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MEMORANDUM
TO: File No. DF Title IX - Asset-Backed Securities
FROM: Jay Knight Attorney-Adviser Office of Rulemaking Division of Corporation Finance U.S. Securities and Exchange Commission
RE: Meeting with the Genworth Financial – US Mortgage Insurance
DATE: October 20, 2010
On October 20, 2010, Paula Dubberly, Katherine Hsu, Rolaine Bancroft, and Jay Knight of the Division of Corporation Finance and Eric Emre Carr of the Division of Risk, Strategy and Financial Innovation met with the following representatives of Genworth Financial – US Mortgage Insurance: James Bennison, Carol Bouchner, and Duane Duncan. Among the topics discussed was the case for private mortgage insurance to be within the definition of qualified residential mortgage in any rule promulgated pursuant Title IX, Subtitle D, Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Handouts are attached to this memorandum.
Attachment
Attending the Genworth/SEC meeting
Jim Bennison, SVP of Capital Markets Duane Duncan, SVP of Government & Industry Relations Carol Bouchner, Regulatory Policy
Agenda
• Discussion of the Qualified Residential Mortgage exclusion to Credit Risk Retention in Title IX of Dodd‐Frank.
• Presentation of Supporting Data – Vertical Capital/Core Logic.
Company Confidential©2009 Genworth Financial, Inc. All rights reserved.
Risk Retention and Qualified Residential Mortgage
U.S. Securities and Exchange Commission
October 20, 2010
©2010 Genworth Financial, Inc. All rights reserved. Company Confidential
Risk Retention and Qualified Residential Mortgage Dodd-Frank Wall Street Reform and Consumer Protection Act Creates New
Obligation for Securitizers to Retain Interest in Securitized Assets
Bill Directs Regulators to Exempt Qualified Residential Mortgages (QRM)
Regulators Must Define a QRM Taking into Consideration Underwriting and Product Features That Result in a Lower Risk of Default Such as:
• Documented and verified financial resources • Standards for: a) residual income after meeting all obligations; b) ratio of housing
payment to income; c) ratio of all installment payments to income • Standards and features that mitigate the payment shock of ARMs • Mortgage guaranty insurance (or other insurance or credit enhancement) obtained at the
time of origination to the extent such insurance/credit enhancement reduces the risk of default.
• Prohibitions/restrictions on balloon payments, negative amortization, prepay penalties, interest only & other similar high risk features
Data Clearly Demonstrates: • A Qualified Mortgage standard mitigates the risk of default • On low down payment loans, Insured Loans have a lower risk of default
than comparable Piggyback (uninsured) Loans
Qualified Mortgage Study
Historical Performance of Qualified vs Non-Qualified
Mortgage Loans February 2010
Confidentiality Agreement / Legal Disclaimer
This presentation (the “Presentation”) is being furnished for informational and discussion purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any security. The information set forth herein does not purport to be complete and is subject to change.
The information contained herein does not purport to contain all of the information that may be required to evaluate any securities or other opportunities and any recipient hereof is encouraged and should conduct its own independent analysis of the data referred to herein. Vertical Capital Solutions, LLC (“VCS”) and its affiliates disclaim any and all liability as to the information set forth herein or omissions here from, including, without limitation any express or implied representation or warranty with respect to such information.
Certain information contained herein (including targets, forward-looking statements, economic and market information) has been obtained from published sources and/or prepared by third parties and in certain cases has not been updated through the date hereof. While such sources are believed to be reliable, none of VCS or any of their respective affiliates or employees assume any responsibility for the accuracy or completeness of such information.
Each party should seek advice based on its particular circumstances from an independent tax advisor. The use of this Presentation in certain jurisdictions may be restricted by law. The products mentioned in this document may not be eligible for sale in some states or countries, nor suitable for all types of investors; their value and the income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates, or other factors. All parties should inform themselves as to the legal requirements and tax consequences of an investment in the products mentioned herein within the countries of their citizenship, residence, domicile and place of business.
Information in this document has been obtained from various sources; we do not represent that this information is accurate or complete and it should not be relied upon as such. Opinions expressed herein are subject to change without notice.
Certain information contained in this report constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “seek,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance may differ materially from those reflected or contemplated in such forward-looking statements.
To ensure compliance with Internal Revenue Service Circular 230, you are hereby notified that any discussion of tax matters set forth herein was not intended or written to be used, and cannot be used by any party, for the purposes of avoiding penalties that may be imposed.
2
Scope of Project
Vertical Capital Solutions (“VCS”) working in conjunction with First American Core Logic (“FACL”), performed an unbiased comparison of performance statistics between two populations of conventional loans (Qualified and Non-Qualified).
The comparison segregated the loans by origination year, Loan-To-Value (“LTV”), and presence of Mortgage Insurance (“MI”) as a way to further examine the findings.
In addition, the data was segregated by the 25 Metropolitan Statistical Areas (MSA's) with the largest number of originations between 2002 and 2008.
The criteria used for the determination of the Qualified pool is outlined below (the “Qualified Criteria”):
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¾
¾
¾
¾
¾
¾
¾
Debt-To-Income <= 41%;
7/1 ARM's & Greater or Fixed Rate;
Term <= 360 months;
No Balloon;
No Interest Only;
No Negative Amortization;
Full Documentation; and
¾ If the Loans had a LTV >80% it must carry MI
3
Methodology
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Developed performance statistics by vintage, LTV, MI and the Top 25 MSA’s by utilizing FACL’s Servicing Database (the “Servicing Database”).
The performance statistics were complied as of 11/30/2009.
The overall population consists of 37 million conventional loans originated between 2002 and 2008 (the “Loan Population”)
The Loan Population was then defined into two categories Qualified and Non-Qualified
The Qualified Criteria was chosen to most closely match the criteria provided with the data available inthe Servicing Database (the “Qualified Pool”).
The non-qualified population consists of loans where all necessary data points are present, but one or more of the Qualified Criteria were not met (the “Non-Qualified Pool”).
The remaining population (the “Qualification Unknown Pool”), not reported, consists of loans where the necessary data points were not all present and therefore qualification could not be determined.
The Servicing Database does not report the liquidation type. However, the loan status at the time of liquidation is tracked.
Non-performing loans were any loans currently 90+ days delinquent or had defaulted at the time of liquidation.
4
1.80% 1.42%2.95%
5.05%
8.18%7.07%
1.99%
4.68%3.70%
8.48%
16.41%
24.68%
19.83%
5.64%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2002 2003 2004 2005 2006 2007 2008
% By Original Balance (90+ Days Delinquent & Default)
Qualified Non Qualified
2.61 2.60
2.88
3.25 3.02
2.81 2.84 2.88
0.50
1.00
1.50
2.00
2.50
3.00
3.50
2002 2003 2004 2005 2006 2007 2008 Wtd. Avg
Ratio of Non Qualified to Qualified Loans by Original Balance (90+ Days Delinquent & Default)
Summary of Results
� 4.7 million of the Loan Population made up the Qualified Pool.
� 15.4 million of the Loan Population made up the Non-Qualified Loan Pool.
� The Qualified Pool has performed considerably better than the Non-Qualified population measured by loans that were 90+days delinquent or defaulted. This holds true across the range of vintages examined.
� The Qualified Pool also outperformed the Non-Qualified in each of the Top 25 MSA’s.
‐Data Source: First American CoreLogic
‐
‐
Data Source: First American CoreLogic
Qualified Mortgages Outperformed Non-Qualified Mortgages by Almost 3:1
5
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Non‐Qualified to Qualified Performance Ratio2002‐2008 Vintage
Summary of Results
� We examined Non-Qualified to Qualified Performance Ratios by the Top 25 MSA’s.
� Non-Qualified Loans performed at least 2x worse in 24 of the 25 largest MSAs.
