Presentation to Metropolitan DC Mortgage Professionals

1. The Current Status and Outlook for the U.S. Economy, Housing and Mortgage Markets Specially Prepared for: Mortgage Bankers Association of Metropolitan Washington Presented by: LaVaughn M. Henry, Ph.D. Director, U.S. Economic Analysis The PMI Group, Inc. November 14, 2008

3. The PMI U.S. Market Risk Index 2nd Quarter 2008 Results and Analysis

7. How Well Does the U.S. Market Risk Index Work? Risk Rank 5 Risk Rank 4 Risk Rank 3 Risk Rank 2 Risk Rank 1

8. Geographic Distribution of House Price Risk 2nd Quarter 2008 – 2 nd Qtr 2010 What is the U.S. Market Risk Index Saying about Future Price Movements?

9. Why are Risk Scores Changing? Reason #1: Foreclosures are Rising

10. Foreclosure Rates, All Mortgage Loans 2 nd Quarter 2008 Source: Mortgage Bankers Association, National Delinquency Survey

14. Seriously Delinquent Rate Foreclosure Rate Source: Mortgage Bankers Association, National Delinquency Survey

15. Seriously Delinquent Rate Foreclosure Rate Source: Mortgage Bankers Association, National Delinquency Survey

16. Seriously Delinquent Rate Foreclosure Rate Source: Mortgage Bankers Association, National Delinquency Survey

17. Why are Risk Scores Changing? Reason #2: Unemployment is Rising

18. Employment Growth is Under Growing Pressure… Source: Bureau of Labor Statistics

19. … with significant weakness in the Midwest and South. 12-month change in Payroll Employment September 2008 Source: Bureau of Labor Statistics -5.00% to -1.00% -1.00% to 0.00% 0.00% to 1.00% 1.00% to 10.00%

20. Unemployment is Rising Broadly Across the Nation. Unemployment Rates September 2008 Source: Bureau of Labor Statistics 2.0% to 4.0% 4.0% to 5.0% 5.0% to 6.0% 6.0% to 9.0%

21. Demeaned Unemployment Rates are also Rising Significantly in Selected MSAs Source: Bureau of Labor Statistics

22. Source: Bureau of Labor Statistics

23. Why are Risk Scores Changing? Reason #3: House Price Volatility/Depreciation is Slowing

24. House Price “Depreciation” is Slowing Source: Loan Performance Corporation

25. House Price Growth September 2008 Source: Loan Performance Corporation -30.00% to -10.00% -10.00% to -5.00% -5.00% to 0.00% 0.00% to 5.00%

26. Source: Office of Federal Housing Enterprise Oversight House Price “Depreciation” is Slowing Most Significantly in the Interior

27. Source: Loan Performance Corporation

28. Why are Risk Scores Changing? Reason #4: Excess Housing Supply is Declining

29. Excess Housing Supply is Declining… (Weighted Average Value for 381 MSAs) Source: The PMI Group

30. … but Big Differences Exist Across the Country. Source: The PMI Group

31. Why are Risk Scores Changing? Reason #5: Housing Affordability is Rising

32. Source: The PMI Group Affordability is Improving, but Remains Challenged for Various Reasons…

33. … while Mortgage Rates Remain Relatively Low… 30-year Fixed Rate 1-year Adjustable Rate

34. Source: Federal Reserve Board … Tighter Lending Standards Have Made a Greater Number of Mortgages Out of Reach.

35. The Outlook: Where do We Go From Here?