Edward N. Jones President/CEO ARC Systems 2600 Via Fortuna #500 Austin, Texas (512) fax (512) Compliance & Servicing Round Table June 23, 2005

Integration Compliance can be integrated with automated decisioning and loan origination systems to enhance underwriting capabilities and improve the quality of closed loans.

Compliance from a Holistic Perspective Compliance can be checked to insure loans meet with: –Federal, state and local law such as HOPA / Section 32 and HMDA –Underwriting guidelines or investor guidelines –Disclosures –Closing documents –Business practices

Compliance at the Point-of-Sale Compliance checks can be run when the loan application is submited for automated underwriting by correspondents, brokers, or loan officers. This will insure the loan is in compliance with state, local and federal law, from the point of origination.

Multiple Compliance Checks Compliance can be checked throughout the life of the loan in real time to insure the loan meets all of the business requirements of the lender. Compliance checks – from origination to securitization Point-of-Sale Closing Diligence Servicing

Leveraging National Resources Listed are some of the compliance libraries readily available from reputable companies: –Home Ownership and Equity Protection Act (HOEPA), State & Local High Cost Calculations –Truth-In-Lending Act (TILA) –Federal Real Estate Settlement Procedures Act (RESPA) –State & Local Consumer Credit Laws –Licensing Review –Home Mortgage Disclosure Act (HMDA) –Office of Foreign Asset Control (OFAC) –Flood Zone Validation

Checking Compliance at the Pool Level Pools of closed loans can be checked to insure they meet a lender’s or investor’s guidelines Servicing pools can be examined with precision to measure performance The whole pool can run through an automated decisioning system in a fraction of the time it takes to underwrite manually The whole pool is checked – not a small sample

Credit Traunches Pool Represented as Nonprime DU DU Expanded ALT-A 1 ALT-A 2 GAP 1 GAP 2 Nonprime Review Credit Bureau Error Credit TraunchCount% DU562.81% DU Expanded633.16% ALT-A % ALT-A % GAP % GAP % Nonprime % Review % Credit Bureau Error00.00% TOTAL1993 3% 0% 13% 4% 1% 37% 39% 0%

Pool Represented as Nonprime Small Pool Credit TrancheCount% DU291.39% DU Expanded281.35% ALT-A % ALT-A % GAP % GAP % Nonprime % Review % Credit Bureau Error160.77% TOTAL2079 DU DU Expanded ALT-A 1 ALT-A 2 GAP 1 GAP 2 Nonprime Review Credit Bureau Error 1% 3% 30% 1% 0% 24% 38% 1%

Pool Represented as Nonprime Large Pool Credit TrancheCount% DU % DU Expanded % ALT-A % ALT-A % GAP % GAP % Nonprime % Review % Credit Bureau Error % TOTAL17285 DU DU Expanded ALT-A 1 ALT-A 2 GAP 1 GAP 2 Nonprime Review Credit Bureau Error 4% 3% 8% 45% 1% 0% 16% 21% 1%

Represented as Nonprime Decisions With Credit DecisionCount% Amount in Millions%WAM Approved %$ % Review %$ % Rejected %$ % TOTAL1327 $226.3 Approved 18% Review 72% Credit Bureau Error 10%

FICO Deviation Count%Aver. TapeAver. CurrAver. DiffAGED Neg % Neg % Neg % Neg % Neg % Neg % Neg % Neg % No Change151.13% Pos % Pos % Pos % Pos % Pos % Pos % Pos % Pos % No Hit % TOTAL1327

FICO Deviation

Foreclosure Count Months Since Foreclosure Applications with Foreclosures% % % % % % TOTAL72

Bankruptcy Count Months Since Bankruptcy Applications with Bankruptcies% % % % % % TOTAL132

Review Reasons NumberReview Reason 671FICO Below Minimum Lender Program Requirements 335Debt to Income Ratio is outside specified tolerances 88Non-Mortgage lates exceed maximum allowed 66CH 7 Bankruptcy within last 4 years indicated on credit report 64Loan to Value outside Program Parameters 41Loan Amount exceeds maximum allowed 39More than one Bankruptcy/Foreclosure indicated on Credit Report 29Ch 11 or Ch 13 bankruptcy within last 2 years indicated on credit report 26CCCS Indicated on Credit Report 12Invalid Rate Type 10Program not available on property state 1Loan Amount below Program Minimum 1382* * Total includes applications reviewed with multiple reasons per loan

Review Reasons 48% 24% 6% 5% 3% 2% 1% 0% FICO Below Minimum Lender Program Requirements Debt to Income Ratio is outside specified tolerances Non-Mortgage lates exceed maximum allowed CH 7 Bankruptcy within last 4 years indicated on credit report Loan to Value outside Program Parameters Loan Amount exceeds maximum allowed More than one Bankruptcy/Foreclosure indicated on Credit Report Ch 11 or Ch 13 bankruptcy within last 2 years indicated on credit report CCCS Indicated on Credit Report Invalid Rate Type Program not available on property state

Benefits Reduction of buy backs and un-sellable loans Increase in loan quality Mitigation of litigation due to errors in compliance practices

Questions?