National Wtd.Avg: 2.88
Data Source: First American CoreLogic
6
1.27% 1.11%2.23%
4.25%
7.07%5.48%
1.49%2.80% 2.41%
6.30%
14.15%
22.31%
16.41%
3.45%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2002 2003 2004 2005 2006 2007 2008
% By Original Balance (90+ Days Delinquent & Default, LTV < 80)
Qualified & LTV <=80 Non Qualified & LTV <=80
2.20 2.17
2.83
3.33 3.15
2.99
2.31
2.78
0.50
1.00
1.50
2.00
2.50
3.00
3.50
2002 2003 2004 2005 2006 2007 2008 Wtd. Avg
Ratio of Non Qualified to Qualified Loans by Original Balance (90+ Days Delinquent & Default, LTV <=80)
Summary of Results
� Below you will find the relative performance of Non-Qualified Loans to Qualified Loans with a LTV <=80.
� Qualified Loans outperformed Non-Qualified Loans by a ratio of almost 3:1.
=
‐Data Source: First American CoreLogic
‐
‐
Data Source: First American CoreLogic
7
7.65%6.02%
9.02%10.91%
14.22%12.33%
4.43%
10.03%8.69%
15.70%
24.70%
32.32%
27.06%
8.83%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2002 2003 2004 2005 2006 2007 2008
% By Original Balance (90+ Days Delinquent & Default, LTV >80)
Qualified & LTV > 80 w/MI Non Qualified & LTV >80
1.31 1.44
1.74
2.26 2.27 2.19
1.99 2.02
0.50
1.00
1.50
2.00
2.50
2002 2003 2004 2005 2006 2007 2008 Wtd. Avg
Ratio of Non Qualified to Qualified Loans by Original Balance (90+ Days Delinquent & Default, LTV>80)
Summary of Results
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Below you will find the relative performance of Non-Qualified Loans to Qualified Loans with a LTV >80.
Despite substantially higher Delinquencies and Defaults on Qualified Loans with a LTV >80, Non-Qualified Loans with a LTV >80 performed on average more than 2x worse.
‐Data Source: First American CoreLogic
‐
‐
Data Source: First American CoreLogic
8
About Vertical Capital Solutions
Vertical Capital Solutions
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Vertical Capital Solutions (“VCS”) provides independent valuation and advisory services across a wide array of fixed income assets; with specific focus on complex products in the loan, bond, derivative, and structured products markets.
The Company was established from an existing advisory platform in partnership with Vertical Capital, LLC, an SEC registered investment advisor and over $4 billion in assets under management.
The platform combines Vertical Capital’s market leading technology and analytics platform with a seasoned advisory team with significant experience in the valuation, risk management, and trading of complex loans and securities as well as their derivatives.
VCAP Solutions management team has held leadership roles at global banks, insurance companies, and asset management firms, with first hand experience in the risk management of loans and structured product portfolios.
Our value proposition is to bring granularity, transparency, and scalability in the pricing and risk analysis of complex products coupled with the market and risk management experience of our team.
9
Overview of VCS Services
Valuation
� Securities/derivatives pricing
� Independent price verification and reconciliation
� Impairment calculations and scenario analysis
Risk Assessment
� Portfolio and asset level risk analysis
� Deal structure and documentation
� Stress and sensitivity analysis
Strategic Advisory
� Asset disposition/acquisition/workout
� Portfolio structuring or restructuring alternatives
� Market strategy/product education
10
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2002 2003 2004 2005 2006 2007 2008
Losses By LTV Category By Origination Year
<=80 LTV >80 LTV >80 LTV w/MI
0.00
2.00
4.00
6.00
8.00
10.00
2002 2003 2004 2005 2006 2007 2008 Wtd Avg
Ratio of >80 LTV Losses To 80 LTV LossesGross and Net of MI Benefits
Gross NET
Appendix – Estimated Losses & MI Benefits
� We examined and estimated losses by LTV:
¾ LTV = 80%;
¾ LTV > 80% with MI; and
¾ LTV > 80% with no MI
� Losses for each vintage were calculated by taking the % of 90+Delinquent and Defaults multiplied by the Estimated Loss Severity (see next page)
� Loans with a LTV >80% and no MI had losses 6X higher than loans with a LTV >80% and MI
� When you factor in the benefits of MI, losses are reduced by weighted average of ~88%.
Source: Genworth Source: Genworth
11
Appendix - Loss Severity Calculations
12
Recovery Ratios Average 80 LTV 80 LTV WTD >80 Wtd >80 >80 LTV WTD MI WTD MI Cov >80 W MI By Origination Book MTG Rate Claim Loss Severity LTV Claim Loss Severity Cov % Benefit Net Loss Severity
2002 74.00% 6.70% 92.04 22.55% 94.92 109.20 37.1% 31.0% 33.8% 3.3% 2003 77.85% 5.90% 91.08 16.54% 95.38 108.59 32.2% 31.9% 34.6% 0.0% 2004 80.69% 6.00% 91.20 13.14% 95.78 109.19 29.8% 32.7% 35.7% 0.0% 2005 77.36% 6.10% 91.32 17.45% 95.77 109.32 33.4% 32.7% 35.8% 0.0% 2006 68.36% 6.60% 91.92 29.45% 96.17 110.49 43.8% 33.5% 37.0% 6.8% 2007 63.52% 6.50% 91.80 35.35% 96.32 110.53 48.8% 33.7% 37.3% 11.5% 2008 62.67% 6.20% 91.44 35.96% 95.00 108.59 48.3% 30.0% 32.6% 15.8%
1) Recovery Ratios defined as value of property at foreclosure divided by value at origination. Data Provided By Genworth Financial 2) Average Mortgage Coupon Rates taken from Freddy Mac . 3) Estimation Of Wtd >80 LTV taken from MICA claims paid by LTV.
Loss Severity Calculations
Data Sources:
Piggyback Study
Performance of Insured vs Piggyback Mortgage Loans
Genworth Financial August 2010
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�Study Concept Summary
Genworth is pleased to report a more thorough examination of the differences in insured loan versus piggy back loan performance.�
The Original study focused on 30+ delinquencies over four origination years with cuts by origination year, CLTV, and FICO, and two geographic cuts.�
The sub group combination differences were then weighted by the overall volume of both insured and piggy-back loans in each segment,�
and then rolled up to display the relative differences in performance given the specific segmentation. Overall that study suggested�
that piggy-back loans performed 55% worse than insured loans with similar characteristics.�
This revised study now focuses on ever 90+ delinquency rates and the cure rates on loans ever 90 days delinquent. The new study adds
an additional origination year, 2003, and more importantly, adds additional characteristic cuts such as document type, loan purpose, and expands
the geographic breaks to the nine US Census regions. The overall number of possible combination sets therefore increases nearly 20 fold�
going from 256 combination segments to 5,040 in this expanded study.�
This greater degree of detail should have the effect of removing the effects of differences in the distributions of insured loans relative to piggy-back loans.�Theoretically, increasing the degree of segmentation should move the overall weighted ratio of performance directionally from the 1.55 in the former study closer to 1.0.�
The new study also differs from the former in that the older study used the total volume of both the insured and piggy-back loans to weight�
the ratios of each identified segment. However, with a 20 fold increase in segmentation, and because piggy-back loans were smaller in volume than insured loans�
some segments had extremely low piggyback volumes where it it would be entirely possible for all or none of the loans to be delinquent.�Consequently, the use of total volume weights (piggyback plus insured) would distort the effects of differences in the distribution of piggy-back loans.
