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TCW on CRE

VIEWS: 56,677 PAGES: 91

									Navigating the 2009 Credit Markets

A Panel Discussion Moderated By:
Jeffrey Gundlach
Chief Investment Officer
The TCW Group, Inc.



April 20 & 23, 2009
Important Information



• This presentation is for information purposes only. There is no assurance that historical occurrences or trends will be repeated or continue in the future. Past
  performance is no guarantee of future results. While the information and statistical data contained herein are based on sources believed to be reliable, TCW
  does not represent that these are accurate and they should not be relied on as such or be the basis for an investment decision.

• Any opinions expressed are current only as of the time made and are subject to change without notice. TCW assumes no duty to update any such statements.
  The views expressed herein are solely those of TCW's Mortgage-Backed Securities Group and do not represent the views of TCW as a firm or of any other portfolio
  manager or employee of TCW. Any holdings of a particular company or security discussed herein are under periodic review by TCW's Mortgage-Backed Securities
  Group and are subject to change at any time, without notice. In addition, TCW manages a number of separate strategies and portfolio managers in those
  strategies may have differing views or analyses with respect to a particular company, security or the economy than the views expressed herein.

• This presentation may include estimates, projections and other "forward-looking statements." Due to numerous factors, actual events may differ substantially from
  those presented.

• An investment in any strategy described herein has risks, including the risk of losing some or all of the invested capital.

• This publication is not to be used or considered as an offer to sell, or a solicitation to an offer to buy, any security. Nothing contained herein should be considered
  a recommendation or advice to purchase or sell any security or investment. TCW, its officers, directors, employees or clients may have positions in securities or
  investments mentioned in this publication, which positions may change at any time, without notice. Copyright TCW 2009.
I. Market Overview
   From March 9, 2009 CIO Presentation
   “You’re Too Bearish”
  The Great Leveraging
    • This huge leverage build-up is 30 years in the making
           - Dating back to the days of Ronald Reagan
    • The last major increase in leverage occurred as GDP fell during the Great Depression
                               Total Credit Market Debt as a Percentage of U.S. Gross Domestic Product
                                                          4Q 1922 - 4Q 2008                              4Q08 Credit Market Debt
                                                                                                                    370% of GDP
        400

                                                                                                                   1Q01
        350                                                                                                     1st Quarter
                             1Q33                                                                                 of GWB
                                                                                                     1Q93       Presidency
                         1st Quarter of
                                                                                                  1st Quarter
        300             FDR Presidency
                                                                                                    of WJC
                                                                                                  Presidency
        250                                                                            1Q81
                                                                    2Q53            1st Quarter
                                                                 2nd Quarter          of RWR
        200                                                        of DDE           Presidency
                                                                  Presidency

        150



        100
         22



         27



         32



         37




         07
         42



         47



         52



         57



         62



         67



         72



         77



         82



         87



         92



         97



         02
       19



       19



       19



       19



       19



       19



       19



       19



       19



       19



       19



       19



       19



       19



       19



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       20



       20
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   /3
 12



 12



 12



 12



 12



 12




 12
 12



 12



 12



 12



 12




 12



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 12



 12



 12



 12
Source: Federal Reserve, U.S. Commerce Department, Ned Davis Research
Mortgage Equity Withdrawal – Calculated Risk.com
1996 to 2006
                                                   GDP Growth: With and Without Mortgage Equity Withdrawl
                                                                        GDP as Reported             GDP without MEW
                                   5

                                   4
               % Real GDP Growth




                                   3


                                   2


                                   1

                                   0


                                   -1
                                          1996         1997             1998   1999   2000   2001    2002   2003      2004   2005   2006
                                                                                                                                           4
Source: CalculatedRisk.com              MEW = Mortgage Equity Takeout
The Truth of Home “Equity” Withdrawal & GDP
  • 2005: Change in New Mortgage “Equity” Withdrawal was small and so had very little effect on the change in GDP

  • 2008: Change in New Mortgage “Equity” Withdrawal was large and so acted as a large drag on the change in GDP

                 Mortgage "Equity" Extraction ($ Billions)                GDP in Current Dollars ($ Billions)     Real GDP (in Year 2000 Dollars)
                                      YoY Chg in     Equity 
                 Net Equity                                                           GDP YoY        GDP YoY                GDP YoY       GDP YoY
     Year                             Net Equity  Extraction              GDP                                     GDP
                 Extraction                                                             Chg           % Chg                   Chg          % Chg  
                                      Extraction  as % of GDP
        2008             ‐104.4                 ‐561.7             ‐0.7   14,264.6           457.1        3.3%   11,652.0         128.1        1.1%
        2007              457.3                 ‐203.7              3.3   13,807.5           629.1        4.8%   11,523.9         229.1        2.0%
        2006              661.0                  ‐42.6              5.0   13,178.4           756.5        6.1%   11,294.8         305.3        2.8%
        2005              703.6                  ‐20.2              5.7   12,421.9           736.0        6.3%   10,989.5         313.7        2.9%
        2004              723.8                  236.4              6.2   11,685.9           725.1        6.6%   10,675.8         374.8        3.6%
        2003              487.4                  ‐34.8              4.4   10,960.8           491.2        4.7%   10,301.0         252.2        2.5%
        2002              522.2                  189.6              5.0   10,469.6           341.6        3.4%   10,048.8         158.1        1.6%
        2001              332.6                   98.2              3.3   10,128.0           311.0        3.2%    9,890.7          73.7        0.8%
        2000              234.4                   ‐6.7              2.4    9,817.0           548.6        5.9%    9,817.0         346.7        3.7%
        1999              241.1                   27.0              2.6    9,268.4           521.4        6.0%    9,470.3         403.4        4.4%
        1998              214.1                   95.2              2.4    8,747.0           442.7        5.3%    9,066.9         363.4        4.2%
        1997              118.9                   12.8              1.4    8,304.3           487.4        6.2%    8,703.5         374.6        4.5%
        1996              106.1                   26.6              1.4    7,816.9           419.2        5.7%    8,328.9         297.2        3.7%   5
Exhibit by TCW from Federal Reserve and Commerce Department data
Equity Extraction vs. Disposable Income
1996 to 2006
                        Mortgage "Equity" Extraction in $ Billions and as % of U.S. Disposable Personal Income
              Mortgage “Equity Extraction in $ Billions and as % of U.S. Disposable Personal Income
    $250                                                                                                                             12%



                                                                                                                                     10%
    $200


                                                                                                                                     8%
    $150

                                                                                                                                     6%
    $100

                                                                                                                                     4%

     $50
                                                                                                                                     2%

       $0
                                                                                                                                     0%


    -$50
                                                                                                                                     -2%



   -$100                                                                                                                             -4%
         5




         6




         7




         8




         9




         1




         3




         4




         5
         0




         2




         6




         7




         8
         5




         6




         7




         8




         9




         0




         1




         2




         3




         5




         6




         7
         4




         8
       -9


       -9


       -9


       -9


       -9


       -9


       -9


       -9


       -9


       -9


       -0


       -0


       -0


       -0


       -0


       -0


       -0


       -0


       -0


       -0


       -0


       -0


       -0


       -0


       -0


       -0


       -0


       -0
    ep




    ep




    ep




    ep




    ep




    ep




    ep




    ep




    ep




    ep




    ep




    ep




    ep




    ep
     ar




     ar




     ar




     ar




     ar




     ar




     ar




     ar




     ar




     ar




     ar




     ar




     ar




     ar
   M




   M




   M




   M




   M




   M




   M




   M




   M




   M




   M




   M




   M




   M
   S




   S




   S




   S




   S




   S




   S




   S




   S




   S




   S




   S




   S




   S
                                        Net Mortgage "Equity" Extraction (quarterly $ billions)
                                        Net Mortgage "Equity" Extraction as % of Disposable Personal Income (quarterly annualized)
     Exhibit by TCW from Standard & Poor’s and Mortgage Bankers Association data                                                           6
Source: Federal Reserve, Commerce Department and TCW.
Previous Bear Markets
• Looking at past recessionary periods, this recession is seventeen months into a twenty-eight month average
• As of March 17, 2009, the S&P 500 was down -50.3%

                                                                                                       2/19/09




                                                                                                            33
                                                                                                                 7
Source: Bianco Research, L.L.C., dshort.com, February 19,2009. TCW Research updated through 3/17/09.
    Job Losses in Past Recessions

                        12            U.S. Unemployment Rates during Post World War II Recessions (Cycle Peak to Trough)

                                                                                                                            7/1981 – 11/1982
                        10

                                                                                                                                                    11/1973 – 3/1975
                                                                                                                             11/1948 – 10/1949
                                                                          1/1980 – 7/1980
Unemployment Rate (%)




                        8
                                                                                    8/1957 – 4/1958                                                  12/2007 – Today
                                                                                                4/1960 – 2/1961
                                                                7/1990 – 3/1991
                        6


                                                                                                12/1969 – 11/1970
                        4                      3/2001 – 11/2001
                             Year-To-Date
                             -42.44% (-43.61% ann.)

                        2
                                  7/1953 – 5/1954


                        0
                              1       2        3           4           5               6   7       8     9     10      11       12    13       14   15    16     17

                                                                                               Months into Recession
                                                                                                                                                                       8
       Source: U.S. Bureau of Labor Statistics, National Bureau of Economic Research
                    Job Losses in the Past Seven Recessions
                                              U.S. Unemployment Rates during Post World War II Recessions (Cycle Peak to Trough)
                          12



                                                                                                                                     7/1981 – 11/1982
                          10

                                                                                                                                                         11/1973 – 3/1975
Unemployment Rate (%)




                           8                                                            1/1980 – 7/1980                     11/1948 – 10/1949
                                                                                               8/1957 – 4/19584/1960 – 2/1961                             12/2007 – Today
                                                                        7/1990 – 3/1991
                           6


                                                                                                         12/1969 – 11/1970
                           4                             3/2001 – 11/2001
                                  Year-To-Date
                                  -42.44% (-43.61% ann.)
                           2
                                        7/1953 – 5/1954


                           0
                                   1          2          3          4          5         6          7       8     9     10      11     12    13     14   15    16     17

                                                                                                        Months into Recession


                                                                                                                                                                            9
                        Source: U.S. Bureau of Labor Statistics, National Bureau of Economic Research
Job Losses in the Past Ten Recessions




                 Year-To-Date
                 -42.44% (-43.61% ann.)




