““What began as aWhat began as a

tremor in the sub-prime mortgage markettremor in the sub-prime mortgage market

that affected a relative few, that affected a relative few,

has sadly gained momentum, creating ahas sadly gained momentum, creating a

broader credit crisis that continues to threaten the broader credit crisis that continues to threaten the

middle class and overall economic growth.”middle class and overall economic growth.”

-- Senator Jack Reed (D-RI) Senator Jack Reed (D-RI)

ContentsContents

Housing Markets in USAHousing Markets in USA

Leveraged Security MarketsLeveraged Security Markets

Parties in the CrisisParties in the Crisis

Impact of the Crisis on USAImpact of the Crisis on USA

Housing Markets in USAHousing Markets in USA

Contributed about 14% to nations total production

Home equity constituted largest share of households net

worth

Flow of more than $1 trillion from sale of existing and new

homes

1.5 million new housing units started

each year

Provided employment to 1.49 million people

Income generation in ancillary industries

Leveraged Security Leveraged Security MarketsMarkets

Innovatively designed

mechanism called

SECURITIZATION

THE MODEL OF MORTGAGE LENDING

Bank grants mortgage Bank grants mortgage

Home buyer pays the bank Bank sells mortgage bonds Home buyer pays the bank

Bank pays bondholders

Home Buyer Home Buyer

Mortgage Bond Market

Bank Bank

Home Valuation

Income Check 22 44

11 3311 22

1111

Keys: Safeguard: Flow Of Money Home Checks Independent Checks

22 22

33

44

RepaymentsMortgage

LoanRepayments

Mortgage Bond

Bond Payments

Mortgage Broker

Home Appraisers

Rating Agencies

Mortgage loans

THE MODEL OF MORTGAGE LENDING

Homebuyer defaults Homebuyer defaults

Bank repossess the loans Bond payments cease Bond markets dry up

Bondholders repossess

Home Buyer Home Buyer

Mortgage Bond Market

Bank Bank

Home Valuation

Income Check 33 22

44 1122 11

1111

Keys: Safeguard: Flow Of Money Flawed ×Flow stops Home Checks Independentchecks

22 22

33

44

× Repayments stops

× Mortgages

Dry up

× Mortgage Bond

Defaults

× Repayments stops

× Bond Payments

Stop

Mortgage Broker

Home Appraisers

Rating Agencies

× Mortgage Loan

Parties in the CrisisParties in the Crisis

Borrowers

Financial Institutions

Securitization

Mortgage Brokers & Underwriters

Credit Rating Agencies

Central Banks

Increase In UnemploymentIncrease In Unemployment

InflationInflation

Inflation stands at 4% today Fed rate cut leading to declining dollar thereby increasing inflation

USD Vs Euro25% decrease over past two years

USD Vs JPY16% decrease over past two years

Widening Fiscal DeficitWidening Fiscal Deficit

Fiscal Deficit worth $248.2 billion in 2007 against $244.2billion in 2006Projected to be $239.4 Billon in 2008

US GrowthUS Growth

US growth forecasted at 1.5% for the year 2009 by IMF

Weakening housing, manufacturing, employment

and consumer spending to dampen the growth