For instance, for the 2003 originations 100 CLTV loans accounted for 48.9% of both the insured and piggy back volume for 2003. However, Piggy-back loans with
100% CLTV were only 17.8% of the 2003 piggy volume. Using the total volume would over-weight CLTV 100 ratios, whereas using the piggy-back volume would
put the relative difference in 100 LTV performance in a more appropriate perspective.�
The other major component of this updated study is the inclusion of an analysis of the cure rates on loans ever 90 days delinquent.�
The study will show that even for segments where there is little difference in ever 90+ delinquency rates, MI insured loans�
exhibit significantly higher cure rates, thereby affecting the ultimate foreclosure rates on such segments. The expertise and willingness�
of MIs to work with delinquent insured borrowers plays a major role in reducing the real risk of default on high LTV loans.�
Study Composition �
Total Volumes Of Originations Piggy-Back Volume $260.6 billion Insured Volume $588.9 billion Total Volume $849.5 billion �
Numbers of Loans 1,045,328 3,872,318 4,917,646�
Expanded Study On Ever 90 Days Delinquent And Subsequent Cure Rates Original Study On 30+ Delinquency Rates
5 Origination Years 2003 - 2007 4 Origination Years 2004 - 2007
2 Documentation Types : Full Docs, Low or No Docs
2 Loan Purpose Categories: Purchase, Refinancing ( Other was excluded)
4 CLTV Ranges : 80.1 to 85, 85.1 to 90, 90.1 to 95, GT 95 4 CLTV Ranges : 80.1 to 85, 85.1 to 90, 90.1 to 95, GT 95
7 FICO Ranges : <620, 620-659, 660-699, 700-719, 720-739, 740-759, 760+ ( No FICOs were excluded) 8 FICO Score Ranges
9 US Census Regions 2 Market Segments : Distressed States FL,NV,CA,AZ,MI), All Others
Number of Combination Segments = 5x2x2x4x7x9 = 5,040 Number of Combination Segments = 4x4x8x2 = 256
19.7 Fold Increase In Segmentation
Genworth Financial 1 Company Confidential
Data And Methodology
Genworth utilized the servicing data set of Corelogic which has collected highly detailed loan level loan perfromance information from several large major servicing companies.
Piggyback loans are identified as first lien loans with an LTV of 80% and a CLTV greater than 80%. Insured loans are identified by the coding of an insurance provider, whether it
be a private mortgage insurer or FHA or VA. Our study focused on loans with CLTV greater than 80%, originated from 2003 through 2007. The sample selected totals 4,917,646
loans of which 3,872,318 are insured high LTV loans, and 1,045,328 are first lien structured or piggyback loans. The overall volume totaled $0.85 trillion.
The previous study focused on loans that were currently deliquent 30+ days and loans that had terminated in default. This study takes the analysis much farther. This study
reviewed the monthly status of all 4.9 million loans in the sample to see which loans were ever 90 days delinquent, and then follows the monthly status reports until the loan
either cures or goes to foreclosure. Consequently, this study evaluates both the performance of the loans and also permits a review of actual cures of previous delinquencies
that ultimately resulted in current status for loans still outstanding or successful payoff .
The delinquency rate for the piggyback loans is somewhat understated in that the data set only captures the delinquency rates on first liens. There are likely loans where the
1st lien is still current, but the 2nd lien is delinquent. If these delinquencies were added to the piggyback data, their delincency rate would be even higher than shown and the
differential to Insured loans would be even larger.
Genworth Financial 2 Company Confidential
.
�
�
5.4%
8.8%
16.0%
22.0%
27.6%
18.9%
7.5%
14.2%
25.6%
35.1%
31.2%
27.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2003 2004 2005 2006 2007 2003 2007
Insured Piggyback
1.39
1.61 1.60 1.60
1.13
1.47
0.00
0.50
1.00
1.50
2.00
2003 2004 2005 2006 2007 2003 2007
5.4%
8.8%
16.0%
22.0%
27.6%
18.9%
7.5%
14.2%
25.6%
35.1%
31.2%
27.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2003 2004 2005 2006 2007 2003 2007
Insured Piggyback
1.39
1.61 1.60 1.60
1.13
1.47
0.00
0.50
1.00
1.50
2.00
2003 2004 2005 2006 2007 2003 2007
38.1%
29.4%
21.9%
18.2%16.7%
19.7%
33.6%
20.8%
13.3%11.8% 11.3%
12.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2003 2004 2005 2006 2007 2003 2007
Insured Piggyback
1.13
1.41
1.641.55
1.481.54
0.00
0.50
1.00
1.50
2.00
2003 2004 2005 2006 2007 2003 2007
Ever 90 Day Delinquency Rates By Origination Year Weighted Ratios Of Piggyback Delq Rates To Insured Delq Rates Weighting Segments By Piggyback Profile Piggyback ETD 90 Rate / Insured ETD 90 Rate
--
--
Cure Rates On Ever 90 Day Delinquencies By Origination Year Weighted Ratios Of Insured Cure Rates To Piggybacks Weighting Segments By Piggyback Profile Insured Cure Rate / Piggyback Cure Rate
45% 2 00
--
Insured Loans Performed 47% Better than Piggyback Loans�
Once Delinquent 90 Days Or More, Insured Loans Exhibited Cure Rates Nearly 54% Higher Than First Lien Piggybacks�
Genworth FinancialGenworth Financial 33 Company ConfidentialCompany Confidential
3.3%
4.9%
8.3%
11.9% 11.9%
9.4%
3.8%
8.2%
16.3%
20.5%
14.8%15.7%
0%
5%
10%
15%
20%
25%
2003 2004 2005 2006 2007 2003 2007
Insured Piggyback
1.24
1.64
1.961.80
1.24
1.65
0.00
0.50
1.00
1.50
2.00
2003 2004 2005 2006 2007 2003 2007
Current 90+ Day Delinquency Rates By Origination Year Weighted Ratios Of Piggyback Delq Rates To Insured Delq Rates Weighting Segments By Piggyback Profile Piggyback Current 90+ Rate / Insured Current 90+ Rate
--
Lower Ever 90 Delqs Combined with More Cures Result in Insured Loans Having 65% Less Defaults (90+ & F/C)Lower Ever 90 Delqs Combined with More Cures Result in Insured Loans Having 65% Less Defaults (90+ & F/C)
Genworth FinancialGenworth Financial 44 Company ConfidentialCompany Confidential
2.01
��
17.8%
21.9%
19.1%
15.9%
18.9%
27.4% 28.1%
20.2%
33.7%
27.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
85 CLTV 90 CLTV 95 CLTV 100 CLTV All
Insured Piggyback
1.53
1.28
1.06
2.12
1.47
0.00
0.50
1.00
1.50
2.00
85 CLTV 90 CLTV 95 CLTV 100 CLTV All
17.8%
21.9%
19.1%
15.9%
18.9%
27.4% 28.1%
20.2%
33.7%
27.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
85 CLTV 90 CLTV 95 CLTV 100 CLTV All
Insured Piggyback
1.53
1.28
1.06
2.12
1.47
0.00
0.50
1.00
1.50
2.00
85 CLTV 90 CLTV 95 CLTV 100 CLTV All
18.9%
16.3%
20.1%
23.9%
19.7%
15.0%
12.6%
14.5%
11.9%12.8%
0%
5%
10%
15%
20%
25%
30%
85 CLTV 90 CLTV 95 CLTV 100 CLTV All
Insured Piggyback
1.26 1.301.39
2.01
1.54
0.00
0.50
1.00
1.50
2.00
85 CLTV 90 CLTV 95 CLTV 100 CLTV All
Ever 90 Day+ Delinquency Rates By CLTV Weighted Ratios Of Piggyback Delq Rates To Insured Delq RatesWeighting Segments By Piggyback Profile Piggyback ETD 90 Rate / Insured ETD 90 Rate
�
Cure Rates On Ever 90 Day Delinquencies By CLTV Weighted Ratios Of Insured Cure Rates To Piggybacks Weighting Segments By Piggyback Profile Insured Cure Rate / Piggyback Cure Rate
30%
Piggyback 90+ Delinquency Rates Were Significantly Higher For All CLTV Ranges Except For 95 CLTV�
Nevertheless, For ALL CLTV Ranges, Including 95 CLTV, Insured Loans Had Significantly Higher Cure Rates�
Genworth FinancialGenworth Financial 55 Company ConfidentialCompany Confidential
35% 1.61 1.60
�
�28.1%
29.1%
25.5%
21.7%
17.6%
14.8%
9.9%
18.9%
45.8%44.0%
36.6%
31.5%
26.9%
21.6%
14.4%
27.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
<620 620
659
660
699
700
719
720
739
740
759
760
950
All
Insured Piggyback
1.631.51
1.44 1.451.53
1.47 1.46 1.47
0.00
0.50
1.00
1.50
2.00
<620 620
659
660
699
700
719
720
739
740
759
760
950
All
34.4%
40% 2.00
28.1%29.1%
25.5%
21.7%
17.6%
14.8%
9.9%
18.9%
45.8%44.0%
36.6%
31.5%
26.9%
21.6%
14.4%
27.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
<620 620
659
660
699
700
719
720
739
740
759
760
950
All
Insured Piggyback
1.631.51
1.44 1.451.53
1.47 1.46 1.47
0.00
0.50
1.00
1.50
2.00
<620 620
659
660
699
700
719
720
739
740
759
760
950
All
34.4%
27.6%
22.0%
18.0%17.1%
16.2%
13.4%
19.7%
25.6%
18.8%
14.2%
11.8%10.7% 10.1%
9.1%
12.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
<620 620
659
660
699
700
719
720
739
740
759
760
950
All
Insured Piggyback
1.351.47
1.54 1.531.61 1.60
1.471.54
0.00
0.50
1.00
1.50
2.00
<620 620
659
660
699
700
719
720
739
740
759
760
950
All
Ever 90+ Delinquency Rates By FICO Score Weighted Ratios Of Piggyback Delq Rates To Insured Delq RatesWeighting Segments By Piggyback Profile Piggyback ETD 90 Rate / Insured ETD 90 Rate
�
- - - - - - - - - - - -- - - - - - - - - - - -
Cure Rates On Ever 90 Day Delquencies BY FICO Range Weighted Ratios Of Insured Cure Rates To Piggybacks Weighting Segments By Piggyback Profile Insured Cure Rate / Piggyback Cure Rate
- - - - - - - - - - - -
Piggyback Performance Decidely Worse in Virtually All FICO Ranges�
Cure Rates On Insured Loans Solidly Higher By 35% or More Depending On the FICO Range�
Genworth FinancialGenworth Financial 66 Company ConfidentialCompany Confidential
.
11.4%
15.8%
19.5%
29.7%
18.9%
14.8%
28.1%29.6%
41.8%
27.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Full / Purchase Full / Refinance Low / Purchase Low /
Refinance
All
Insured Piggyback
1.29
1.78
1.521.41
1.47
0.00
0.50
1.00
1.50
2.00
Full / Purchase Full / Refinance Low / Purchase Low / Refinance All
11.4%
15.8%
19.5%
29.7%
18.9%
14.8%
28.1%29.6%
41.8%
27.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Full / Purchase Full / Refinance Low / Purchase Low /
Refinance
All
Insured Piggyback
1.29
1.78
1.521.41
1.47
0.00
0.50
1.00
1.50
2.00
Full / Purchase Full / Refinance Low / Purchase Low / Refinance All
21.7%
24.6%
18.9% 18.4%19.7%
14.7%15.9%
11.6%13.4% 12.8%
0%
5%
10%
15%
20%
25%
30%
Full / Purchase Full / Refinance Low / Purchase Low /
Refinance
All
Insured Piggyback
1.481.54
1.63
1.37
1.54
0.00
0.50
1.00
1.50
2.00
Full / Purchase Full / Refinance Low / Purchase Low / Refinance All
Ever 90+ Delinquency Rates By Doc Type/Loan Purpose Weighted Ratios Of Piggyback Delq Rates To Insured Delq Rates� Weighting Segments By Piggyback Profile Piggyback ETD 90 Rate / Insured ETD 90 Rate
Cure Rates On Ever 90 Day Delqs By Doc Type/Loan Purpose Weighted Ratios Of Insured Cure Rates To Piggybacks Weighting Segments By Piggyback Profile Insured Cure Rate / Piggyback Cure Rate
30% 2 00
Evaluation by Documenation & Loan Purpose Shows Insured Loans Clearly Outperform Piggybacks In Each of Segment Roll Ups �
Insured Loan Cure Rates Were Substantially Higher in All Of These Roll -Up Combinations
Genworth FinancialGenworth Financial 77
�
Company ConfidentialCompany Confidential
. 1.42
�
�
Ever 90 Day Delinquent Rates By US Census Region Weighted Ratios Of Piggyback Delq Rates To Insured Delq Rates Weighting Segments By Piggyback Profile Piggyback ETD 90 Rate / Insured ETD 90 Rate
4455%% 22..0000 11..8833
4400%% 11..5566
11..4488 11..44773355%% 11..3377
3300%%
11..5500 11..2211
11..009911..0044 11..000000..99772255%% 11..0000
2200%%
1155%% 00..5500
1100%%
55%%
00%% 00..0000
IInnssuurreedd PPiiggggyybbaacckk
Cure Rates On Ever 90 Day Delqs By US Census Region Weighted Ratios Of Insured Cure Rates To Piggybacks Weighting Segments By Piggyback Profile Insured Cure Rate / Piggyback Cure Rate
4400%% 22..0000
3355%% 11..5599 11..6600 11..5544
30% 1.50 1.34 1.39 1.36 1 451.45 1.42
1.25 1.25 25%
20% 1.00
15%
10% 0.50
5%
0% 0.00
Insured Piggyback
While Ever 90 Delinquent Performance Differences Were Not Uniform Across All Regions,
Such Differences Were Highest In Worse Performing Regions�
Cure Rates On Insured Loans Remained Significantly Higher Across All US Census Regions�
Genworth FinancialGenworth Financial 88 Company ConfidentialCompany Confidential
10%
�
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 0 0 0
Insured
Piggy
40%
50%
60%
70%
80%
90%
100%
Insured
Piggyback
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 0 0 0
Insured
PiggyBack
40%45%50%55%60%65%70%75%80%85%90%95%
100%
Insured
Piggyback
0%
10%
20%
30%
40%
50%
85 90 95 >95
Insured
Piggy
10%
15%
20%
25%
0%
10%
20%
30%
40%
50%
60%
Purchase/FULL Refinance/FULL Purchase/LOW Refinance/LOW
Insured PiggyBack
15%
20%
25%
30%
35%
40%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 0 0 0
Insured
Piggy
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 0 0 0 0 0 0
Insured
Piggyback
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 0 0 0
Insured
PiggyBack
10%
0%
10%
20%
30%
40%
50%
60%
0 0 0 0 0
85 LTV
90 LTV
95 LTV
>95 LTV
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 0 0 0 0
CLTV 85
CLTV 90
CLTV 95
CLTV 100
0%5%
10%15%20%25%30%35%40%45%50%55%60%65%70%75%80%85%90%95%
100%
0 0 0 0 0 0 0 0 0
Insured
Piggyback
0%
10%
20%
30%
40%
50%
85 90 95 >95
Insured
Piggy
0%
5%
10%
15%
20%
25%
<620 620
659
660
699
700
719
720
739
740
759
760
950Insured Piggyback
0%
10%
20%
30%
40%
50%
60%
Purchase/FULL Refinance/FULL Purchase/LOW Refinance/LOW
Insured PiggyBack
10%
0%
10%
20%
30%
40%
50%
60%
2003 2004 2005 2006 2007
85 LTV
90 LTV
95 LTV
>95 LTV
0%
10%
20%
30%
40%
50%
60%
2003 2004 2005 2006 2007
CLTV 85
CLTV 90
CLTV 95
CLTV 100
0%
5%
10%
15%
20%
25%
30%
35%
40%
Insured Piggyback
Appendix - Differences In Distributions Across Key Metrics�
Distribution By CLTV Distributions BY Loan Purpose & Doc Type
PiggyBacks Had Proportionately More 90 CLTV And Less 85 CLTV PiggyBacks Had A Higher Percentage Of Purchase Loans ( 74.9% vs 67.9% for Insured)
Insured Had Proportionately More >95 CLTV But Also A Higher Percentage Of Low or NO Documentation (66.7% Vs 28.6% for Insured)
Distributions By FICO Range Distributions By US Census Region
35%
- - - - - -
Piggyback Loans Had Higher Average FICO Scores Piggybacks Highly Concentrated In Pacific Region
Insured Loan Distributions By CLTV BY Origination Year Piggyback Loan Distributions By CLTV By Origination Year
--
Insured Loans Maintained Relatively Higher Risk Profile Throughout
Pricing For Risk By LTV Range Remained Constant
Piggybacks In Earlier Years Had Lower Risk CLTV Profile
Increasingly Riskier Profile Through 2007
Genworth FinancialGenworth Financial 99 Company ConfidentialCompany Confidential
Qualified Insured Loan Performance
NON-PERFORMING RATES*
“Qualified” Insured Loans Have Performed Well Through the Downturn
* Non-Performing Rate: (# Loans Currently 90 or more days delinquent + loans that terminated in default ) / original number of loans
10
Company Confidential©2009 Genworth Financial, Inc. All rights reserved.