                                                                                                                           10
Source: Barry Ritholtz, February 9, 2009 blog at www.ritholtz.com/blog/2009/02/post-wwii-recession-job-recoveries-months
S&P 500




                                                                                      11
Source: JP Morgan, Global Fixed Income Technical Strategist, March 9,2009, COG Inc.
U.S. Dollar Index Futures – Last Seven Years




                                               12
 Source: Bloomberg Financial LP
Commodity Prices – Last Seven Years




                                                               13
 Source: Bloomberg Financial LP, Commodities Research Bureau
II. Fixed Income Market Valuations
Merrill Corporate Index
Yield Spread to the Merrill Treasury Index
December 1985 to April 14th, 2009
    7.00%                                                 Yield Spread                                                  Average Yield Spread

    6.00%


    5.00%


    4.00%


    3.00%


    2.00%


     1.00%


    0.00%
              Dec-     Dec-    Dec-    Dec-     Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-
               85       86      87      88       89     90     91     92     93     94     95     96     97     98     99     00     01     02     03     04     05     06     07     08

                                                                                                                                                                                            15
Source: Merrill Lynch, Bloomberg Financial LP
Merrill ABS Floating Index
Yield Spread to 1 Month LIBOR
September 1994 to April 14th, 2009
    10.00%

      9.00%
                                                   Yield Spread                                        Average Yield Spread

      8.00%

      7.00%

      6.00%

      5.00%

      4.00%

      3.00%

      2.00%

      1.00%

      0.00%
              Oct-94       Oct-95       Oct-96   Oct-97   Oct-98   Oct-99   Oct-00   Oct-01   Oct-02    Oct-03   Oct-04   Oct-05   Oct-06   Oct-07   Oct-08
                                                                                                                                                              16
Source: Merrill Lynch, Bloomberg Financial LP
Merrill CMBS Fixed Rate Index
Yield Spread to the Merrill Treasury Index
December 1997 to April 14th, 2009
      12.00%
                                                                  Yield Spread                Average Yield Spread
      10.00%



        8.00%



        6.00%



        4.00%



        2.00%



        0.00%
               Dec-97            Dec-98         Dec-99   Dec-00    Dec-01   Dec-02   Dec-03     Dec-04   Dec-05   Dec-06   Dec-07   Dec-08
                                                                                                                                             17
Source: Merrill Lynch, Bloomberg Financial LP
Merrill High Yield Index
Yield Spread to the Merrill Treasury Index
December 1985 to April 14th, 2009
      22.00%
                                                                 Yield Spread                             Average Yield Spread

      17.00%




      12.00%




        7.00%




        2.00%


                  Dec-    Dec-    Dec-     Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-   Dec-
                   85      86      87       88     89     90     91     92     93     94     95     96     97     98     99     00     01     02     03     04     05     06     07     08

       -3.00%                                                                                                                                                                                 18
Source: Merrill Lynch, Bloomberg Financial LP
Merrill Mortgage Index
Yield Spread to the Merrill Treasury Index
December 1985 to April 14th, 2009
      3.50%
                                                              Yield Spread                            Average Yield Spread
      3.00%


      2.50%


      2.00%


       1.50%


       1.00%


      0.50%


      0.00%
                Dec-     Dec- Dec-       Dec- Dec- Dec-   Dec- Dec-   Dec- Dec-   Dec- Dec-   Dec- Dec-   Dec- Dec-   Dec- Dec-   Dec- Dec-   Dec- Dec-   Dec- Dec-
                 85       86   87         88   89   90     91   92     93   94     95   96     97   98     99   00     01   02     03   04     05   06     07   08
                                                                                                                                                                      19
Source: Merrill Lynch, Bloomberg Financial LP
III. U.S. Mortgage Market Update
The Four Stages of Market Opportunity – Senior Tranche
• Significant repricing of mortgage credit risk is currently underway
    - Creating credit pockets of inefficiency, and
    - Discounting of select credit
• Some mortgage and mortgage-related assets have become “very cheap” as a result1

                                                                     Belief
                                          $95.0
                                                                                                         Concern                                                          Recovery
                                          $85.0
                                                                                                                                        Liquidation
                                          $75.0

                                          $65.0
                                 Price




                                          $55.0

                                          $45.0

                                          $35.0

                                          $25.0
                                               07




                                                              07




                                                                                                                                                                          09
                                                                              07




                                                                                             08




                                                                                                             08




                                                                                                                            08




                                                                                                                                            09




                                                                                                                                                           09
                                             20




                                                                            20




                                                                                           20




                                                                                                           20




                                                                                                                          20




                                                                                                                                          20




                                                                                                                                                         20
                                                            20




                                                                                                                                                                        20
                                           2/




                                                          2/




                                                                          2/




                                                                                         2/




                                                                                                         2/




                                                                                                                        2/




                                                                                                                                        2/




                                                                                                                                                       2/




                                                                                                                                                                      2/
                                         1/




                                                        5/




                                                                        9/




                                                                                       1/




                                                                                                       5/




                                                                                                                      9/




                                                                                                                                      1/




                                                                                                                                                     5/




                                                                                                                                                                    9/
Source: TCW Research and Deutsche Bank ABX 2006-2 AAA tranche data through April 16, 2009.                                                                                                                                         21
1. The boxes in the chart represent typical stages of market cycles. However, this is not a prediction of when the stages will begin or end, or of valuation, or of when any TCW Strategy will invest or realize on investments.
    ABX 2006-2 A-Tranche
             $100.0

               $90.0

               $80.0

               $70.0

               $60.0
     Price




               $50.0

               $40.0

               $30.0

               $20.0

               $10.0

                 $0.0
                          Jan-   Feb- Mar-    Apr- May-    Jun-   Jul-   Aug- Sep- Oct- Nov- Dec- Jan-   Feb- Mar- Apr- May-   Jun-   Jul-   Aug- Sep- Oct- Nov- Dec- Jan-   Feb- Mar- Apr-
                           07     07   07      07   07      07    07      07   07  07    07   07   08     08   08   08   08     08     08     08   08   08   08   08   09     09   09   09
                                                                                                                                                                                              22
Source: TCW Research and JP Morgan ABX 2006-2 A tranche data through April 16, 2009.
S&P/Case Shiller HPI YoY% Change vs. MBA Survey Subprime
Delinquencies as % of Subprime Mortgage Loans
                    20                                                                                                                                                                  24

                                                                                                                                                      Subprime
                    15                                                                                                                                  Delqs
                                                                     Recession                                                                                                          22
                                                                                                                                                     21.9% 4Q08
                                                                   March-Nov 2001

                    10
                                                                                                                  S&P/Case-Shiller HPI                                                  20
                                                                                                                  +15.7% YoY 1Q05
                                                                                         Subprime




                                                                                                                                                                                             % Subprime Debt
                     5                                                                     Delqs
        YoY % Chg




                                                                                        15.0% 2Q02                                                                                      18

                     0
                                                                                                                                                                    Recession
                                                                                                                                                                                        16
                                                                                                                                                                      Starts
                     -5
                                                                                                                                                                     Dec 2007

                                                                                                                                                                                        14
                    -10


                                                                                                                                                                                        12
                    -15
                                                                                    Subprime Delqs 10.3%
                                                                                                                                                S&P/Case-Shiller
                                                                                      2Q00, 4Q04, 2Q05
                                                                                                                                                -18.2% YoY 4Q08
                    -20                                                                                                                                                                 10
                          Jun-   Dec-   Jun-   Dec-   Jun-   Dec-    Jun-    Dec-     Jun-   Dec-   Jun-   Dec-   Jun-   Dec-   Jun-   Dec-   Jun-   Dec-   Jun-   Dec-   Jun-   Dec-
                           98     98     99     99     00     00      01      01       02     02     03     03     04     04     05     05     06     06     07     07     08     08


                                         S&P/Case Shiller House Price Index, YoY Chg                 Subprime Delinquencies % of Subprime Mortgages Outstanding
                                                                                                                                                                                                               23
Source: Prepared by TCW from data from Standard & Poor’s and Mortgage Bankers Association
S&P/Case Shiller 20-City Monthly Composite                   S&P/Case-Shiller 20-City Monthly Composite
January 2000 – January 2009                                        January 2000 - January 2009


                          225                                                                                                         20
                                  Decline of 29% from peak through January 2009                                July 2006
                                                                                                                  207
                                                                                                                                      15
                          200
                                                                                     Aug 2004                                         10
                                                                                    17.1% YoY

                          175                                                                                                         5


                                                                                                                                      0
                          150
                                                                                                                                      -5

                                                                                                                           Jan 2009
                          125                                                                                                146
                                                                                                                                      -10


                                                                                                                                      -15
                          100
                                                                                                                   Jan 2009           -20
                                                                                                                  -19.0% YoY
                           75                                                                                                         -25
                        S e -0 0




