Inside EdgeCOLLATERAL RISK MANAGEMENT NEWS AND INTELLIGENCE DELIVERED MONTHLYIssue 19 :: March 2007

IN THIS ISSUE

Mortgage Payment Reset:The Issue and the Impact

Fraud Facts:Shotgunning Loans

CoreLogic Merges withFirst American Real Estate Solutions

Webinar: Challenges to Non-Prime Lending

“Tightening” in the Secondary Market

Spotlight On...HistoryPro Review™

Events at a Glance

Homespun Hilarity

Sudoku Puzzle

CoreLogic

Client CornerHere’s what our customers are saying about CoreLogic:

“I have been using CoreLogic products for many years, so I am aware of the history and integrity that they have put into their products. Knowing that they have been staying ahead of the curve in this ‘roller coaster’ industry helps in the decision to choose CoreLogic over other products.”

—Quality Control Analyst,Leading Retail/Wholesale Lender

Mortgage Payment Reset:The Issue and the Impact A new study analyzes the impact of adjustable-rate mortgage resets and projects foreclosure rates

Trillions of dollars of adjustable-rate mortgages will have their payments begin to reset in 2007 and 2008, or have begun to reset already. What will be the impact of mortgage payment reset on the mortgage lending industry and the national economy as a whole?

Dr. Christopher L. Cagan, director of research and analytics for First American CoreLogic, has conducted a comprehensive study to determine what impact mortgage payment reset and changes in the real estate market may have on payment increases and upon default and foreclosure. The analysis, using the extensive data and analytic resources of First American CoreLogic, examined 26 million mortgages, focusing on 8.37 million adjustable-rate mortgages between 2004 and 2006 valued at 2.2 trillion dollars.

The results are intended to provide the financial community and mortgage lending professionals with an extensive framework for assessing the default and foreclosure risk associated with loan products that involve mortgage payment resets.

The study projects 1.1 million reset-related

foreclosures, spread out over a total period of six to seven years. This represents 13 percent of the adjustable-rate mortgages originated through purchase or refinance from 2004 to 2006, constituting $326 billion of debt. After foreclosure and resale, it is projected that about $112 billion will be lost to remaining equity, lenders, and investors over several years. Since these losses represent less than one percent of the total mortgage lending projected for that period, mortgage payment reset will not break the national economy or even the mortgage lending industry. However, the impact of reset-based foreclosure will not be spread evenly, but will focus especially on teaser-rate and sub-prime mortgages originated in the past three years. These loans will begin the reset process earlier than market-rate adjustable loans, and are more likely to default.

The study projects that: • 32 percent of teaser loans will default due to reset• 7 percent of market-rate adjustable loans will default due to reset• 12 percent of sub-prime loans will default due to reset

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by Dr. Christopher Cagan, Director of Research and Analytics for First American CoreLogic

Overall Summary of Projected Reset Losses

(Adjustable first mortgages originated 2004-2006; all years of first reset combined; organized by initial interest rate groups.)

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Fraud Facts: Shotgunning Loans

In today’s housing market, banks and lending institutions can ill afford to fall victim to complex fraud schemes, and the latest scam has the potential to quickly drain pockets in an industry trying to keep its head above water. This month’s edition of Fraud Facts examines the growing problem of multi-closing fraud, also known as “shotgunning,” “title gap fraud,” or “multi-lien fraud.”

In this new mortgage fraud scenario, scam artists apply for multiple home equity loans with multiple lenders at the same time. Their credit and the loan are often clean, facilitating a fast closing process. Due to the delay between the dates the loans are closed and the dates the liens are filed in the county courthouse, lenders are not aware of the other liens when making their underwriting decisions.

These fraud perpetrators can walk away with millions of dollars in profit from one property, and the worst part is, each lender originates the equity loan and approves an amount believing they are in second lien position. If they are not in that position

they may not have collateral protection against their loss if the loan defaults.

There is a solution, however. The answer lies in alerting the lenders before they give a loan to someone who may be applying for the same loan elsewhere.

A new tool from First American CoreLogic, called Multi-Closing Alert, proactively delivers notifications to a lender, identifying potential multiple closings from other participating lenders. As the industry’s first official multi-closing fraud prevention program, this tool helps lending institutions such as Wells Fargo and Chase stop these scams before the perpetrators can take the cash and run.

For more information about the new CoreLogic Multi-Closing Alert tool, call 888.288.2009 to speak to a CoreLogic representative.

Homespun Hilarity

New fraud scenario victimizes multiple lenders simultaneously

Quick TipsThe CoreLogic Account Setup group is available to process all account maintenance requests (such as logons for new employees or logon expirations for former employees). The group can also process address, phone, fax/email changes, and business contact account changes.

For your protection, all of your company’s maintenance requests must come only from specifically authorized employees. For a current listing of employees authorized to submit maintenance requests for your company, contact your Account Manager or Client Relations Manager, or the Customer Care or Account Setup groups. Ensuring that this list is current, and that all requests originate from authorized employees, helps to minimize turn-around time for change requests.