Risk Retention and Qualified Residential Mortgage
Securities and Exchange Commission
March 16, 2011
©2011 Genworth Financial, Inc. All rights reserved. Company Confidential
Risk Retention and Qualified Residential Mortgage Dodd-Frank Wall Street Reform and Consumer Protection Act Creates New
Obligation for Securitizers to Retain Interest in Securitized Assets
Bill Directs Regulators to Exempt Qualified Residential Mortgages (QRM)
Regulators Must Define a QRM Taking into Consideration Underwriting and Product Features That Result in a Lower Risk of Default Such as:
• Documented and verified financial resources • Standards for: a) residual income after meeting all obligations; b) ratio of housing
payment to income; c) ratio of all installment payments to income • Standards and features that mitigate the payment shock of ARMs • Mortgage guaranty insurance (or other insurance or credit enhancement) obtained at the
time of origination to the extent such insurance/credit enhancement reduces the risk of default.
• Prohibitions/restrictions on balloon payments, negative amortization, prepay penalties, interest only & other similar high risk features
Data Clearly Demonstrates: • A Qualified Mortgage standard mitigates the risk of default • On low down payment loans, Insured Loans have a lower risk of default
than comparable Piggyback (uninsured) Loans
Qualified Mortgage Study
Historical Performance of Qualified vs Non-Qualified
Mortgage Loans February 2010
Confidentiality Agreement / Legal Disclaimer
This presentation (the “Presentation”) is being furnished for informational and discussion purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any security. The information set forth herein does not purport to be complete and is subject to change.
The information contained herein does not purport to contain all of the information that may be required to evaluate any securities or other opportunities and any recipient hereof is encouraged and should conduct its own independent analysis of the data referred to herein. Vertical Capital Solutions, LLC (“VCS”) and its affiliates disclaim any and all liability as to the information set forth herein or omissions here from, including, without limitation any express or implied representation or warranty with respect to such information.
Certain information contained herein (including targets, forward-looking statements, economic and market information) has been obtained from published sources and/or prepared by third parties and in certain cases has not been updated through the date hereof. While such sources are believed to be reliable, none of VCS or any of their respective affiliates or employees assume any responsibility for the accuracy or completeness of such information.
Each party should seek advice based on its particular circumstances from an independent tax advisor. The use of this Presentation in certain jurisdictions may be restricted by law. The products mentioned in this document may not be eligible for sale in some states or countries, nor suitable for all types of investors; their value and the income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates, or other factors. All parties should inform themselves as to the legal requirements and tax consequences of an investment in the products mentioned herein within the countries of their citizenship, residence, domicile and place of business.
Information in this document has been obtained from various sources; we do not represent that this information is accurate or complete and it should not be relied upon as such. Opinions expressed herein are subject to change without notice.
Certain information contained in this report constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “seek,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance may differ materially from those reflected or contemplated in such forward-looking statements.
To ensure compliance with Internal Revenue Service Circular 230, you are hereby notified that any discussion of tax matters set forth herein was not intended or written to be used, and cannot be used by any party, for the purposes of avoiding penalties that may be imposed.
2
Scope of Project
� Vertical Capital Solutions (“VCS”) working in conjunction with First American Core Logic (“FACL”), performed an unbiased comparison of performance statistics between two populations of conventional loans (Qualified and Non-Qualified).
� The comparison segregated the loans by origination year, Loan-To-Value (“LTV”), and presence of Mortgage Insurance (“MI”) as a way to further examine the findings.
� In addition, the data was segregated by the 25 Metropolitan Statistical Areas (MSA's) with the largest number of originations between 2002 and 2008.
� The criteria used for the determination of the Qualified pool is outlined below (the “Qualified Criteria”):
¾ Debt-To-Income <= 41%;
¾ 7/1 ARM's & Greater or Fixed Rate;
¾ Term <= 360 months;
¾ No Balloon;
¾ No Interest Only;
¾ No Negative Amortization;
¾ Full Documentation; and
¾ If the Loans had a LTV >80% it must carry MI
3
Methodology
� Developed performance statistics by vintage, LTV, MI and the Top 25 MSA’s by utilizing FACL’s Servicing Database (the “Servicing Database”).
� The performance statistics were complied as of 11/30/2009.
� The overall population consists of 37 million conventional loans originated between 2002 and 2008 (the “Loan Population”)
� The Loan Population was then defined into two categories Qualified and Non-Qualified
� The Qualified Criteria was chosen to most closely match the criteria provided with the data available inthe Servicing Database (the “Qualified Pool”).
� The non-qualified population consists of loans where all necessary data points are present, but one or more of the Qualified Criteria were not met (the “Non-Qualified Pool”).
� The remaining population (the “Qualification Unknown Pool”), not reported, consists of loans where the necessary data points were not all present and therefore qualification could not be determined.
� The Servicing Database does not report the liquidation type. However, the loan status at the time of liquidation is tracked.
� Non-performing loans were any loans currently 90+ days delinquent or had defaulted at the time of liquidation.
4
1.80% 1.42%2.95%
5.05%
8.18%7.07%
1.99%
4.68%3.70%
8.48%
16.41%
24.68%
19.83%
5.64%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2002 2003 2004 2005 2006 2007 2008
% By Original Balance (90+ Days Delinquent & Default)
Qualified Non Qualified
2.61 2.60
2.88
3.25 3.02
2.81 2.84 2.88
0.50
1.00
1.50
2.00
2.50
3.00
3.50
2002 2003 2004 2005 2006 2007 2008 Wtd. Avg
Ratio of Non Qualified to Qualified Loans by Original Balance (90+ Days Delinquent & Default)
Summary of Results
� 4.7 million of the Loan Population made up the Qualified Pool.
� 15.4 million of the Loan Population made up the Non-Qualified Loan Pool.
� The Qualified Pool has performed considerably better than the Non-Qualified population measured by
loans that were 90+days delinquent or defaulted. This holds true across the range of vintages examined.