                        S e -0 1




                        S e -0 2




                        S e -0 8
                        S e -0 3




                        S e -0 6




                        S e -0 7
                        S e -0 4




                        S e -0 5
                        M - 00




                        M - 01




                        M - 02




                              09
                        M - 03




                        M - 08
                        M - 04




                        M - 05




                        M - 06




                        M - 07
                        Ja 0 0




                        Ja 0 1




                        Ja 0 2




                        Ja 0 8
                        Ja 0 3




                        Ja 0 7
                        Ja 0 4




                        Ja 0 5




                        Ja 0 6
                           p-




                           p-




                           p-




                           p-
                           n-
                           p-




                           p-




                           p-
                           p-




                           p-
                          ay




                          ay




                          ay




                          ay




                          ay




                          ay




                          ay




                          ay




                          ay
                           n




                           n




                           n




                           n




                           n
                           n




                           n




                           n




                           n
                        Ja




    Exhibit by TCW from Standard & Poor’s data                                                                                              24
Source: Prepared by TCW from data from Standard & Poor’s          S&P/Case-Shiller 20-City Index   YoY % Chg
FARES House Price Index
July 2006 United States Peak to March 2009




                                                         25
Source: First American Real Estate Solutions data, TCW
FARES House Price Index
March 2009 Year-over-Year Change




                                                         26
Source: First American Real Estate Solutions data, TCW
  Housing Inventory-to-Sales Ratios




      Exhibit by TCW from Federal Reserve data   27
Source: Ned Davis Research, Inc.
    Existing and New Home Sales




Charts by TCW from National Association of Realtors and Census Bureau data   28
Note: “Monthly units sold” is a Seasonally Adjusted Annualized Rate
  Housing Starts & Permits
  Thousands Thousands

         2250                Total housing starts                                                                            2250

         2050                                                                                                                2050
                             Total housing permits
         1850                                                                                                                1850

         1650                                                                                                                1650

         1450                                                                                                                1450

         1250                                                                                                                1250

         1050                                                                                                                1050

           850                                                                                                               850

           650                                                                                                               650

           450                                                                                                               450




                                                                                     04

                                                                                            05

                                                                                                   06

                                                                                                          07

                                                                                                                 08

                                                                                                                        09
                                    97

                                           98

                                                  99

                                                         00

                                                                01

                                                                       02

                                                                              03
            00

                      95

                             96




                                                                                   20

                                                                                          20

                                                                                                 20

                                                                                                        20

                                                                                                               20

                                                                                                                      20
                                  19

                                         19

                                                19

                                                       20

                                                              20

                                                                     20

                                                                            20
          19

                    19

                           19




                                                                                                                                    29
Source: Bloomberg
Housing Starts, Seasonally Adjusted Annualized Rate
January 1959 - March 2009




                                                      30
Source: Bloomberg
Non-Agency Securitized Mortgage Pool
Foreclosure % UPB




    Exhibit by TCW from LoanPerformance data
Source: LoanPerformance data and TCW as of March 31, 2009   31
Subprime Securitized Mortgage Serious Delinquency Levels
(60++) vs. Constant Default Rate (CDR)
45.0%
                                                                                                                    60++ 41.1%
40.0%

35.0%

30.0%

25.0%

20.0%

15.0%                                                                                                               CDR 13.4%
10.0%

   5.0%

   0.0%
            Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐
             00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09
                                                                                                                                 32
Source: LoanPerformance data and TCW as of March 31, 2009 | Note: Serious delinquencies refers to 60++ days late.
           Subprime Securitized Mortgages Serious Delinquency Levels
           vs. Constant Default Rate (CDR)

                                              Foreclosure and REO                                                                                                         Foreclosure, REO and Bankruptcy

25.0%

                                                                                                   FC+REO 20.5%
                                                                                                                                             25.0%
                                                                                                                                                                                                                                   FC+REO+BK 22.6%
20.0%
                                                                                                                                             20.0%



15.0%                                                                                                                                        15.0%


                                                                                                                                                                                                                           CDR 13.4%
10.0%
                                                                              CDR 13.4%                                                      10.0%



 5.0%                                                                                                                                         5.0%



                                                                                                                                              0.0%
 0.0%
        Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-           Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-
         00     00     01     01     02     02     03     03     04    04      05     05     06    06      07     07     08    08      09             00    00      01    01      02    02      03    03      04    04      05    05      06    06      07    07      08    08      09
                                                                                                                                                                                                                                                                                   33
                Source: LoanPerformance data and TCW as of March 31, 2009.
Subprime Securitized Mortgages Serious Delinquency Levels
(90-day only) vs. Constant Default Rate (CDR)
                      16.0%
                                                                                                                                  90-days 15%
                      14.0%
                                                                                                                                  CDR 13.4%
                      12.0%

                      10.0%

                        8.0%

                        6.0%

                        4.0%

                        2.0%

                        0.0%
                                 Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan-
                                  00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09
                                                                                                                                                34
 Source: LoanPerformance data and TCW as of March 31, 2009 | Note: Serious delinquencies refers to 90 days late .
Alt-A Securitized Mortgage Serious Delinquency Levels (60++)
vs. Constant Default Rate (CDR)
                25.0%
                                                                                                                           60++ 20.91%
                20.0%


                15.0%


                10.0%
                                                                                                                           CDR 7.7%
                  5.0%


                  0.0%
                          Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐ Jul‐ Jan‐
                           00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09
                                                                                                                                         35
 Source: LoanPerformance data and TCW as of March 31, 2009 | Note: Serious delinquencies refers to 60++ days late.
        Alt-A Securitized Mortgages Serious Delinquency Levels vs.
        Constant Default Rate (CDR)

                                                 Foreclosure and REO                                                                                                                                     Foreclosure, REO and Bankruptcy

12.0%
                                                                                                                    FC+REO 11.2%                                                   14.0%                                                                                                FC+REO+BK 12.3%
10.0%                                                                                                                                                                              12.0%

 8.0%                                                                                                               CDR 7.7%                                                       10.0%
                                                                                                                                                                                    8.0%
                                                                                                                                                                                                                                                                                                            CDR 7.7%
 6.0%
                                                                                                                                                                                    6.0%
 4.0%
                                                                                                                                                                                    4.0%
 2.0%                                                                                                                                                                               2.0%

 0.0%                                                                                                                                                                               0.0%




                                                                                                                                                                                           Jan-00


                                                                                                                                                                                                             Jan-01


                                                                                                                                                                                                                               Jan-02


                                                                                                                                                                                                                                                 Jan-03


                                                                                                                                                                                                                                                                   Jan-04


                                                                                                                                                                                                                                                                                     Jan-05


                                                                                                                                                                                                                                                                                                       Jan-06


                                                                                                                                                                                                                                                                                                                         Jan-07


                                                                                                                                                                                                                                                                                                                                           Jan-08


                                                                                                                                                                                                                                                                                                                                                             Jan-09
                                                                                                                                                                                                    Jul-00


                                                                                                                                                                                                                      Jul-01


                                                                                                                                                                                                                                        Jul-02


                                                                                                                                                                                                                                                          Jul-03


                                                                                                                                                                                                                                                                            Jul-04


                                                                                                                                                                                                                                                                                              Jul-05


                                                                                                                                                                                                                                                                                                                Jul-06


                                                                                                                                                                                                                                                                                                                                  Jul-07


                                                                                                                                                                                                                                                                                                                                                    Jul-08
        Jan-00
                 Jul-00
                          Jan-01
                                   Jul-01
                                            Jan-02
                                                     Jul-02
                                                              Jan-03
                                                                       Jul-03
                                                                                Jan-04
                                                                                         Jul-04
                                                                                                  Jan-05
                                                                                                           Jul-05
                                                                                                                    Jan-06
                                                                                                                             Jul-06
                                                                                                                                      Jan-07
                                                                                                                                               Jul-07
                                                                                                                                                        Jan-08
                                                                                                                                                                 Jul-08
                                                                                                                                                                          Jan-09




                                                                                                                                                                                                                                                                                                                                                       36
         Source: LoanPerformance data and TCW as of March 31, 2009.
Alt-A Securitized Mortgages Serious Delinquency Levels
(90-days only) vs. Constant Default Rate (CDR)
       9.0%
                                                                                                                   CDR 7.7%
       8.0%
       7.0%
                                                                                                                   90-days 7.1%
       6.0%
       5.0%
       4.0%
       3.0%
       2.0%
       1.0%
       0.0%
                  Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan-
                   00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09

                                                                                                                              37
 Source: LoanPerformance data and TCW as of March 31, 2009 | Note: Serious delinquencies refers to 90+ days .
Prime Securitized Mortgages Serious Delinquency Levels (60++)
vs. Constant Default Rate (CDR)
                5.0%

                4.5%                                                                                                                                                  60++ 4.4%
                4.0%

                3.5%

                3.0%

                2.5%

                2.0%

                1.5%                                                                                                                                                  CDR 0.90%
                1.0%

                0.5%

                0.0%
                         Jan-     Jul-    Jan- Jul-        Jan- Jul-         Jan- Jul-        Jan-     Jul- Jan-    Jul- Jan-   Jul- Jan-   Jul-   Jan- Jul-   Jan-
               ‐0.5% 00            00      01   01          02   02           03   03          04       04   05      05   06     06   07     07     08   08     09
                                                                                                                                                                                  38
Source: LoanPerformance data and TCW as of March 31, 2009 | Note: Serious delinquencies refers to 60++ days late.
      Prime Securitized Mortgages Serious Delinquency Levels vs.
      Constant Default Rate (CDR)

                           Foreclosure and REO                                       Foreclosure, REO and Bankruptcy


2.5%                                                                          2.5%                     FC+REO+BK 2.3%
                                                               FC+REO 2.1%
2.0%                                                                          2.0%

1.5%                                                                          1.5%

1.0%                                                               CDR 0.9%   1.0%                         CDR 0.9%
0.5%                                                                          0.5%
0.0%                                                                          0.0%
  Ja 0 0


