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Structured Securities Collateralized Mortgage Obligations (CMOs by F1CN40

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									  Structured Securities
Collateralized Mortgage Obligations (CMOs)
                 and Other
      Asset Backed Securities (ABSs)

                BDUG
            October 16, 2006
              Bill Hodash
  CMO/ABS


CMOs and other asset backed securities
pay principal and interest on various days
throughout the month with most paying
on the 25th - approximately 80,000. The
vast majority pay principal as a pass-
through with the remainder paid as a call.
   CMO/ABS

                Average $ "billions" payable on the 25th
                      $71.8 billion payable on September 25, 2006
$70.00
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
 $0.00
         2000     2001   2002      2003     2004      2005      2006
   CMO/ABS

                Average Items payable on the 25th
                           September 25, 2006 - - -96,152
85,000
75,000
65,000
55,000
45,000
35,000
25,000
         2002      2003     2004          2005          2006
     CMO/ABS

Problems
Late receipt of rate information P/D -1
On average, 11,500 rates are not available by COB on P/D -1.


Late receipt of rate information by 3:00 on P/D
On average, 800+ rates are not available in time for allocation on payable day.


Significant allocation after payable day
 As much as $2 billion allocated after payable date.


Post payable adjustments
 In 2005, we processed 5,345 post payable rate adjustments.
   CMO/ABS
Some things we’ve done to address the problems:
  • Standardized file layout

  • Increased Automation (91% of rates are received via the new “BMA”
    file)



  • Monthly report cards on top eight agents

  • Monthly conference calls with top eight agents
   CMO/ABS

Some things we’ve done to address the problems: - Cont’d

 • Root cause analysis by DTC and agents

 • Cross functional team meets monthly to
   discuss needed improvements and ways to
   implement best practices
    CMO/ABS

Plans for 2006
   • Share the monthly agent report cards with
     participants and others

   • Implement a financial disincentive for failure
     to comply with established standards for
     timeliness and accuracy

   • Revise the business practice of adjusting
     customers’ accounts more than one month
     after payable date
     CMO/ABS
Plans for 2006 – Cont’d
     • Continue to create awareness around this very
       problematic product – updated White Paper

     • Suggest moving the payment date on future
       CMOs/ABS forward two business days yet
       keeping the same accrual period. This should
       allow servicers/agents to establish accurate
       and timely rates
     CMO/ABS
Plans for 2006 – Cont’d

     • Establish a working group to map out a
       strategy that includes clearly defined
       accountability and time parameters
   CMO/ABS

Working Group Update
  • DTC partnered with the BMA and the ASF

  • The first meeting of the industry working
    group was held on June 8

  • Attendance in person was mandatory … no
    phone-ins

  • 35 in attendance from all over the US
  CMO/ABS
Who Attended
  • Citigroup           • CSFB

  • Deutsche Bank       • Edward Jones

  • JP Morgan Chase     • Nomura Securities

  • The Bank Of New     • UBS Financial
    York                  Services

  • US Bank             • DTCC

  • Wells Fargo         • BMA

  • La Salle National   • ASF
    Bank
  CMO/ABS

Meeting Summary
 • Discussed problems outlined in the White
   Paper

 • Discussed possible Action Steps

 • Proposed three immediate action steps
    CMO/ABS
Actions from meeting
   • The establishment of a working group by
       DTC to perform diagnostic work and
       produce data and detailed structure
       diagrams on various deal types, asset
       classes, and specific deal features that affect
       payment processing accuracy and
       timeliness.
          The group will need to document the current
          practices, data elements, and timeframes for all the
          known (or most prevalent) structures of each
          security type.

          This project will allow for the group to address
          various structural issues that contribute to the
          accuracy/timeliness problem and thus explore
          methods in remedying those problems.
     CMO/ABS

Actions from meeting – Cont’d
     •   The establishment of a working group to
         define the data, file format, and
         communication protocol standards for the
         information that flows between primary
         servicers and paying agents, to be defined
         by specific product types.
            The ensuing product may be able to bring
            standardization in the information/funds transfer from
            the primary servicers to the paying agent, thus
            increasing efficiency.
     CMO/ABS

Actions from meeting – Cont’d
     •   An investigation conducted by DTC to
         examine the nature of post-payable
         adjustments.
            Part of the issue will be to tackle how much of the
            accuracy problem can be solved by potentially
            modifying post payable date adjustment procedures
            by setting a time limit for adjustments. DTC will
            further categorize the adjustments it previously
            analyzed in its white paper by principal, interest and
            principal and interest adjustments and report back
            to the Task Force. There was discussion in the
            meeting of the effects of setting such a limit,
            especially with regard to principal adjustments.
  CMO/ABS

Next Steps
  • Next meeting of the larger working group is
    scheduled for early November
Customer Metrics
           Customer Metrics - - Summary
                                                                                                Actuals


 Type                                       Metric                     Goal      1Q06    2Q06         3Q06   4Q06
           Proceeds Ultimately Paid on Peak Payable Days                N/A      98.5%   98.23%
           Mandatory Corporate Actions Allocated                       100%      99.8%   100%

