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Economic Disruption — 2007 & 2008 <br /> • SIV's and CDO's <br /> — Low rated tranches defaulted at higher than predicted rate <br /> — Default risk moved up to include higher rated tranches <br /> • Market Conditions—Freeze-up <br /> — As credit quality deterioration accelerated, buyers retrenched and <br /> SIV's couldn't refinance when ABCP matured,triggering default's <br /> and forced sales or receivership <br /> • Valuation models not working <br /> — No sales to compare with,valuation models can't accommodate <br /> stress levels in market <br /> Pubic Sector pavlso;r. ,.. Springsted <br /> Mortgage Issues — Sub-Prime, et al <br /> • Sub-Prime mortgage default rate higher than projected <br /> — Unprecedented default levels <br /> — Jan—Jun 2007 Sub-prime mortgages-25%currently in non- <br /> payment status <br /> • Loan Documentation insufficient <br /> — Stated Income, minimum documentation <br /> — NINJA—"No Income, No Job or Assets" <br /> • Borrowers unable to meet higher payments on rate reset <br /> — Foreclosures result in downward pressure on new home prices <br /> — Could lead to a downward spiral until supply balances demand <br /> Springsted <br />