� The Qualified Pool also outperformed the Non-Qualified in each of the Top 25 MSA’s.
‐Data Source: First American CoreLogic
‐
‐
Data Source: First American CoreLogic
Qualified Mortgages Outperformed Non-Qualified Mortgages by Almost 3:1
5
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Non‐Qualified to Qualified Performance Ratio2002‐2008 Vintage
Summary of Results
� We examined Non-Qualified to Qualified Performance Ratios by the Top 25 MSA’s.
� Non-Qualified Loans performed at least 2x worse in 24 of the 25 largest MSAs.
National Wtd.Avg: 2.88
Data Source: First American CoreLogic
6
1.27% 1.11%2.23%
4.25%
7.07%5.48%
1.49%2.80% 2.41%
6.30%
14.15%
22.31%
16.41%
3.45%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2002 2003 2004 2005 2006 2007 2008
% By Original Balance (90+ Days Delinquent & Default, LTV < 80)
Qualified & LTV <=80 Non Qualified & LTV <=80
2.20 2.17
2.83
3.33 3.15
2.99
2.31
2.78
0.50
1.00
1.50
2.00
2.50
3.00
3.50
2002 2003 2004 2005 2006 2007 2008 Wtd. Avg
Ratio of Non Qualified to Qualified Loans by Original Balance (90+ Days Delinquent & Default, LTV <=80)
Summary of Results
� Below you will find the relative performance of Non-Qualified Loans to Qualified Loans with a LTV <=80.
� Qualified Loans outperformed Non-Qualified Loans by a ratio of almost 3:1.
=
‐Data Source: First American CoreLogic
‐
‐
Data Source: First American CoreLogic
7
7.65%6.02%
9.02%10.91%
14.22%12.33%
4.43%
10.03%8.69%
15.70%
24.70%
32.32%
27.06%
8.83%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2002 2003 2004 2005 2006 2007 2008
% By Original Balance (90+ Days Delinquent & Default, LTV >80)
Qualified & LTV > 80 w/MI Non Qualified & LTV >80
1.31 1.44
1.74
2.26 2.27 2.19
1.99 2.02
0.50
1.00
1.50
2.00
2.50
2002 2003 2004 2005 2006 2007 2008 Wtd. Avg
Ratio of Non Qualified to Qualified Loans by Original Balance (90+ Days Delinquent & Default, LTV>80)
Summary of Results
� Below you will find the relative performance of Non-Qualified Loans to Qualified Loans with a LTV >80.
� Despite substantially higher Delinquencies and Defaults on Qualified Loans with a LTV >80, Non-Qualified Loans with a LTV >80 performed on average more than 2x worse.
‐Data Source: First American CoreLogic
‐
‐
Data Source: First American CoreLogic
8
About Vertical Capital Solutions
Vertical Capital Solutions
� Vertical Capital Solutions (“VCS”) provides independent valuation and advisory services across a wide array of fixed income assets; with specific focus on complex products in the loan, bond, derivative, and structured products markets.
� The Company was established from an existing advisory platform in partnership with Vertical Capital, LLC, an SEC registered investment advisor and over $4 billion in assets under management.
� The platform combines Vertical Capital’s market leading technology and analytics platform with a seasoned advisory team with significant experience in the valuation, risk management, and trading of complex loans and securities as well as their derivatives.
� VCAP Solutions management team has held leadership roles at global banks, insurance companies, and asset management firms, with first hand experience in the risk management of loans and structured product portfolios.
� Our value proposition is to bring granularity, transparency, and scalability in the pricing and risk analysis of complex products coupled with the market and risk management experience of our team.
9
Overview of VCS Services
Valuation
� Securities/derivatives pricing
� Independent price verification and reconciliation
� Impairment calculations and scenario analysis
Risk Assessment
� Portfolio and asset level risk analysis
� Deal structure and documentation
� Stress and sensitivity analysis
Strategic Advisory
� Asset disposition/acquisition/workout
� Portfolio structuring or restructuring alternatives
� Market strategy/product education
10
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2002 2003 2004 2005 2006 2007 2008
Losses By LTV Category By Origination Year
<=80 LTV >80 LTV >80 LTV w/MI
0.00
2.00
4.00
6.00
8.00
10.00
2002 2003 2004 2005 2006 2007 2008 Wtd Avg
Ratio of >80 LTV Losses To 80 LTV LossesGross and Net of MI Benefits
Gross NET
Appendix – Estimated Losses & MI Benefits
� We examined and estimated losses by LTV:
¾ LTV = 80%;
¾ LTV > 80% with MI; and
¾ LTV > 80% with no MI
� Losses for each vintage were calculated by taking the % of 90+Delinquent and Defaults multiplied by the Estimated Loss Severity (see next page)
� Loans with a LTV >80% and no MI had losses 6X higher than loans with a LTV >80% and MI
� When you factor in the benefits of MI, losses are reduced by weighted average of ~88%.
Source: Genworth Source: Genworth
11
Appendix - Loss Severity Calculations
12
Recovery Ratios Average 80 LTV 80 LTV WTD >80 Wtd >80 >80 LTV WTD MI WTD MI Cov >80 W MI By Origination Book MTG Rate Claim Loss Severity LTV Claim Loss Severity Cov % Benefit Net Loss Severity
2002 74.00% 6.70% 92.04 22.55% 94.92 109.20 37.1% 31.0% 33.8% 3.3% 2003 77.85% 5.90% 91.08 16.54% 95.38 108.59 32.2% 31.9% 34.6% 0.0% 2004 80.69% 6.00% 91.20 13.14% 95.78 109.19 29.8% 32.7% 35.7% 0.0% 2005 77.36% 6.10% 91.32 17.45% 95.77 109.32 33.4% 32.7% 35.8% 0.0% 2006 68.36% 6.60% 91.92 29.45% 96.17 110.49 43.8% 33.5% 37.0% 6.8% 2007 63.52% 6.50% 91.80 35.35% 96.32 110.53 48.8% 33.7% 37.3% 11.5% 2008 62.67% 6.20% 91.44 35.96% 95.00 108.59 48.3% 30.0% 32.6% 15.8%
1) Recovery Ratios defined as value of property at foreclosure divided by value at origination. Data Provided By Genworth Financial 2) Average Mortgage Coupon Rates taken from Freddy Mac . 3) Estimation Of Wtd >80 LTV taken from MICA claims paid by LTV.
Loss Severity Calculations
Data Sources:
Insured Loan Study
Performance of Insured vs Piggyback Mortgage Loans
Genworth Financial August 2010
Study Concept Summary
Genworth is pleased to report a more thorough examination of the differences in insured loan versus piggy back loan performance. The Original study focused on 30+ delinquencies over four origination years with cuts by origination year, CLTV, and FICO, and two geographic cuts. The sub group combination differences were then weighted by the overall volume of both insured and piggy-back loans in each segment, and then rolled up to display the relative differences in performance given the specific segmentation. Overall that study suggested that piggy-back loans performed 55% worse than insured loans with similar characteristics.
This revised study now focuses on ever 90+ delinquency rates and the cure rates on loans ever 90 days delinquent. The new study adds an additional origination year, 2003, and more importantly, adds additional characteristic cuts such as document type, loan purpose, and expands the geographic breaks to the nine US Census regions. The overall number of possible combination sets therefore increases nearly 20 fold going from 256 combination segments to 5,040 in this expanded study. Controlling for the differences in distribution across so many segments removes the effects these differences inhave on performance of insured loans relative to piggy-back loans. Increasing the degree of segmentation and controlling for it, removes the distortion from those factors and isolates the impact of mortgage insurance.