           Voluntary Reorg Allocations                                 100%      100%    100%
 Quality   Reorg Cash Post-Allocation Adjustments                        0         3      8.7
           Post Payable Adjustments - CMO                              0.45%     0.6%    0.52%
           Mis-deliveries to Participants                                0        0.3      0
           Average Turnaround Time for Restricted Deposits            3.9 Days    3.5     3.6
           PINS Average Resolution Time - Dividends (General)         1.9 Days    1.6     1.2

           PINS Average Resolution Time - Dividends (Announcements)   2.5 Days    2.6     1.7
Customer
 Service   PINS Average Resolution Time - Securities Processing       1.5 Days    1.7     1.4
           PINS Average Resolution Time - Redemptions                 2.2 Days    2.9      2
           PINS Reopens                                                3.10%      3.6    2.31%
           Open CMO Rates on PD-1                                      11.7%     12.9%   11.7%
           Redemption Notices Received Timely                          95%       92.7%   92.4%
Sense of
           Partial Call Notices Created on Call Notification Date     98.50%     98.6%   98.99%
Urgency
           Voluntary Reorg Alerts - 4:00 PM                            100%      83.3%   93.80%
           Voluntary Reorg Alerts - 12:00 PM                           100%      75.8%   90.8%
         Customer Metrics - - Quality
• % of proceeds that were payable on 1st, 15th and 25th of the month that
  were ultimately paid by DTC on those days. (Goal TBD)*

               Proceeds Ultimately Paid on Peak Payable
                                 Days
          98.2%   98.6%   98.9%    98.0%   98.5%   98.3%
  100%
   90%
   80%
   70%
   60%
   50%
   40%
   30%
   20%
   10%
    0%
          01/06   02/06    03/06   04/06   05/06   06/06   07/06   08/06    09/06   10/06   11/06   12/06    Goal

 * The historical measure for allocations is the percentage DTC was aware of and did allocate on payable date.
 The new measure takes into account all possible payments from paying agents whether DTC was aware of or
 not on the payable date.
         Customer Metrics - - Quality
• 100% of mandatory corporate actions excluding non-transferable
  issues should be allocated within 1 business day after first trading
  date in new issue (effective date).


                 Mandatory Corporate Actions Allocated

         99.5%   100%    100%    100%    100%    100%    98.9%                                           100%
  100%
   90%
   80%
   70%
   60%
   50%
   40%
   30%
   20%
   10%
    0%
         01/06   02/06   03/06   04/06   05/06   06/06   07/06   08/06   09/06   10/06   11/06   12/06   Goal
        Customer Metrics - - Quality
• 100% of voluntary Reorg security and cash allocations made
  within the first available public payment date.


                          Voluntary Reorg Allocations

        100%    100%    100%    100%    100%    100%    100%                                            100%
 100%
  90%
  80%
  70%
  60%
  50%
  40%
  30%
  20%
  10%
   0%
        01/06   02/06   03/06   04/06   05/06   06/06   07/06   08/06   09/06   10/06   11/06   12/06   Goal
       Customer Metrics - - Quality
• Zero Reorg Cash Post-Allocation Adjustments.


               Reorg Cash Post-Allocation Adjustments

                                                                                                       0
  0     1      1        1
                                                       2
                                       3

                               6
  5

  10

  15                                           17


  20

  25

  30
       01/06   02/06   03/06   04/06   05/06   06/06   07/06   08/06   09/06   10/06   11/06   12/06   Goal
         Customer Metrics - - Quality
• Decrease PPAs on CMO by 10%.


                          Post Payable Adjustments - CMO


 0.00%
                                                          0.34%
 0.25%            0.46%                   0.43%                                                       0.49%
                                  0.56%           0.56%
 0.50%    0.70%           0.64%

 0.75%
 1.00%
 1.25%
 1.50%
 1.75%
 2.00%
 2.25%
 2.50%
 2.75%
 3.00%
         01/06 02/06       03/06 04/06    05/06 06/06     07/06   08/06 09/06   10/06 11/06   12/06    Goal
        Customer Metrics - - Quality
• Zero mis-deliveries to Participants from Central Delivery, Interface
  and Transfer Operations.


                           Mis-Deliveries to Participants

              0        0      0       0        0      0                                               0
  0    1
  1
  2
  3
  4
  5
  6
  7
  8
  9
 10
      01/06   02/06   03/06   04/06   05/06   06/06   07/06   08/06   09/06   10/06   11/06   12/06   Goal
       Customer Metrics - - Quality
• Maintain 3.9 business day average turnaround time for restricted
  deposits.


               Average Turnaround Time for Restricted
                             Deposits
  0
  1
  2
       3.3
  3           3.4
                      3.7     3.5
                                      3.8     3.6     3.5
                                                                                                      3.9
  4
  5
  6
  7
  8
  9
 10
      01/06   02/06   03/06   04/06   05/06   06/06   07/06   08/06   09/06   10/06   11/06   12/06   Goal
       Customer Metrics - - Customer Service
• Dividends (general) - reduce by 15% to 1.9 days.


