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Appendix

Meaning of the terms used in the report;

Mortgage market can be classified in to two categories based on credit quality, those are

1. Prime - prime is associated with borrowers with very good credit history and entitled to attractive interest rates and terms.

2. Non-prime- non prime is sub divided in to two categories

* ALT-A- ALT-A is associated with borrowers with credit history which is not good enough to be prime but enough to get loan with some restrictions on interest rate and monthly payment (higher interest rate and low monthly payment)

* Subprime—a subprime is associated with borrowers with very bad credit history and has to pay high interest rates.

3. There are two types of loans those are fixed rate mortgages which are has interest rate fixed throughout life of loan and second type is Adjustable Rate Mortgage (ARM) where interest rate is variable.

4. The following are the terminology used to describe performance of the loans.

* Current - borrower meets scheduled payments regularly.

* Delinquent - borrower defaulted one or two months of scheduled payments.

* Default - if the borrower haven't repaid scheduled payment for more than 90 days.

* Foreclosure - if borrower is defaulted and lengthy legal process where institutes repossess the property.

5. The nonprime market segment featured a number of non-traditional products and characteristics:

* Hybrid ARM—Interest rate is fixed during an initial period then “resets” to an adjustable rate for the remaining term of the loan.

* Payment-option ARM—Borrower has multiple payment options each month, which may include minimum payments lower than what would be needed to cover any of the principal or all of the accrued interest. This feature is known as “negative amortization” because the outstanding loan balance may increase over time.

* Interest-only—allows the borrower to pay just the interest on the loan for a specified period, usually the first 3 to 10 years, thereby deferring principal payments.

* Low and no documentation loans—require little or no verification of a borrower's income or assets.

* High loan-to-value (LTV) ratios—Borrower makes a small down payment, causing the ratio of the loan amount to the home value to be relatively high.

* Prepayment penalties—Borrower incurs a fee if he or she pays off the loan balance before it is due.