Zanopha UK Property And Recovery Valuation

Zanopha 2 Our Service  Given a portfolio of properties we provide –Current house price –Postcode level house price index –Short-term price projection  Given a portfolio of mortgages we provide –More accurate current house price –Current LTV (vital for RMBS valuation) –Loan specific house price index –Loan specific LTV projection –Impact from known and what-it default scenarios –Impact from systematic market shifts  Independent from AVMs and structurers Property specific modeling enhances accuracy Recovery levels are vital for RMBS valuation in terms of recovery and default probability

Zanopha 3 Problems with AVMs  Largely untested in a declining market  Not tailored to collateral valuation – Developed as a tool for housing sales  The UK has poor data availability –Determining the number of bedrooms is hard  Associated with the players who are perceived to be responsible for the current securitisation problems  Any consistent overvaluation leads to an underestimation of LTV  Opaque AVMs can consistently overvalue causing an underestimation of LTV

Zanopha 4 An Inflation Model  Use inflation modeling at the postcode level  Each inflation curve can be derived for a specific loan  Inflation levels show a high degree of invariance to housing specifics as they are driven by regional trends  The concept of inflation maps directly to the notion of marking to market  Use weighting and interpolation to measure inflation rather than relying on weak statistical inferences Inflation levels exhibit a high degree of invariance to parameter choices

Zanopha 5 How it works  The Land Registry maintains a record of every transaction  Determine all transactions in the neighbourhood of a target property  Using regression fit an inflation curve to the data with specialised weight parameters

Zanopha 6 Location  Weight each transaction according to its distance from the target  Ensures large but relevant data sets

Zanopha 7 Time  Key times to give weight to are –Last transaction date –Valuation date  Removes path dependence –Flood impact step-down Low influence

Zanopha 8 Results  Absolute price levels vary but inflation shape is stable Oct ‘07

Zanopha 9 Results cont’d  Housing type determines shape but this data is readily available Oct ‘07

Zanopha 10 Usage  Up to date LTV for a portfolio of loans  Impact to recovery by –1% rise in defaults –1% rise in value lost by administration –1% fall in housing market –1% increase in transaction period  Projected recoveries derived from each inflation curve  Vital input of current positions for extra models to be attached to such as –Default model –Interest rate model –etc Loss severity is easily calculated for a wide variety of scenarios and assumptions

Zanopha 11 Active Administration  Select those mortgages that have the most equity by current LTV  Focus on refinancing those mortgages where little equity exists to avoid forced sale  Use projected house prices to determine the best action and timing  Creates a clear picture of an individual’s property asset Preventative action preserves needlessly wasted equity being eroded by repossessions