                        PINS Average Resolution Time
                             Dividends (General)
  0
                              1.0             1.1
  1   1.6     1.6     1.5             1.6             1.5
                                                                                                      1.9
  2
  3
  4
  5
  6
  7
  8
  9
 10
      01/06   02/06   03/06   04/06   05/06   06/06   07/06   08/06   09/06   10/06   11/06   12/06   Goal
        Customer Metrics - - Customer Service
• Dividends (announcements) - reduce by 15% to 2.5 days.


                         PINS Average Resolution Time
                          Dividends (Announcements)
  0
  1                            1.8     1.8     1.6
                                                       1.9
                       2.1
  2    3.0     2.8
                                                                                                       2.5

  3
  4
  5
  6
  7
  8
  9
  10
       01/06   02/06   03/06   04/06   05/06   06/06   07/06   08/06   09/06   10/06   11/06   12/06   Goal
       Customer Metrics - - Customer Service
• Securities Processing - reduce by 15% to 1.5 days.



                        PINS Average Resolution Time
                            Securities Processing
  0
                                              1.0
  1   1.9
              1.5     1.6     1.8
                                      1.5             1.6                                             1.5

  2
  3
  4
  5
  6
  7
  8
  9
 10
      01/06   02/06   03/06   04/06   05/06   06/06   07/06   08/06   09/06   10/06   11/06   12/06   Goal
       Customer Metrics - - Customer Service
• Redemptions - reduce by 15% to 2.2 days.



                        PINS Average Resolution Time
                                Redemptions
  0
  1                                   1.9     1.7
                                                      2.0                                             2.2
                              2.3
  2                   2.5
      3.3     2.9
  3
  4
  5
  6
  7
  8
  9
 10
      01/06   02/06   03/06   04/06   05/06   06/06   07/06   08/06   09/06   10/06   11/06   12/06   Goal
      Customer Metrics - - Customer Service
• PINS reopens will not exceed 3.1%.



                                      PINS Reopens


  0.00%
  1.00%
                        2.0%                 2.0%
                               2.3%                 2.3%
  2.00%                               2.6%
                                                                                    3.1%
  3.00%
          4.2%
  4.00%          4.5%

  5.00%
  6.00%
  7.00%
  8.00%
  9.00%
 10.00%
          01/06 02/06 03/06 04/06 05/06 06/06 07/06 08/06 09/06 10/06 11/06 12/06   Goal
         Customer Metrics - - Sense of Urgency
• Decrease open CMO rates as of the close of business on PD-1
  by 20%.


                                 Open CMO Rates on PD-1


   0%
                 10.4%           12.1%    10.8%   12.3%   11.5%                                          11.7%
  10%    15.4%           15.4%

  20%
  30%
  40%
  50%
  60%
  70%
  80%
  90%
  100%
         01/06   02/06   03/06    04/06   05/06   06/06    07/06 08/06   09/06   10/06   11/06   12/06    Goal
        Customer Metrics - - Sense of Urgency
• 95% of all redemption notices received 4 days before redemption
  date.


                   Redemption Notices Received Timely

 100%    94.9%           93.9%   95.2%
                                         91.2%   91.1%
                                                         95.1%                                            95%
                 88.2%
  90%
  80%
  70%
  60%
  50%
  40%
  30%
  20%
  10%
   0%
         01/06   02/06   03/06   04/06   05/06   06/06    07/06   08/06   09/06   10/06   11/06   12/06   Goal


Note: 01/06 - 03/06 levels corrected to include all redemption notice types.
         Customer Metrics - - Sense of Urgency
• 98.5% or more of partial call envelopes created on the call
  notification date.



                     Partial Call Notices Created on Call
                               Notification Date
         99.3%           99.4%   99.6%           99.0%   98.9%
                                         98.6%                                                            98.5%
  100%           96.2%

   90%
   80%
   70%
   60%
   50%
   40%
   30%
   20%
   10%
    0%
         01/06   02/06   03/06   04/06   05/06   06/06    07/06   08/06   09/06   10/06   11/06   12/06    Goal
        Customer Metrics - - Sense of Urgency
• 100% of voluntary Reorg anticipated payment alerts transmitted by
  4:00 p.m. for next day payment of entitlements.


                     Voluntary Reorg Alerts - 4:00 p.m.

                                         100%                                                            100%
 100%                    94.1%
                                 90%             90.9%
  90%                                                    85%
         78.9%
                 77.8%
  80%
  70%
  60%
  50%
  40%
  30%
  20%
  10%
   0%
        01/06    02/06   03/06   04/06   05/06   06/06   07/06   08/06   09/06   10/06   11/06   12/06   Goal
        Customer Metrics - - Sense of Urgency
• 100% of voluntary Reorg anticipated payment alerts
  transmitted by noon for same day payment of entitlements.



                         Voluntary Reorg Alerts - Noon

                                                                                                        100%
 100%                   95.7%           95.7%
                                                90.9%   90.0%
  90%                           85.0%

  80%           73.7%

  70%
  60%   55.0%

  50%
  40%
  30%
  20%
  10%
   0%
        01/06   02/06   03/06   04/06   05/06   06/06   07/06   08/06   09/06   10/06   11/06   12/06   Goal
Customer Metrics




           Questions???

								
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