The new study also differs from the former in that the older study used the total volume of both the insured and piggy-back loans to weight the ratios of each identified segment. However, with a 20 fold increase in segmentation, and because piggy-back loans were smaller in volume than insured loans some segments had extremely low piggyback volumes where it it would be entirely possible for all or none of the loans to be delinquent. Consequently, the use of total volume weights (piggyback plus insured) would distort the effects of differences in the distribution of piggy-back loans. For instance, for the 2003 originations 100 CLTV loansaccounted for 48.9% of both the insured and piggy back volume for 2003. However, Piggy-back loans with 100% CLTV were only 17.8% of the 2003 piggy volume. Using the total volume would over-weight CLTV 100 ratios, whereas using the piggy-back volume would put the relative difference in 100 LTV performance in a more appropriate perspective.
The other major component of this updated study is the inclusion of an analysis of the cure rates on loans ever 90 days delinquent. The study will show that even for segments where there is little difference in ever 90+ delinquency rates, MI insured loans exhibit significantly higher cure rates, thereby affecting the ultimate foreclosure rates on such segments. The expertise and willingness of MIs to work with delinquent insured borrowers plays a major role in reducing the real risk of default on high LTV loans.
Study Composition
Total Volumes Of Originations Numbers of Loans
Piggy-Back Volume $260.6 billion 1,080,166
Insured Volume $589.3 billion 6,331,087
Total Volume $849.9 billion 7,411,253
Expanded Study On Ever 90 Days Delinquent And Subsequent Cure Rates Original Study On 30+ Delinquency Rates
5 Origination Years 2003 - 2007 4 Origination Years 2004 - 2007 2 Documentation Types : Full Docs, Low or No Docs 2 Loan Purpose Categories: Purchase, Refinancing (Other was excluded) 4 CLTV Ranges : 80.1 to 85, 85.1 to 90, 90.1 to 95, GT 95 4 CLTV Ranges : 80.1 to 85, 85.1 to 90, 90.1 to 95, GT 95 7 FICO Ranges : <620, 620-659, 660-699, 700-719, 720-739, 740-759, 760+ ( No FICOs were excluded) 8 FICO Score Ranges 9 US Census Regions 2 Market Segments : Distressed States FL,NV,CA,AZ,MI), All Others
Number of Combination Segments Controlled for = 5x2x2x4x7x9 = 5,040 Number of Combination Segments = 4x4x8x2 = 256
19.7 Fold Increase In Segmentation 14
Data And Methodology
Genworth utilized the servicing data set of Corelogic which has collected highly detailed loan level loan perfromance information from several large major servicing companies. Piggyback loans are identified as first lien loans with an LTV of 80% and a CLTV greater than 80%. Insured loans are identified by the coding of an insurance provider, whether it be a private mortgage insurer or FHA or VA. Our study focused on loans with CLTV greater than 80%, originated from 2003 through 2007. The sample selected totals 4,917,646 loans of which 3,872,318 are insured high LTV loans, and 1,045,328 are first lien structured or piggyback loans. The overall volume totaled $0.85 trillion.
The previous study focused on loans that were currently deliquent 30+ days and loans that had terminated in default. This study takes the analysis much farther. This study reviewed the monthly status of all 4.9 million loans in the sample to see which loans were ever 90 days delinquent, and then follows the monthly status reports until the loan either cures or goes to foreclosure. Consequently, this study evaluates both the performance of the loans and also permits a review of actual cures of previous delinquencies that ultimately resulted in current status for loans still outstanding or successful payoff .
The delinquency rate for the piggyback loans is somewhat understated in that the data set only captures the delinquency rates on first liens. There are likely loans where the 1st lien is still current, but the 2nd lien is delinquent. If these delinquencies were added to the piggyback data, their delincency rate would be even higher than shown and the differential to Insured loans would be even larger.
15
Ever 90 Day Delinquency Rates By Origination Year Weighted Ratios Of Piggyback Delq Rates To Insured Delq Rates Weighting Segments By Piggyback Profile Piggyback ETD 90 Rate / Insured ETD 90 Rate
40%
35%
30%
25%
20%
15%
10%
5%
0%
5.4% 7.5%
8.8%
14.2% 16.0%
25.6%
22.0%
35.1%
27.6%
31.2%
18.9%
27.8%
2.00
1.50
1.00
0.50
0.00
1.39
1.61 1.60 1.60
1.13
1.47
2003 2004 2005 2006 2007 2003-2007 2003 2004 2005 2006 2007 2003-2007
Insured Piggyback Data Source: CoreLogic Data Source: CoreLogic
Cure Rates On Ever 90 Day Delinquencies By Origination Year Weighted Ratios Of Insured Cure Rates To Piggybacks Weighting Segments By Piggyback Profile Insured Cure Rate % / Piggyback Cure Rate %
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
38.1%
33.6%
29.4%
20.8% 21.9%
13.3%
18.2%
11.8%
16.7%
11.3%
19.7%
12.8%
2.00
1.50
1.00
0.50
0.00
1.13
1.41
1.64 1.55 1.48 1.54
2003 2004 2005 2006 2007 2003-2007 2003 2004 2005 2006 2007 2003-2007
Insured Piggyback Data Source: CoreLogic Data Source: CoreLogic
Insured Loans Performed 47% Better than Piggyback Loans
Once Delinquent 90 Days Or More, Insured Loans Exhibited Cure Rates 54% Higher Than Piggybacks 16
Non-Performing Rates By Origination Year Ratios Of Piggyback Non-Performing Rates To Insured (Currently 90+ Days Delinquent & Defaults) Piggyback Non-Performing Rate / Insured Non-Performing Rate
3.3% 3.8% 4.9%
8.2% 8.3%
16.3%
11.9%
20.5%
11.9%
14.8%
9.4%
15.7%
1.96 25% 2.00
20% 1.50
15%
10% 1.00
5% 0.50
0% 0.00
1.24
1.64 1.80
1.24
1.65
2003 2004 2005 2006 2007 2003-2007 2003 2004 2005 2006 2007 2003-2007
Insured Piggyback Data Source: CoreLogic Data Source: CoreLogic
Lower Ever 90 Delqs Combined with More Cures Result in Insured Loans Having 65% Less Defaults (90+ & F/C)
17
Ever 90 Day+ Delinquency Rates By CLTV Weighted Ratios Of Piggyback Delq Rates To Insured Delq Rates Weighting Segments By Piggyback Profile Piggyback ETD 90 Rate / Insured ETD 90 Rate
40%
35%
30%
25%
20%
15%
10%
5%
0%
17.8%
27.4%
21.9%
28.1%
19.1% 20.2%
15.9%
33.7%
18.9%
27.8%
2.12
1.53
1.28
1.06
1.47
2.00
1.50
1.00
0.50
0.00 85 CLTV 90 CLTV 95 CLTV 100 CLTV All
85 CLTV 90 CLTV 95 CLTV 100 CLTV All Insured Piggyback Data Source: CoreLogic Data Source: CoreLogic