  Ja 1


  Ja 0 2


  Ja 3


  Ja 0 4


  Ja 5


  Ja 6


  Ja 7


  Ja 8
   Ju 0


   Ju 1


   Ju 2


   Ju 3


   Ju 4


   Ju 5


   Ju 6


   Ju 7


   Ju 8

       09
     l-0




     l-0




     l-0


     l-0


     l-0


     l-0
       0


       0


       0


       0


       0


       0


       0


       0


       0




                                                                               Ja 0


                                                                               Ja 1


                                                                               Ja 0 2


                                                                               Ja 3


                                                                               Ja 4


                                                                               Ja 5


                                                                               Ja 0 6


                                                                               Ja 7


                                                                               Ja 0 8
                                                                                Ju 0


                                                                                Ju 1




                                                                                Ju 4


                                                                                Ju 5
                                                                                Ju 2




                                                                                Ju 6
                                                                                Ju 3




                                                                                Ju 7


                                                                                Ju 8

                                                                                    09
     l-




     l-




     l-




‐0.5%
    n-


    n-


    n-


    n-


    n-


    n-


    n-


    n-


    n-


    n-




                                                                                  l-0


                                                                                  l-0




                                                                                  l-0


                                                                                  l-0


                                                                                  l-0




                                                                                  l-0
                                                                                    0


                                                                                    0


                                                                                    0




                                                                                    0
                                                                                    0


                                                                                    0




                                                                                    0


                                                                                    0


                                                                                    0
                                                                                  l-




                                                                                  l-




                                                                                  l-
                                                                                 n-


                                                                                 n-


                                                                                 n-


                                                                                 n-


                                                                                 n-


                                                                                 n-


                                                                                 n-


                                                                                 n-


                                                                                 n-


                                                                                 n-
 Ja




                                                                              Ja                                       39
      Source: LoanPerformance data and TCW as of March 31, 2009.
Prime Securitized Mortgages Serious Delinquency Levels
(90-day only) vs. Constant Default Rate (CDR)
     1.8%
                                                                                                                                                                              90-day 1.6%
     1.6%

     1.4%

     1.2%

     1.0%                                                                                                                                                                     CDR 0.90%
     0.8%

     0.6%

     0.4%

     0.2%

     0.0%
              Jan-      Jul-     Jan-       Jul-     Jan-      Jul-     Jan-      Jul-     Jan-       Jul-     Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-   Jul-   Jan-
    ‐0.2% 00             00       01         01       02        02       03        03       04         04       05     05     06     06     07     07     08     08     09

                                                                                                                                                                                          40
Source: LoanPerformance data and TCW as of March 31, 2009 | Note: Serious delinquencies refers to 90+ days .
Loss Severities on First Liens
January 2005 – March 2009
                                                                      Prime                             Alt A                           Sub Prime
70%
                                                                                                                                                                                                    65.1%
60%
                                                                                                                                                                                                    56.9%
50%
                                                                                                                                                                                                    45.5%
40%

30%

20%

10%

  0%




                                                                                                                                                                                     0
                                                    1




                                                                            7




                                                                                                   1


                                                                                                               4


                                                                                                                          7


                                                                                                                                      0


                                                                                                                                                  1


                                                                                                                                                             4


                                                                                                                                                                          7




                                                                                                                                                                                                1
       1


                  4


                             7


                                         0




                                                                4




                                                                                       0
                                                 ‐0




                                                                         ‐0




                                                                                                ‐0


                                                                                                            ‐0


                                                                                                                       ‐0


                                                                                                                                   ‐1


                                                                                                                                               ‐0




                                                                                                                                                                                  ‐1
                                                                                                                                                                       ‐0




                                                                                                                                                                                             ‐0
    ‐0


               ‐0




                                                                                                                                                          ‐0
                          ‐0


                                      ‐1




                                                             ‐0




                                                                                    ‐1




‐10%
                                                                                                          07




                                                                                                                                 07


                                                                                                                                             08




                                                                                                                                                                                08


                                                                                                                                                                                           09
  05


             05


                        05


                                    05


                                               06


                                                           06


                                                                       06


                                                                                  06


                                                                                              07




                                                                                                                     07




                                                                                                                                                        08


                                                                                                                                                                     08
                                                                                                        20




                                                                                                                               20


                                                                                                                                           20


                                                                                                                                                      20


                                                                                                                                                                   20


                                                                                                                                                                              20


                                                                                                                                                                                         20
20


           20


                      20


                                  20


                                             20


                                                         20


                                                                     20


                                                                                20


                                                                                            20




                                                                                                                   20                                                                                 41
 Source: Loan Performance data based on FICO and LTV. | Prime: FICO > 725 and LTV <75 | Alt-A: FICO 675-725; and FICO > 725 and LTV >= 75 | Subprime: FICO > 675
RMBS Ratings Migration
• Total Outstanding Balance $1.6 trillion
                                                           Current
                                                           Rating                 ==>

                                             Original
                                              Rating           AAA                AA     A      BBB     BB     B      CCC     CC     C      D      Totals
                                  Prime         AAA            13.2%              2.8%   1.7%    3.6%   4.4%   2.2%    1.9%   0.4%   0.0%   0.0%     30.2%
                                                  AA            0.0%              0.3%   0.0%    0.1%   0.1%   0.1%    0.1%   0.1%   0.1%   0.0%      0.9%
                                                   A            0.0%              0.0%   0.1%    0.0%   0.0%   0.0%    0.0%   0.0%   0.1%   0.0%      0.3%
                                                BBB             0.0%              0.0%   0.0%    0.1%   0.0%   0.0%    0.0%   0.0%   0.1%   0.0%      0.2%
                                                  BB            0.0%              0.0%   0.0%    0.0%   0.0%   0.0%    0.0%   0.0%   0.0%   0.0%      0.1%
                                                   B            0.0%              0.0%   0.0%    0.0%   0.0%   0.0%    0.0%   0.0%   0.0%   0.0%      0.1%
            Prime Total                                        13.3%              3.2%   1.8%    3.7%   4.5%   2.3%    2.1%   0.6%   0.3%   0.0%     31.8%
                                   Alt-A           AAA          3.0%              1.7%   1.1%    2.3%   3.7%   6.3%   13.5%   4.8%   0.1%   0.0%     36.5%
                                                    AA          0.0%              0.3%   0.1%    0.1%   0.1%   0.1%    0.1%   0.2%   1.3%   0.0%      2.4%
                                                     A          0.0%              0.0%   0.1%    0.0%   0.0%   0.0%    0.1%   0.1%   0.6%   0.0%      0.9%
                                                   BBB          0.0%              0.0%   0.0%    0.1%   0.0%   0.0%    0.0%   0.0%   0.3%   0.0%      0.5%
                                                    BB          0.0%              0.0%   0.0%    0.0%   0.0%   0.0%    0.0%   0.0%   0.1%   0.0%      0.2%
                                                     B          0.0%              0.0%   0.0%    0.0%   0.0%   0.0%    0.0%   0.0%   0.0%   0.0%      0.1%
            Alt-A Total                                           3.0%            2.1%   1.3%    2.5%   3.9%   6.4%   13.7%   5.1%   2.5%   0.1%    40.6%
                            SubPrime               AAA            2.5%            1.1%   1.1%    1.4%   2.1%   3.4%    3.5%   1.5%   0.1%   0.0%    16.7%
                                                    AA            0.0%            1.6%   0.5%    0.4%   0.4%   0.5%    0.4%   0.3%   2.2%   0.0%     6.2%
                                                     A            0.0%            0.0%   0.3%    0.2%   0.3%   0.2%    0.3%   0.1%   1.5%   0.0%     3.0%
                                                   BBB            0.0%            0.0%   0.0%    0.1%   0.1%   0.1%    0.1%   0.1%   1.0%   0.1%     1.5%
                                                    BB            0.0%            0.0%   0.0%    0.0%   0.0%   0.0%    0.0%   0.0%   0.1%   0.0%     0.2%
                                                     B            0.0%            0.0%   0.0%    0.0%   0.0%   0.0%    0.0%   0.0%   0.0%   0.0%     0.0%
            SubPrime Total                                        2.6%            2.6%   1.9%    2.1%   2.9%   4.1%    4.3%   2.1%   4.9%   0.2%    27.5%
           Grand Total CR                                     18.9%           7.9%       5.1%   8.3% 11.2% 12.8% 20.0%        7.8%   7.7%   0.3%   100.0%
           Grand Total OR                                     83.6%           9.5%       4.2%   2.2% 0.4% 0.1% 0.0%           0.0%   0.0%   0.0%   100.0%    42
Source: Intex, Loan Performance, Rating Agencies, TCW. Data through March 2009.
    RMBS Credit Enhancement vs. 60++ Delinquencies by Rating
                                       AAA                          AA                          A                           BBB                      BB                          B                          CCC                    CC                     C                          D




                                             Credit Enh.




                                                                         Credit Enh.




                                                                                                     Credit Enh.




                                                                                                                              Credit Enh.




                                                                                                                                                          Credit Enh.




                                                                                                                                                                                      Credit Enh.




                                                                                                                                                                                                             Credit Enh.




                                                                                                                                                                                                                                    Credit Enh.




                                                                                                                                                                                                                                                              Credit Enh.




