Using Hardest Hit Funds as patient capital

1. Using Hardest Hit Fundsas patient capital to right-size borrowers’ payments and equity to their capacity to pay (An Example)

2. In the past • 2007 Borrowers buy $200k home • Put down 12.5% - $25k • Borrow • $150k 1st mortgage • $25k 2nd mortgage • 2007 Borrowers’ income • $63k • Mortgage Debt to Income 28.8% • Total Debt to Income 44.3% • Borrower has capacity and incentive to make mortgage payments HHF Example

3. In the past HHF Example

4. In the present 48 months later • 2011 Borrowers’ home value down 30% to $140k home • 1st mortgage balance $141,922 • 2nd mortgage balance $20,350 • Combined Loan to Value 117% in a non-distressed sale • Investor loss approx ($23k - $65k*) • Borrowers’ economic incentive to pay and maintenance the house is gone * REO stigma value $98,000 on foreclosure sale HHF Example

5. 48 months latercontinued • 2011 Borrowers’ income has been “down-sized” • Borrowers’ capacity to pay and maintenance the house is gone HHF Example

6. Restructuring to sustainable payment load • Break current debt obligation into two parts • A new loan based on the borrower’s capacity to pay • Historically they performed when housing debt & total debt were 28/44% respectively • An equity sharing contract based on future property appreciations rights – hereafter “rights” • Difference between outstanding debt • Less the property’s current value • Less any principal reduction needed to achieve the sustainable payment level where total debt payments <= 44% of current pay HHF Example

7. Sourcing Opportunities • Loans purchase for restructuring have these characteristics: • Borrowers self identify • Can pay (something) and want to stay • Are 90 days or less delinquent • Warehouse facility leveraged with Hardest Hit Funds acquires delinquent / underwater assets from banks at prices near book value. • Program is designed to clean up Investor balance sheets too. HHF Example

8. Restructure Profile • With HHF “patient capital” Borrowers’ payments & equity ownership “right-sized to capacity to pay HHF Example

9. Restructure Profile • With HHF “patient capital” Borrowers’ payments & equity ownership “right-sized to capacity to pay HHF Example

10. Restructure Profile • With HHF “patient capital” Borrowers’ payments & equity ownership “right-sized to capacity to pay HHF Example

11. The fix is in “baked in the cake” • We eliminate expensive installment debt and refocus these payments towards buying back the shared appreciation “Rights” HHF Example

12. The fix is in “baked in the cake” • We eliminate expensive installment debt and refocus these payments towards buying back the shared appreciation “Rights” HHF Example

13. The fix is in “baked in the cake” • We eliminate expensive installment debt and refocus these payments towards buying back the shared appreciation “Rights” HHF Example

14. Required Borrower Behavior & Financing • With sustainable 1st mortgage debt • Pays down existing Installment debt • Once these debts are extinguished they use those cash flows to buy back Patient Capital Equity Appreciation Rights • Patient Capital & 1st mortgage financed @ 6% • 1st mortgage sold after 24 months to recycle HHFs $ HHF Example

15. Pricing Scenario • Book Value bid for existing debt 165k • New 30 yr fix 1st at 6% • Property appreciates at 2% per annum • Borrower Pays off installment debt • Uses former installment debt cash to buy back Appreciation Rights • Refinances in at 80% LTV 6 years forward with $32k in equity HHF Example

16. Pricing Scenario • Book Value bid for existing debt 165k • New 30 yr fix 1st at 6% • Property appreciates at 2% per annum • Borrower Pays off installment debt • Uses former installment debt cash to buy back Appreciation Rights • Refinances in at 80% LTV 6 years forward with $32k in equity HHF Example

17. Summary • Rather the giving money away, the patient capital in “rights” earns a 6% return • Bank’s balance sheet is restored, loss reserves adjusted and taxed, bank gets back to making good loans • Consumer and neighborhood are spared foreclosure sigma costs which impact the value of all homes HHF Example