Cure Rates On Ever 90 Day Delinquencies By CLTV Weighted Ratios Of Insured Cure Rates To Piggybacks Weighting Segments By Piggyback Profile Insured Cure Rate / Piggyback Cure Rate
2.01 30%
25%
20%
15%
10%
5%
0%
18.9%
15.0% 16.3%
12.6%
20.1%
14.5%
23.9%
11.9%
19.7%
12.8%
2.00
1.50
1.00
0.50
0.00
1.26 1.30 1.39
1.54
85 CLTV 90 CLTV 95 CLTV 100 CLTV All 85 CLTV 90 CLTV 95 CLTV 100 CLTV All
Insured Piggyback Data Source: CoreLogic Data Source: CoreLogic
Piggyback 90+ Delinquency Rates Were Significantly Higher For All CLTV Ranges Except For 95 CLTV
Nevertheless, For ALL CLTV Ranges, Including 95 CLTV, Insured Loans Had Significantly Higher Cure Rates 18
Ever 90+ Delinquency Rates By FICO Score Weighted Ratios Of Piggyback Delq Rates To Insured Delq Rates Weighting Segments By Piggyback Profile Piggyback ETD 90 Rate / Insured ETD 90 Rate
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
45.8% 44.0%
36.6%
28.1% 29.1% 31.5%
27.8% 25.5%
26.9%
21.7%
17.6%
21.6% 18.9%
14.8% 14.4%
9.9%
2.00
1.50
1.00
0.50
0.00
1.63 1.51
1.44 1.45 1.53 1.47 1.46 1.47
<620 620 - 660 - 700 - 720 - 740 - 760 - All 659 699 719 739 759 950
Insured Piggyback Data Source: CoreLogic
Cure Rates On Ever 90 Day Delquencies BY FICO Range Weighting Segments By Piggyback Profile
<620 620 - 660 - 700 - 720 - 740 - 760 - All 659 699 719 739 759 950
Data Source: CoreLogic
Weighted Ratios Of Insured Cure Rates To Piggybacks Insured Cure Rate / Piggyback Cure Rate
40%
35%
30%
25%
20%
15%
10%
5%
0%
34.4%
27.6% 25.6%
18.8%
22.0%
18.0% 19.7%
14.2%
17.1% 16.2%
13.4% 12.8% 11.8%
10.7% 10.1% 9.1%
2.00
1.50
1.00
0.50
0.00
1.47 1.54 1.53
1.61 1.60 1.47 1.54
1.35
<620
Data Source: CoreLogic
620 -659
660 -699
700 -719
Insured
720 -739
Piggyback
740 -759
760 -950
All <620
Data Source: CoreLogic
620 -659
660 -699
700 -719
720 -739
740 -759
760 -950
All
19
Piggyback Performance Decidely Worse in Virtually All FICO Ranges
Cure Rates On Insured Loans Solidly Higher By 35% or More Depending On the FICO Range
11.4% 14.8% 15.8%
28.1%
19.5%
29.6% 29.7%
18.9%
27.8%
Ever 90+ Delinquency Rates By Doc Type/Loan Purpose Weighted Ratios Of Piggyback Delq Rates To Insured Delq Rates Weighting Segments By Piggyback Profile Piggyback ETD 90 Rate / Insured ETD 90 Rate
41.8%
1.29
1.78
1.52 1.41 1.47
Full / Purchase Full / Refinance Low / Purchase Low / All Full / Purchase Full / Refinance Low / Purchase Low / All Refinance
Refinance Insured Piggyback Data Source: CoreLogic Data Source: CoreLogic
Cure Rates On Ever 90 Day Delqs By Doc Type/Loan Purpose Weighted Ratios Of Insured Cure Rates To Piggybacks Weighting Segments By Piggyback Profile Insured Cure Rate / Piggyback Cure Rate
1.48 1.54 1.63
1.37 1.54
Full / Purchase Full / Refinance Low / Purchase Low / All Full / Purchase Full / Refinance Low / Purchase Low / All Refinance
Refinance Insured Piggyback Data Source: CoreLogic Data Source: CoreLogic
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2.00
1.50
1.00
0.50
0.00
30%
25%
20%
15%
10%
5%
0%
21.7%
14.7%
24.6%
15.9%
18.9%
11.6%
18.4%
13.4%
19.7%
12.8%
2.00
1.50
1.00
0.50
0.00
Evaluation by Documenation & Loan Purpose Shows Insured Loans Clearly Outperform Piggybacks In Each of Segment Roll Ups
Insured Loan Cure Rates Were Substantially Higher in All Of These Roll -Up Combinations 20
Ever 90 Day Delinquent Rates By US Census Region Weighted Ratios Of Piggyback Delq Rates To Insured Delq Rates Weighting Segments By Piggyback Profile Piggyback ETD 90 Rate / Insured ETD 90 Rate
45% 2.00 1.83 40%
1.56 1.48 1.47 35% 1.37 30%
1.50 1.21
1.09 1.04 1.00 0.97 25% 1.00
20%
15% 0.50 10%
5%
0% 0.00
Insured Piggyback Data Source: CoreLogic Data Source: CoreLogic
Cure Rates On Ever 90 Day Delqs By US Census Region Weighted Ratios Of Insured Cure Rates To Piggybacks Weighting Segments By Piggyback Profile Insured Cure Rate / Piggyback Cure Rate
40% 2.00
35% 1.59 1.60 1.54 1.45 1.42 1.39 1.50 30% 1.34 1.36
1.25 1.25 25%
20% 1.00
15%
10% 0.50
5%
0% 0.00
Insured Piggyback Data Source: CoreLogic Data Source: CoreLogic
While Ever 90 Delinquent Performance Differences Were Not Uniform Across All Regions,
Such Differences Were Highest In Worse Performing Regions
Cure Rates On Insured Loans Remained Significantly Higher Across All US Census Regions 21
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 0 0 0
Insured
Piggy
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 0 0 0 0 0 0
Insured
Piggyback
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 0 0 0
Insured
PiggyBack
10%
0%
10%
20%
30%
40%
50%
60%
0 0 0 0 0
85 CLTV
90 CLTV
95 CLTV
>95 CLTV
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 0 0 0 0
85 CLTV
90 CLTV
95 CLTV
>95 CLTV
0%5%
10%15%20%25%30%35%40%45%50%55%60%65%70%75%80%85%90%95%
100%
0 0 0 0 0 0 0 0 0
Insured
Piggyback
Appendix - Differences In Distributions Across Key Metrics
Distribution By CLTV
0%
10%
20%
30%
40%
50%
85 90 95 >95
Insured
Piggy
Data Source: CoreLogic
PiggyBacks Had Proportionately More 90 CLTV And Less 85 CLTV
Insured Had Proportionately More >95 CLTV
Distributions BY Loan Purpose & Doc Type
0%
10%
20%
30%
40%
50%
60%
Purchase/FULL Refinance/FULL Purchase/LOW Refinance/LOW Insured PiggyBack Data Source: CoreLogic
PiggyBacks Had A Higher Percentage Of Purchase Loans ( 74.9% vs 67.9% for Insured)
But Also A Higher Percentage Of Low or NO Documentation (66.7% Vs 28.6% for Insured)
Distributions By FICO Range Distributions By US Census Region
Piggyback Loans Had Higher Average FICO Scores Piggybacks Highly Concentrated In Pacific Region
0%
5%
10%
15%
20%
25%
<620 620 -659
660 -699
700 -719
720 -739
740 -759
760 -950
Insured Piggyback Data Source: CoreLogic
0%
5%
10%
15%
20%
25%
30%
35%
40%
Insured Piggyback Data Source: CoreLogic
Insured Loan Distributions By CLTV BY Origination Year Piggyback Loan Distributions By CLTV By Origination Year
-
0%
10%
20%
30%
40%
50%
60%
2003 2004 2005 2006 2007
85 CLTV
90 CLTV
95 CLTV
>95 CLTV
Data Source: CoreLogic
0%
10%
20%
30%
40%
50%
60%
2003 2004 2005 2006 2007
85 CLTV
90 CLTV
95 CLTV
>95 CLTV
Data Source: CoreLogic
Insured Loans Maintained Relatively Higher Risk Profile Throughout Piggybacks In Earlier Years Had Lower Risk CLTV Profile
Pricing For Risk By LTV Range Remained Constant Increasingly Riskier Profile Through 2007
22
Qualified Insured Loan Performance
NON-PERFORMING RATES*
“Qualified” Insured Loans Have Performed Well Through the Downturn
* Non-Performing Rate: (# Loans Currently 90 or more days delinquent + loans that terminated in default ) / original number of loans
23