                                                                                                                                                                                                                                                                                         Credit Enh.
       RMBS Original




                                                             60++




                                                                                         60++




                                                                                                                     60++




                                                                                                                                              60++




                                                                                                                                                                          60++




                                                                                                                                                                                                     60++




                                                                                                                                                                                                                            60++




                                                                                                                                                                                                                                                   60++




                                                                                                                                                                                                                                                                              60++




                                                                                                                                                                                                                                                                                                          60++
      Sector  Rating
       Prime    AAA                        7.90             2.27     8.62               3.70        8.95            5.13     8.52            5.65      7.61              7.21        9.39           9.18 10.03 11.91               7.84 12.49             4.49              18.68
                  AA                     14.02              1.97     3.93               3.10        4.42            3.60     4.09            3.77      3.50              4.84        3.76           6.16    2.73           7.76    2.75           8.49    3.24              13.46
                   A                     10.72              2.33     3.87               1.81        2.91            3.01     2.57            3.57      1.74              2.83        2.38           4.77    1.87           6.29    1.28           7.43    1.75              10.89
               BBB                         8.87             2.57     3.48               1.87        2.17            1.43     2.12            2.80      1.43              3.61        1.22           3.70    1.22           5.32    1.13           7.25    0.95              10.11 0.00                 22.55
                 BB                                                  3.49               1.94        2.21            1.63     1.14            1.99      0.66              3.26        0.80           6.20    0.62           5.83    0.48           9.56    0.39               7.90 0.10                 11.26
                   B                       5.55             2.30                                    1.94            2.70     1.11            1.06      0.77              1.44        0.28           2.62    0.27           3.90    0.27           6.54    0.21               5.47 0.03                  9.10
        Alt-A   AAA                      21.05              8.50    30.87              12.77 25.06                 15.02    25.30           15.38     34.13             20.35 28.78 20.84 17.91 26.25 13.13 27.36 10.75                                                     29.03
                  AA                     22.60              5.29    11.83              10.46 13.53                 10.94    14.76           15.17     12.06             13.13 13.11 14.67                   7.90 18.89             7.46 20.41             5.69              28.93 1.93                 16.51
                   A                     15.64              4.55     8.78               6.04        7.81           10.56    12.82            9.65     11.25             10.80        8.81 13.77             7.86 22.47 10.49 19.81                        3.16              27.34 2.42                 24.84
               BBB                         9.68             3.58     7.30               3.70        5.50            5.94     4.87            9.24      8.94              9.58        9.45           9.82    4.22 12.51             2.47 15.82             1.75              26.27 0.88                 26.84
                 BB                                                  4.27               1.88        3.60            4.55     2.96            5.29      1.08             12.02        0.96 12.21             4.92 16.58             3.83 26.01             1.16              20.40 0.03                 25.08
                   B                                                                                2.36            1.71     1.41            2.21      1.12              3.24        0.44           9.74    0.36           7.69    3.01 26.06             0.52              18.07 0.07                 15.50
               CCC                                                                                                                                                                                                                                                                   0.70              31.86
                 CC                                                                                                                                                                                                                                       1.14              12.00
                   C                                                                                                                                                                                                                                      0.61               6.20
    SubPrime    AAA                      54.56             25.82    52.58              33.12 41.47                 34.92    37.93           35.10     40.61             36.09 29.74 40.41 25.99 41.68 20.41 46.67 19.59                                                     38.44
                  AA                     29.92             10.59    48.14              20.64 42.31                 24.20    33.43           21.59     32.88             30.17 27.77 29.64 23.49 31.15 21.22 33.08 14.53                                                     38.85 9.42                 28.62
                   A                     21.41             11.69    42.72               9.33 26.33                 15.84    24.31           20.41     24.26             20.54 21.14 23.85 17.75 27.08 12.71 27.40                                         8.75              33.97 0.23                 32.89
               BBB                      100.00             32.40     7.70               4.89 27.32                 10.84    16.17           13.39     10.53             13.56 11.39 18.06 10.28 20.96                              8.96 23.78             5.30              30.10 1.17                 25.39
                 BB                                                                                 5.95            5.50     7.97           10.16      6.72             22.52 17.16 32.13                   4.43 23.89             4.03 19.62             2.66              30.32 0.33                 27.79
                   B                                                                                                                                   3.47              5.50        2.42 24.48             0.70           3.60    0.28 12.09             3.83              28.60 2.41                 32.75
               CCC                                                                                                                                                                                                                                        1.91              54.47 0.26                 40.62
                 CC                                                                                                                                                                                                                                       0.47              29.86 0.68                 18.15
                   C                                                                                                                                                                                                                                                                 0.06              10.90
                   D                                                                                                                                                                                                                                                                 0.07                  43
                                                                                                                                                                                                                                                                                                       11.10
Source: Intex, Loan Performance, Rating Agencies, TCW. Data through March 2009 includes credit enhancement, 60++ Delinquency,
Mortgage Refinancing Index




                                    44
 Source: Bloomberg Financial L.P.
Prime Securitized Mortgage Constant Prepayment Rate (CPR)
Constant Default Rate (CDR) + Constant Return Rate (CRR) = Constant Prepayment Rate (CPR)

                    30%
                                                                                                                         CDR = 0.9%                                   Loans paid off with loss
                    25%                                                                                                + CRR = 18.4%                                  Loans paid in full/prepays
                                                                                                                         CPR = 19.3%                                  Prepayment Speed
                    20%

                    15%

                    10%

                      5%

                      0%

                    Se l- 07
                    Se l- 05




                    Se l-06




                    Se l-08
                     J u - 07
                     J u - 05




                     J u - 06




                     J u - 08
                    M -0 7




                    M -0 8




                    M -0 9
                    M -0 6
                    M -0 5




                    No -05
                    J a -05


                      ay 6


                    No -06
                    J a -06




                    No -07
                    J a -07


                      ay 8


                    No -08
                    J a -08


                            9
                      ay 7
                      ay 5




                         -0
                    M -0




                    M r-0




                    M -0
                    M r-0




                       n




                       n




                       n




                       n
                       n




                       v




                       v




                       v




                       v
                       p




                       p
                       p




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                      ar
                      ar




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                      a
                      a
                    Ja




                                                                                                                                                                                             45
Source: LoanPerformance data and TCW as of March 20, 2009 | Note: Constant Default Rates (CDR)+ Constant Rate of Return (CRR) or Loans Paid in Full = Constant Prepayment Rate (CPR)
Alt-A Securitized Mortgage Constant Prepayment Rate (CPR)
 Constant Default Rate (CDR) + Constant Return Rate (CRR) = Constant Prepayment Rate (CPR)

                                                                                                                          CDR = 7.7%    Loans paid off with loss
                              35%                                                                                         CRR = 7.3%    Loans paid in full/prepays
                              30%                                                                                         CPR = 15.1%   Prepayment Speed
                              25%
                              20%
                              15%
                              10%
                                5%
                                0%
                              Ju 5




                              Ju 6




                              Ju 7




                              Ju 8
                             Ja 5




                             Ja 6




                             Ja 7




                             Ja 8
                             Oc 5




                             Oc 6




                             Oc 7




                             Oc 8
                             Ap 5




                             Ap 6




                             Ap 7




                             Ap 8




                                   09
                                 r‐0




                                 r‐0




                                 r‐0




                                 r‐0
                                t ‐0




                                t ‐0




                                t ‐0




                                t ‐0
                                 l‐0




                                 l‐0




                                 l‐0




                                 l‐0
                                   0




                                   0




                                   0




                                   0
                                n‐




                                n‐




                                n‐




                                n‐




                                n‐
                             Ja




                                                                                                                                                                 46
Source: LoanPerformance data and TCW as of March 20, 2009 | Note: Constant default rates + Loans Paid in Full = Prepayment Speed
Subprime Securitized Mortgage Constant Prepayment Rate (CPR)
 Constant Default Rate (CDR) + Constant Return Rate (CRR) = Constant Prepayment Rate (CPR)

                                45%
                                                                                                                      CDR = 13.4%                                Loans paid off with loss
                                40%
                                                                                                                    + CRR = 2.8%                                 Loans paid in full/prepays
                                                                                                                      CPR = 16.1%                                Prepayment speed
                                35%
                                30%
                                25%
                                20%
                                15%
                                10%
                                  5%
                                  0%
                                          6




                                          8
                                          5




                                          7
                                          5




                                          6




                                          7




                                          8
                                          5




                                  Oc 6




                                          7




                                  Oc 8
                                        06




                                        07




                                        08




                                        09
                                        05




                                      r‐0




                                      r‐0
                                      r‐0




                                      r‐0
                                     t ‐0




                                     t ‐0




                                     t ‐0




                                     t ‐0
                                      l‐0




                                      l‐0




                                      l‐0




                                      l‐0
                                     n‐




                                     n‐




                                     n‐
                                     n‐




                                     n‐


                                   Ju




                                   Ju




                                   Ju
                                   Ju
                                  Ap




                                  Ap




                                  Ap




                                  Ap
                                  Oc




                                  Oc
                               Ja




                                  Ja




                                  Ja




                                  Ja




                                  Ja
                                                                                                                                                                                          47
Source: LoanPerformance data and TCW as of March 20, 2009 | Note: Constant Default Rates (CDR)+ Constant Rate of Return (CRR) or Loans Paid in Full = Constant Prepayment Rate (CPR)
Example I –

Sample Security Detailed Analysis:
Countrywide Alternative Loan Trust 2004-24CB 2A11
(CWALT 2004-24CB 2A1)

This security is used for illustrative purposes only. The assumptions and hypothetical return analysis used in this presentation are not predictions and
are based upon a variety of assumptions that take into account a combination of historical data and/or conditions known to the TCW MBS Group as of
February 27, 2009. The assumptions, returns and estimates contained in this presentation are necessarily speculative in nature, and it can be expected
that some or all of the assumptions underlying the hypothetical illustrations will not materialize or will vary significantly from actual results. No
representation is made that any returns indicated will be achieved or that all assumptions have been considered or stated. Investing in mortgage-backed
securities involves many risks, including, but not limited to, credit risk, liquidity risk and market risk.



                                                                                                                                                           48
1. This security is used for illustrative purposes only. No representation is made that this security would actually be purchased for the Strategy.
Sample Security Purchase
Countrywide Alternative Loan Trust 2004-24CB 2A11
Priced at $78 on February 27, 2009

Security-Level Characteristics2:
    – AAA rated by S&P and Moody’s
    – Senior sequential
    – 11.59% credit enhancement

Pool-Level Characteristics2:
    – Borrower average FICO score 715
    – 60+ day delinquencies (including foreclosure) 2.35% of total current par
    – Average homeowner equity is high with Loan-to-Value (LTV) of 50.57%.