Please direct your account maintenance requests or questions to accountsetup@

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SPOTLIGHT ON

HistoryPro Review™ quickly and economically examines an existing appraisal to determine its overall validity, delivering more accurate conclusions than a traditional desk review—at a fraction of the time and cost.

Find out how HistoryPro Review customers save up to 75 percent on appraisal reviews by takinga free 14-day test-drive!

For more information, please visit:www.corelogic.com

CoreLogic Merges with First American Real Estate Solutions New combined company to deliver comprehensive line of risk management analytics to the mortgage industry

The First American Corporation, America’s largest provider of business information, recently announced that it has merged its First American Real Estate Solutions (RES) division, a part of its FARES LLC subsidiary, with CoreLogic Systems, Inc., a leading provider of mortgage risk assessment and fraud prevention solutions. In 2006, RES and CoreLogic generated approximately $252 million and $74 million in revenues, respectively.

The new, combined company is majority owned by The First American Corporation through its FARES LLC joint venture with Experian Group Limited. CoreLogic’s stockholders,

composed of its management team and TA Associates, hold an 18 percent economic interest and two of 10 board of director seats. The co-founders of CoreLogic, Steve Schroeder and Kraig Clark, have assumed key roles in the newly formed organization. The merger is the largest transaction in a series of analytic company acquisitions and minority investments completed by RES in recent years as a part of a larger domestic and international mortgage risk analytics strategy.

“This merger is a major milestone in our strategy to revolutionize the mortgage risk management process,” said Parker S. Kennedy, chairman and chief executive officer of The First American Corporation. “This transaction unlocks value by creating a single, unified company with the unique data and predicative analytics resources that lenders, investors and consumers need throughout the mortgage lending and securitization process.”

Traditionally, risk associated with

mortgage lending was managed through labor-intensive quality control and due diligence reviews. The combined company makes this process more efficient and effective by applying advanced data and analytics at every point in the lending process.

George Livermore, president of First American’s Property Information and Services segment, has been appointed president of the new company. Steve Schroeder, formerly chief executive officer of CoreLogic, will oversee the mortgage risk analytics business line for the company in the newly created role of executive vice president of risk management, reporting directly

to Livermore. CoreLogic’s staff and operations will remain at its Sacramento, California, headquarters, and all products offered by each company will continue to be available to customers.

“This newly created company has the combined expertise and assets that allow our clients to identify, quantify, and manage risk in a more transparent and precise way than previously possible,” stated Livermore. “By providing innovative analytical solutions that touch every stage of the life of the loan, we will be able to help our lender, servicer, and mortgage-investor clients become more competitive and profitable.”

Since 2004, RES has acquired three analytics companies: LoanPerformance, UK Valuation, and Basis100, and has purchased minority stakes in The Bohan Group, ComplianceEase, BasePoint Analytics, and Australia-based RP Data. Together, these companies provide data, analytics, and decisioning solutions that

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address the most pressing challenges in mortgage risk management, including fraud prevention, collateral risk assessment, mortgage prepayment forecasting, regulatory compliance, and due diligence reviews.

“Since co-founding CoreLogic more than eight years ago, I have seen the market for mortgage risk management analytics grow from a specialty market to one that is rapidly expanding into every facet of the mortgage lending process,” said Schroeder. “This merger provides the infrastructure and scale necessary to meet the growing market demands and enhances our ability to fulfill our mission of safeguarding and streamlining the mortgage loan process.”

To learn more about the merger of First American RES and CoreLogic, please visit www.corelogic.com/merger.

CoreLogic Merges with First American RES

MBA National Technology in Mortgage Banking Conference and Expo

MBA National Secondary Market Conference and ExpoMay 20-23, 2007New York, NYMarch 25-28, 2007

Tampa, FL Predictive Methods ConferenceJune 11-13, 2007Dana Point, CA

At a time when nonprime lending has come under increased scrutiny from government regulators, consumer advocacy groups, Wall Street firms and the industry itself, the need to consider the viability and profitability of nonprime lending has never been more timely. Through Secondary Marketing Executive Magazine’s special webinar event, you will receive insight and advice from industry leaders on how to approach and execute successful nonprime lending strategies. Audience members will be invited to ask the expert panelists questions (via chat) both before and during the webinar.

Among the industry experts speaking at the “Challenges to Nonprime Lending” webinar are CoreLogic’s Chief Economist Dr. Mark Fleming, First Franklin Financial Corporation’s Joe McKone, and Mortgage

April Webinar: Challenges to Nonprime Lending Register today for Secondary Marketing Executive’s live Web event

Banking Services Direct President David Lykken.

With presentations including “The Shift in Collateral Risk in Nonprime Lending,” “Nonprime Risk Analysis,” and “Maintaining Nonprime Profitability When Negotiating Purchase and Sale Agreements,” this special online event should prove to be extremely valuable in these trying times for the subprime sector.

To register for the “Challenges to Nonprime Lending” webinar, visit the “Events” site at www.corelogic.com. You can also view a replay of our recent “Truth or Consequences: Managing Risk in Your Stated Income Loan Products” webinar!

