Zanopha

UK Property And Recovery Valuation

2Zanopha

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

3Zanopha

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

4Zanopha

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

5Zanopha

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

6Zanopha

Location

Weight each transaction according to its distance from the target

Ensures large but relevant data sets

-1000

0

1000

-1000

0

1000

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

7Zanopha

Time

Key times to give weight to are

– Last transaction date

– Valuation date

Removes path dependence

– Flood impact step-down

0.0

0.1

0.2

0.3

0.4

0.5

0.6

Transaction Valuation

Low influence

8Zanopha

£k

£100k

£200k

£300k

£400k

£500k

£600k

£700k

£800k

012345678

Years

Price Sales

Terrace

Results

Absolute price levels vary but inflation shape is stable

Oct ‘07

9Zanopha

£k

£100k

£200k

£300k

£400k

£500k

£600k

£700k

£800k

012345678

Years

Price

Semi-D

Detached

Terrace

Flat

All

Results cont’d

Housing type determines shape but this data is readily available

Oct ‘07

10Zanopha

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

11Zanopha

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