1. This security is used for illustrative purposes only. No representation is made that this security would actually be purchased for any TCW strategy.
2. See pages 48-49.
                                                                                                                                                          49
     CWALT 2004-24CB 2A1 – Data Analysis1
                                                                     CWALT 2004-24CB 2A1                         Moody's              Aaa           Coupon               5.00%        Collat Orig Bal       $100,000,000
                                                                     12667FVP7                                         S&P          AAA/*-             Type              FIXED        Collat Curr Bal           $41,291,409
                                                                     Alt-A Fixed                                      Fitch                         Formula                               Pool Factor           0.41291409

•      Extensive analysis of                                         SEQ,AS                                                                       Nxt Reset                               Coupon Cap



       data available regarding                                              Collateral Data
                                                                          Fixed              100.00%          WA HPA
                                                                                                                         HPA
                                                                                                                                   8.218%
                                                                                                                                                                 Credit Enhancement
                                                                                                                                                           OC Actual

       collateral quality,                                                ARM
                                                                          WAM
                                                                                               0.00%
                                                                                                  121                    LTV
                                                                                                                                                           OC Target
                                                                                                                                                       OC Deficiency


       structure and
                                                                         WALA                      54         Adj LTV             62.546%              Excess Spread
                                                                          WAC                  5.741%           LTV               66.535%                 Original CE                          5.25%
                                                                       WA Margin                             Amort LTV            50.609%                 Current CE                         11.595%

       performance                                                     # of Loans
                                                                       Avg Amount
                                                                                                  388
                                                                                        $106,421.16
                                                                                                            Adj Amr LTV
                                                                                                                 NA
                                                                                                                                  47.575%
                                                                                                                                    0.00%                                   Delinquency
                                                                       Conforming            100.00%            < 70              46.144%                               LP OTS   LP MBA         BBG     Intex
                                                                            IO                 0.00%           70-80              27.091%           60++                                       2.35%    1.90%

•      Resources used: Loan                                              Neg Am
                                                                        2nd Lien
                                                                                               0.00%
                                                                                               0.00%
                                                                                                               80-90
                                                                                                               90-100
                                                                                                                                   20.41%
                                                                                                                                   6.065%
                                                                                                                                                  Delinq 30
                                                                                                                                                  Delinq 60
                                                                                                                                                                        0.946%
                                                                                                                                                                        1.197%
                                                                                                                                                                                 1.486%
                                                                                                                                                                                 0.946%
                                                                                                                                                                                               1.40%
                                                                                                                                                                                               0.94%
                                                                                                                                                                                                        2.60%
                                                                                                                                                                                                        1.00%


       Performance, Intex,
                                                                         40 Year               0.00%           > 100                0.29%        Delinq 90               0.25%   1.447%        1.41%    0.90%
                                                                           MH                  0.00%          LTV > 90             6.355%           FCL                  0.00%    0.00%        0.00%    0.00%
                                                                         CO Refi               39.41%                                               REO                  0.00%    0.00%        0.00%    0.00%

       Bloomberg                                                        NCO Refi
                                                                        Purchase
                                                                                               18.15%
                                                                                               42.43%          CLTV
                                                                                                                         CLTV
                                                                                                                                  68.233%
                                                                                                                                                    BNK                 0.078%   0.078%        0.08%    0.10%


                                                                       2nd Home                9.638%            NA                 0.00%                          Prepay - Losses
                                                                         Owner                 65.66%           < 70               45.14%                  CPR 1M

•      Screen from our                                                   Investor
                                                                         Full Doc
                                                                                               24.67%
                                                                                               26.82%
                                                                                                               70-80
                                                                                                               80-90
                                                                                                                                  26.382%
                                                                                                                                  15.417%
                                                                                                                                                           CPR 3M
                                                                                                                                                           CPR 6M                              6.07%


       internally developed
                                                                         Lim Doc               73.20%          90-100              9.281%                  CPR Life                           13.78%
                                                                         No Doc                0.00%           > 100               3.781%                  CRR 1M
                                                                       Risky Loans             6.468%        CLTV > 90            13.061%                  CRR 3M                              6.46%

       systems is shown to the                                                   ARM Types                               FICO
                                                                                                                                                           CDR 1M
                                                                                                                                                           CDR 3M
                                                                                                                                                                                               0.00%
                                                                                                                                                                                               0.00%


       right
                                                                           2/28                0.00%           FICO             714.577292            Cumulative Loss                         0.007%
                                                                           3/27                0.00%             NA                0.785%               Current Loss
                                                                           5/25                0.00%           < 550                0.00%               Severity 1M
                                                                           7/23                0.00%          550-600               0.62%               Severity 3M                           1.912%
                                                                           3/1                 0.00%          600-650              8.536%               Severity Life                         1.912%
                                                                           5/1                 0.00%          650-700             25.124%
                                                                           7/1                 0.00%          700-750             41.218%
                                                                           10/1                0.00%           >= 750             23.717%
                                                                                                                                                                                                                      50
    Data Sources: Loan Performance, Intex, Bloomberg
    1. This security is used for illustrative purposes only. No representation is made that this security would actually be purchased for any TCW strategy.
Scenario Analysis - Definitions                    1




• The following page demonstrates hypothetical yield-to-maturity (YTM) calculations2 for the selected security.

    - For each scenario (base case, good case and stressed case) the following calculations were used:
             Default rate – the CDR is the percentage that the collateral will default over the first year,
             consistent with the current 60-day delinquency rate, and the subsequent defaults were used thereafter.

             Recovery Rate (severity) – Assumes that percentage of the principal will be recovered for the defaulted loans

             Principal Writedown – shows the principal in the security that is lost under that particular scenario.

             Total Collateral Liquidated – shows the total collateral expected to default given the FICO score distributions
             in the underlying collateral pool. In general, the lowest FICO scores will have the highest percentage of defaults.
             As the FICO gets higher, the default percentages tend to get lower.



1. This security is used for illustrative purposes only. No representation is made that this security would actually be purchased for the Strategy.
2. Assumptions are based on current market conditions and certain underlying assumptions, and have been calculated for illustrative purposes only. They are not guaranteed and
could be substantially different if market conditions change or actual events differ from the underlying assumptions.
CWALT 2004-24CB 2A1 – Scenario Analysis1,2
• February month-end price of $78                                                                                 • 715 average FICO score
• 5% fixed coupon                                                                                                 • 2.35% 60+ days delinquent in group
• AAA rated by Moody’s and S&P                                                                                    • 11.59% current credit support
                                                                                                 Scenario I                                               Scenario II                                                    Scenario III
                                                                                                                                                                             3
                                                                                                  (Base Case)                                           (Stressed Case)                                                (Optimistic Case)


               Assumed Prepayment Speed                                                              6 CPR                                                    6 CPR                                                          10 CPR


                    Assumed Default Rate                                                      3 CDR for life                                            4 CDR for life                                                 2 CDR for life


          Assumed Projected Recovery Rate                                                             50%                                                      40%                                                             60%
                                (Severity)                                                       (50% severity)                                            (60% severity)                                                 (40% severity)



                         Yield to Maturity                                                        12.53%                                                   12.27%                                                          13.57%

                                   WAL                                                           4.24 years                                                4.35 years                                                     3.73 years

                      Principal Writedown                                                           0.00%                                                     1.68%                                                          0.00%

                 Total Collateral Liquidated                                                       18.51%                                                    28.69%                                                         10.74%

1. This security is used for illustrative purposes only. No representation is made that this security would actually be purchased for any TCW strategy.
                                                                                                                                                                                                                                                       Data Source: Intex
2. The yields to maturity, WALs, principal writedowns, and total collateral liquidated figures are based on current market conditions and certain underlying assumptions including those set forth above, and have been calculated for illustrative purposes only.          52
They are not guaranteed and could be substantially different if market conditions change or actual events differ from the underlying assumptions.
3. The “stressed case” does not represent the worst possible scenario and the level of distress could exceed that shown above which would further drive down the yield.
Example II –

Sample Security Detailed Analysis:
Countrywide Home Loans 1A11
(CWHL 2006-HYB2 1A1)


This security is used for illustrative purposes only. The assumptions and hypothetical return analysis used in this presentation are not predictions and
are based upon a variety of assumptions that take into account a combination of historical data and/or conditions known to the TCW MBS Group as of
February 25, 2009. The assumptions, returns and estimates contained in this presentation are necessarily speculative in nature, and it can be expected
that some or all of the assumptions underlying the hypothetical illustrations will not materialize or will vary significantly from actual results. No
representation is made that any returns indicated will be achieved or that all assumptions have been considered or stated. Investing in mortgage-backed
securities involves many risks, including, but not limited to, credit risk, liquidity risk and market risk.



1. This security is used for illustrative purposes only. No representation is made that this security would actually be purchased for any TCW strategy.    53
Sample Security Purchase
Countrywide Home Loans 2006-HYB2 1A11
Priced at $38 on February 25, 2009

Security-Level Characteristics2:
    – BBB rated by S&P, CCC rated by Moody’s
    – Super-senior ARM
    – 16.37% credit enhancement

Pool-Level Characteristics2:
    – Borrower average FICO score 713
    – 60+ day delinquencies (including foreclosure) 35.18% of total current par
    – Average homeowner equity is average with Loan-to-Value (LTV) of 74.26%.



