International Business Group

  43. A Member of the General Motors Family

  44. What We Do A Global Provider of Capital and Liquidity Solutions Residential Mortgage Finance We originate, purchase, service and securitize a full range of residential mortgage loan products to make affordable capital available in support of homeownership Business-to-Business Lending We provide a wide range of liquidity solutions including construction loans, subordinated debt-type financing, receivables financing and term loans to residential developers/builders, timeshare resort developers and healthcare enterprises We are committed to expanding the availability of capital in key real estate finance markets worldwide.

  45. A Values-Based Company We have a strong, vibrant culture focused on people and markets.

  46. Our Business Model We move capital between businesses and investors in select markets worldwide.

  47. Our Business Strategy Our strategy is to diversify our business and grow organically.

  48. A Market Leader We have a strong business-to-business brand presence in U.S. and international markets.

  49. Mexico Market

  50. 1.3 1.4 2.0 2.1 1.0 0.6 3.4 3.4 1.5 0.2 2.7 1.0 2.7 0.4 2.0 8.6 7.9 7.0 5.7 5.9 1.7 1.5 2.0 2.6 2.6 Credit to individuals Segmentation Annualactivity by individual credits segment (Billion dollars) $ 17.9 CAGR $ 17.4 (2003-2007) $ 14.2 27% $ 11.7 $ 10.1 Residential Plus Residential Medium 11% Economic Social 2003 2004 2005 2006 2007 Average credit amount in each segment (pesos) Residential Plus $1,800,000 $900,000 Residential $440,000 Medium $225,000 Economic Social $155,000

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