Events at a GlanceBe sure to visit CoreLogic at the following events to learn more about our innovative solutions for detecting and managing fraud risk.

I have seen the market for mortgage risk management analytics grow from a specialty market to one that is rapidly expanding into every facet of the mortgage lending process.

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Tightening in the Secondary Market

Even to the casual observer, the sub-prime sector of the mortgage industry is clearly facing turmoil. With loan origination volume levels well off their 2003 peak and housing appreciation rates stabilizing closer to historical norms, lenders and investors alike continue to grapple with the ramifications of the less stringent underwriting standards implemented through the “boom” years.

The “risk-layering” that characterized mortgage products in recent years, such as higher LTV, low and no income documentation, option ARM, and lower FICO loan products, has predictably driven decreased levels of performance—both in default incidence and loss severity. Just as predictably, the secondary market is reacting strongly to the sub-par performance of these products. Wall Street is pushing ever more of the recourse back to the originator and increasing the scrutiny placed on the loans they do purchase/securitize.

The industry is witnessing a quickly escalating public fallout in the sub-prime market segment, as evidenced by the mounting numbers of bankruptcies, acquisitions, and consolidation events chronicled in the media over the last 18 months. Loan “buybacks” have recently impacted lenders to the tune of tens of millions of dollars, and, in many cases, forced them to exit the business permanently. This trend is likely to continue as regulatory and governmental agencies enter the fray to offer their remedies.

A related trend emerging in recent months is the “tightening” of due diligence processes on loans being evaluated for purchase by secondary market firms—most notably value verification and income reasonableness. Some Wall Street firms have tripled the amount of loans “kicked” due to collateral issues alone, as determined through increased AVM usage and decreased value tolerance check levels. Even in stated income products, investors are kicking increased numbers

of loans due to questionable borrower income reasonableness.

This trend is most prevalent in the sub-prime segment today, but will likely bleed over into the Alt-A and prime segments moving forward.

The use of automated fraud and risk management solutions (such as LoanSafe™, GeoAVM™, and IncomePro™) has enabled investors to efficiently identify and root out problem loans. To ensure profitability, originators should be taking the same precautions and emulating, wherever and whenever possible, the workflow processes utilized by their major investors.

Investor buybacks due to poor performance (EPD, fraud, etc.) clearly have a material effect on an originator’s profitability. For the majority of lenders in the market, however, investor kicks will have an increased negative impact. Many times kicked loans sell in “scratch & dent” pools for steep discounts—in some cases $0.70 to $0.85 on the dollar. In other words, where a lender may typically make $2,500 per $100,000 loan, they can potentially lose $15,000 to $30,000 per loan kicked by an investor.

Recent advances in automated mortgage risk solutions can help lenders mitigate overall risk while minimizing the impact to sales/production processes. CoreLogic continues to provide customized workflow solutions for both investors and lenders, helping to improve loan sale execution for both parties.

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by David Ard, Senior Vice President, CoreLogic

The industry is witnessing a quickly escalating public fallout in the sub-prime market segment, as evidenced by the numerous bankruptcies, acquisitions, and consolidation events chronicled in the media over the last 18 months.

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corelogic.com

888.288.2009

For comments or questions regarding Inside Edge, please email newsletter@corelogic.com

Copyright © 2007 CoreLogic, Inc.

CoreLogic10360 Old Placerville Road, Suite 100Sacramento, California 958276

CoreLogicis the leading provider of residential mortgage risk management and fraud protection technology and services to the U.S. mortgage banking industry. CoreLogic quantifies the risk in more than 25 percent of U.S.-based originations annually on behalf of its clients, identifying more than $1.2 billion dollars in potential loan loss in 2006. Since 1997, mortgage originators and the capital markets have relied on CoreLogic to increase loan performance by making smarter lending and purchase decisions. The company’s PowerLogic™ Risk Decision Platform delivers fast, efficient, accurate, easy-to-use solutions.

Sudoku Gets SeriousLatest puzzle most challenging to dateAs each month passes, our Sudoku puzzles seem to gain popularity. With that in mind, we thought we’d kick off the spring season with a more challenging Sudoku game for our subscribers to puzzle over.

For those who might not consider themselves Sudoku veterans, here are the rules: Enter a numerical digit from 1 through 9 in each cell of a 9x9 grid made up of 3x3 subgrids (called “regions”), starting with random digits already revealed in some cells (the “givens”). Each row, column, and region must contain only one instance of each numeral, 1 through 9. Good luck!

Mortgage Payment Reset Continued from page 1

to modify or refinance existing loans to avoid default.

To download the complete study, visit our request page at:http://www.firstamres.com/MPR2007

The study also found that a small rise in prices will lift many properties out of equity difficulty and enable an escape from reset-based default through refinance or sale. Conversely, a small drop in prices will push many properties into equity difficulty and resulting reset-based default. Regardless, many loans are being refinanced from adjustable-rate to fixed-rate terms, avoiding payment reset. In addition, many lenders are working with their clients