1. This security is used for illustrative purposes only. No representation is made that this security would actually be purchased for any TCW strategy.
2. See pages 52-53.
                                                                                                                                                          54
     CWHL 2006-HYB2 1A1– Data Analysis1
                                                                      CWHL 2006-HYB2 1A1                          Moody's            Caa2            Coupon              5.408%        Collat Orig Bal          $105,596,132
                                                                      126694C63                                         S&P         BBB/*-              Type        VARIABLE           Collat Curr Bal              $48,614,935
                                                                      Alt-A ARM                                        Fitch                         Formula                                 Pool Factor        0.460385566


•     Extensive analysis of data                                      CSTR,SSNR,AS                                                                 Nxt Reset                                Coupon Cap                      0.02




      available regarding                                                     Collateral Data
                                                                           Fixed                0.00%          WA HPA
                                                                                                                          HPA
                                                                                                                                 -20.237%
                                                                                                                                                                  Credit Enhancement
                                                                                                                                                            OC Actual


      collateral quality,                                                  ARM
                                                                           WAM
                                                                          WALA
                                                                                              100.00%
                                                                                                   322
                                                                                                    38         Adj LTV
                                                                                                                          LTV
                                                                                                                                  96.427%
                                                                                                                                                            OC Target
                                                                                                                                                        OC Deficiency
                                                                                                                                                        Excess Spread

      structure and                                                        WAC
                                                                        WA Margin
                                                                                                5.70%
                                                                                                2.411%
                                                                                                                 LTV
                                                                                                              Amort LTV
                                                                                                                                  75.043%
                                                                                                                                  74.346%
                                                                                                                                                           Original CE
                                                                                                                                                           Current CE
                                                                                                                                                                                                 15.49%
                                                                                                                                                                                                 16.37%


      performance
                                                                        # of Loans                 154       Adj Amr LTV          95.587%
                                                                        Avg Amount       $315,681.40              NA                0.00%                                     Delinquency
                                                                        Conforming            39.981%            < 70             25.176%                                LP OTS    LP MBA          BBG      Intex
                                                                             IO                 43.88%          70-80             32.943%            60++                                        35.18%    35.20%

•     Resources used: Loan                                                Neg Am
                                                                         2nd Lien
                                                                                                0.00%
                                                                                                0.00%
                                                                                                                80-90
                                                                                                                90-100
                                                                                                                                  36.817%
                                                                                                                                   5.064%
                                                                                                                                                  Delinq 30
                                                                                                                                                  Delinq 60
                                                                                                                                                                         2.866%
                                                                                                                                                                         4.991%
                                                                                                                                                                                   7.831%
                                                                                                                                                                                   2.866%
                                                                                                                                                                                                  7.83%
                                                                                                                                                                                                  2.87%
                                                                                                                                                                                                           7.80%
                                                                                                                                                                                                            2.90%
                                                                          40 Year               0.00%           > 100               0.00%         Delinq 90              13.359%   18.35%        15.49%    15.50%

      Performance, Intex,                                                   MH
                                                                          CO Refi
                                                                                                0.00%
                                                                                                25.10%
                                                                                                               LTV > 90            5.064%            FCL
                                                                                                                                                     REO
                                                                                                                                                                         10.847%
                                                                                                                                                                         5.976%
                                                                                                                                                                                   10.847%
                                                                                                                                                                                   5.976%
                                                                                                                                                                                                 10.85%
                                                                                                                                                                                                  5.97%
                                                                                                                                                                                                           10.90%
                                                                                                                                                                                                           6.00%


      Bloomberg                                                          NCO Refi
                                                                         Purchase
                                                                        2nd Home
                                                                                                7.91%
                                                                                                66.98%
                                                                                                14.68%
                                                                                                                CLTV
                                                                                                                  NA
                                                                                                                          CLTV
                                                                                                                                  82.038%
                                                                                                                                    0.00%
                                                                                                                                                     BNK                 2.841%    2.841%         2.83%     2.80%


                                                                                                                                                                    Prepay - Losses
                                                                          Owner                 66.72%           < 70             18.055%                     CPR 1M

•     Screen from our                                                     Investor
                                                                          Full Doc
                                                                                                18.61%
                                                                                              24.266%
                                                                                                                70-80
                                                                                                                80-90
                                                                                                                                  20.113%
                                                                                                                                  20.519%
                                                                                                                                                              CPR 3M
                                                                                                                                                              CPR 6M                             23.18%


      internally-developed
                                                                          Lim Doc               75.70%          90-100            30.645%                     CPR Life                           22.66%
                                                                          No Doc                0.00%           > 100             10.668%                     CRR 1M
                                                                        Risky Loans           24.946%         CLTV > 90           41.313%                     CRR 3M                            15.047%

      systems is shown to the                                                     ARM Types                               FICO
                                                                                                                                                              CDR 1M
                                                                                                                                                              CDR 3M
                                                                                                                                                                                                11.859%
                                                                                                                                                                                                 3.953%


      right
                                                                            2/28                0.00%           FICO                712.62             Cumulative Loss                           2.664%
                                                                            3/27                5.559%            NA                0.00%                Current Loss                            0.586%
                                                                            5/25                0.00%           < 550               0.00%                Severity 1M                            54.296%
                                                                            7/23                0.00%          550-600              0.00%                Severity 3M                             53.19%
                                                                            3/1               94.441%          600-650             8.042%                Severity Life                           53.19%
                                                                            5/1                 0.00%          650-700            35.936%
                                                                            7/1                 0.00%          700-750            32.325%
                                                                            10/1                0.00%           >= 750            23.697%                                                                              55
    Data Sources: Loan Performance, Intex, Bloomberg
    1. This security is used for illustrative purposes only. No representation is made that this security would actually be purchased for any TCW strategy.
 Scenario Analysis - Definitions                      1




 • The following page demonstrates hypothetical yield-to-maturity (YTM) calculations2 for the selected security.

    - For each scenario (base case, good case and stressed case) the following calculations were used:
                      Default rate – the CDR is the percentage that the collateral will default over the first year,
                      consistent with the current 60-day delinquency rate, and the subsequent defaults were used thereafter.

                      Recovery Rate (severity) – Assumes that percentage of the principal will be recovered for the defaulted loans

                      Principal Writedown – shows the principal in the security that is lost under that particular scenario.

                      Total Collateral Liquidated – shows the total collateral expected to default given the FICO score
                      distributions in the underlying collateral pool. In general, the lowest FICO scores will have the highest
                      percentage of defaults. As the FICO gets higher, the default percentages tend to get lower.



1. This security is used for illustrative purposes only. No representation is made that this security would actually be purchased for the Strategy.
2. Assumptions are based on current market conditions and certain underlying assumptions, and have been calculated for illustrative purposes only. They are not guaranteed and
could be substantially different if market conditions change or actual events differ from the underlying assumptions.
  CWHL 2006-HYB2 1A1– Scenario Analysis1,2
     • Valued at $38 on February 25, 2009                                                                                                 • 713 average FICO score
     • Current coupon 5.41%                                                                                                               • 35.18% 60+ days delinquent in group
     • BBB rated by S&P, CCC rated by Moody’s                                                                                             • 16.37% current credit support
                                                                                           Scenario I                                         Scenario II                                              Scenario III
                                                                                                                                                                3
                                                                                            (Base Case)                                     (Stressed Case)                                          (Optimistic Case)


                  Assumed Prepayment Speed                                                    6 CPR                                               6 CPR                                                    6 CPR

                                                                                  35 CDR for 12 months,                              35 CDR for 12 months,                                     35 CDR for 12 months,
                       Assumed Default Rate
                                                                                        15 CDR for life                                     25 CDR for life                                           8 CDR for life

                                                                                               30%                                                 30%                                                      30%
        Assumed Projected Recovery Rate (Severity)
                                                                                           (70% severity)                                      (70% severity)                                           (70% severity)


                           Yield to Maturity                                                28.78%                                              27.74%                                                   29.61%

                                   WAL                                                     3.79 years                                          2.82 years                                               5.07 years

                        Principal Writedown                                                  43.53%                                              49.57%                                                   34.66%

                    Total Collateral Liquidated                                              74.89%                                              82.19%                                                   64.14%

1. This security is used for illustrative purposes only. No representation is made that this security would actually be purchased for any TCW strategy.                                                              Data Source: Intex
2. The yields to maturity, WALs, principal writedowns, and total collateral liquidated figures are based on current market conditions and certain underlying assumptions including those set forth above, and have been calculated for illustrative   57
purposes only. They are not guaranteed and could be substantially different if market conditions change or actual events differ from the underlying assumptions.
3. The “stressed case” does not represent the worst possible scenario and the level of distress could exceed that shown above which would further drive down the yield.
Navigating the 2009 Credit Markets

Moderator:   TCW Group’s Chief Investment Officer
             Jeffrey Gundlach


Panelists:   Komal Sri-Kumar – Global Economics

             Stefan Abrams – Equity Markets

             Jim Hassett – High Yield

             Samuel Garza – CMBS/CLO
U.S. Economic Growth
                                                       Gross Domestic Product
                                Percent Change from Preceding Period - Based on Chained 2000 Dollars
        6.0

        4.0

        2.0

       -
 %




      (2.0)                                                                    ]


      (4.0)

      (6.0)

      (8.0)
                    05

                           05

                                    05

                                           06

                                                  06

                                                          06

                                                                 06

                                                                        07

                                                                               07

                                                                                      07

                                                                                             07

                                                                                                    08

                                                                                                           08

                                                                                                                  08

                                                                                                                         08

                                                                                                                                09

                                                                                                                                       09

                                                                                                                                              09

                                                                                                                                                     09
                  2Q

                         3Q

                                  4Q

                                         1Q

                                                2Q

                                                        3Q

                                                               4Q

                                                                      1Q

                                                                             2Q

                                                                                    3Q

                                                                                           4Q

                                                                                                  1Q

                                                                                                         2Q

                                                                                                                3Q

                                                                                                                       4Q

                                                                                                                              1Q

                                                                                                                                     2Q

                                                                                                                                            3Q

                                                                                                                                                   4Q
                                                  Actual through Fourth Quarter 2008
Source: U.S. Bureau of Economic Analysis and TCW Global Strategy Forecast                                                                                 59
 U.S. Employment
                                                                  Steep Declines in Recent Months
                                   Monthly Net Change in Nonfarm Payrolls (in 000's), Seasonally Adjusted through March 2009


   400
                                                                                                                                                                     February @ -651, March @ -663

   200

      0

 -200

 -400

 -600

 -800
            Jan-07




                                        pr-07




                                                                            ug-07




                                                                                                       ov-07


                                                                                                                        Jan-08




                                                                                                                                                                                        ug-08




                                                                                                                                                                                                                   ov-08
                               ar-07
                     Feb-07




                                                 ay-07
                                                         Jun-07




                                                                                                                                           ar-08
                                                                  Jul-07


                                                                                    Sep-07




                                                                                                                                 Feb-08


                                                                                                                                                    pr-08
                                                                                                                                                             ay-08




                                                                                                                                                                                                          ct-08
                                                                                                                                                                     Jun-08
                                                                                                                                                                              Jul-08


                                                                                                                                                                                                Sep-08




                                                                                                                                                                                                                                    Jan-09


                                                                                                                                                                                                                                                       ar-09
                                                                                                                                                                                                                                             Feb-09
                                                                                              ct-07


                                                                                                                ec-07




                                                                                                                                                                                                                            ec-08
                              M




                                                                                                                                          M




                                                                                                                                                                                                                                                      M
                                                                                             O




                                                                                                                                                                                                         O
                                       A




                                                                                                                                                   A
                                                M




                                                                                                                                                            M
                                                                                                               D




                                                                                                                                                                                                                           D
                                                                           A




                                                                                                      N




                                                                                                                                                                                       A




                                                                                                                                                                                                                  N
                                                                                                                                                                                                                                                               60
Source: U.S. Department of Labor
U.S. Households Net Worth
                                              U.S. Household Balance Sheets
               90
               80               Assets
               70
                                Liabilities
               60
                                Net Worth
 SD rillions




               50
U T




               40
               30
               20
               10
                0
                    1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
                                                      12/31/07                 12/31/08   Difference

                                Assets                 $77.0T                   $65.7T    - $11.3T

                                Liabilities            $14.3T                   $14.2T     -$0.1T

                                Net Worth              $62.7T                   $51.5T    - $11.2T
                                                                                                           61
Source: U.S. Federal Reserve                         Data Through Fourth Quarter 2008
Recession is Now Global!

• ECB’s Monetary Tightening is Key Factor

• Disparate Stimulus Measures Despite Common Currency

• China in Sharp Growth Slowdown

• Dependence on Exports Hurts Asian Giants

• Mexican Peso Rallies from Record Lows




                                                        62
Global Growth Plummets in 2009!
                                                       World GDP Growth

       6.0

       5.0

       4.0

       3.0

       2.0
%




       1.0

       -

      (1.0)

      (2.0)

      (3.0)
                         2005                       2006               2007   2008   2009F

                                                                                             63
Source: International Monetary Fund and TCW Global Strategy Forecast
                              0.00
                                     0.50
                                            1.00
                                                   1.50
                                                          2.00
                                                                 2.50
                                                                        3.00
                                                                               3.50
                                                                                      4.00
                    May-07                                                                   4.50




Source: Bloomberg
                    Jun-07
                     Jul-07
                    Aug-07

                    Sep-07
                    Oct-07
                    Nov-07
                    Dec-07
                    Jan-08
                    Feb-08
                    Mar-08
                                                                                                                         Will the ECB Cut Rates Further?




                    Apr-08
                    May-08

                    Jun-08
                     Jul-08

                    Aug-08
                                                                                                    ECB Reference Rate




                    Sep-08
                    Oct-08
                    Nov-08
                    Dec-08
                    Jan-09
                    Feb-09
                    Mar-09
                    Apr-09
                    May-09
                                                     ?




64
U.S. Treasury Obligations
                                  Foreign Holdings of U.S. Treasurys
                                                (USD Billions)

3500                                                                                     3500

                          Total
3000                                                                                     3000
                          China
2500                                                                                     2500
                          Japan
2000                                                                                     2000

1500                                                                                     1500

1000                                                                                     1000

 500                                                                                     500

     0                                                                                   0
                2000    2001      2002   2003      2004      2005   2006   2007   2008
                                                                                               65
Source: U.S. Treasury
Implications of Inflation Rise in 2010 - 2011


• Negative for U.S. Treasuries

• Dollar Cash to Lose Luster in Future Years

• Gold, Oil, Other Commodities will Regain Favor

• Real Estate Again to be Store of Value




                                                   66
Corn, Copper, Crude Oil and the Baltic Dry Shipping Index




Source: Bloomberg Financial L.P.
Freeport McMoran vs. Copper Price




Source: Bloomberg Financial L.P.
Potash and Mosaic vs. Corn Prices




Source: Bloomberg Financial L.P.
Euro/Dollar vs. Crude Oil




Source: Bloomberg Financial L.P.
2-Year Treasury




Source: Bloomberg Financial L.P.
Natural Gas




Source: Bloomberg Financial L.P.
Coal




Source: Bloomberg Financial L.P.
                                                0.00
                                                       2.00
                                                              4.00
                                                                     6.00
                                                                            8.00
                                                                                   10.00
                                                                                           12.00
                                                                                                   14.00
                                                                                                                        16.00
                                           Feb-62                                                                                                        18.00
                                           Feb-63

                                           Feb-64

                                           Feb-65

                                           Feb-66

                                           Feb-67




Source: Bloomberg, Merrill Lynch Indices
                                           Feb-68

                                           Feb-69

                                           Feb-70

                                           Feb-71
                                                                                                           Earnings Yield




                                           Feb-72

                                           Feb-73

                                           Feb-74
                                                                                                                                10-Year Treasury Yield




                                           Feb-75

                                           Feb-76

                                           Feb-77

                                           Feb-78

                                           Feb-79

                                           Feb-80

                                           Feb-81

                                           Feb-82

                                           Feb-83

                                           Feb-84

                                           Feb-85

                                           Feb-86
                                                                                                                                                                 Earnings Before Write-Offs – Through March 31, 2009




                                           Feb-87

                                           Feb-88

                                           Feb-89

                                           Feb-90

                                           Feb-91

                                           Feb-92

                                           Feb-93

                                           Feb-94

                                           Feb-95

                                           Feb-96

                                           Feb-97

                                           Feb-98

                                           Feb-99

                                           Feb-00

                                           Feb-01

                                           Feb-02

                                           Feb-03

                                           Feb-04
                                                                                                                                                                                                                       S&P 500 Earnings Yield vs. 10-Year Treasury Note Yield




                                           Feb-05

                                           Feb-06

                                           Feb-07

                                           Feb-08

                                           Feb-09
                                                     0.00
                                                            2.00
                                                                   4.00
                                                                                         6.00
                                                                                                8.00
                                                                                                       10.00
                                           Apr-91                                                                                                  12.00
                                           Sep-91

                                           Feb-92

                                            Jul-92

                                           Dec-92




Source: Bloomberg, Merrill Lynch Indices
                                           May-93

                                           Oct-93

                                           Mar-94

                                           Aug-94

                                           Jan-95

                                           Jun-95

                                           Nov-95

                                           Apr-96

                                           Sep-96

                                           Feb-97

                                            Jul-97
                                                                                                               Earnings Yield




                                           Dec-97

                                           May-98
                                                                          Bubble




                                           Oct-98

                                           Mar-99
                                                                          The Dot Com 




                                           Aug-99

                                           Jan-00

                                           Jun-00
                                                                                                                                                           Earnings Before Write-Offs – Through March 31, 2009




                                           Nov-00

                                           Apr-01

                                           Sep-01

                                           Feb-02

                                            Jul-02

                                           Dec-02

                                           May-03

                                           Oct-03

                                           Mar-04

                                           Aug-04

                                           Jan-05

                                           Jun-05

                                           Nov-05
                                                                                                               10 Year BBB Industrial Bond Yield




                                           Apr-06

                                           Sep-06

                                           Feb-07

                                            Jul-07

                                           Dec-07

                                           May-08

                                           Oct-08

                                           Mar-09
                                                                                                                                                                                                                 S&P 500 Earnings Yield vs. BBB 10-Year Industrial Bond Yield
Bottom Line
• Recession in the U.S. appears to be abating, perhaps bottoming, but little evidence so far of an actual
upturn. However, most traction from fiscal and monetary stimulus is still ahead. Inventories way
down, much production running below final demand, lending beginning.

• Stock market’s capitulation bottom on March 9th triggered by extreme individual investor fear and
resulting forced liquidation by mutual funds. March lows confirm November bottom.

• Recent stock market rally fueled by rapid money supply growth and led by banks and cyclicals, as
should be expected, since these have the most profit leverage in a recovery.

• After a nearly 30% rally, equities are still very cheap based on replacement costs, overpriced based on
2009 earnings, and still reasonably valued based on mid-cycle recovery earnings. However, there is so
far no evidence of an inflection point in profits, which would allow forward P/E valuations to exist.
Favorable year-over-year profit comparisons should begin in Q4:09, thus sustaining the stock market
recovery after a likely Spring consolidation.
Bottom Line

• Despite signs of “less bad” conditions in economy FEAR, UNCERTAINTY AND DOUBT
still abound. Domestic sideline cash amounts to more than 50% of total stock market
value; worldwide even more.

•Global industrialization will remain the dominant investment theme for several years. The
U.S. consumer will be a drag on economic growth until he is deleveraged. Consumer
equities will lag selected technology, energy, materials, infrastructure and industrial
machinery and equipment.

•Emerging markets will be increasingly important growth drivers for well positioned U.S.
multinationals.

•Even after a rally, corporate bond yields are still the most attractive in my memory.
Returns in Corporate Credit

                                                 IG Corporate                 High Yield 
                                                                 Bank Loans
                                                    Bonds                       Bonds
                         Q1 08                       ‐0.15          ‐5.74        ‐2.42
                         Q2 08                       ‐0.69           4.94        2.01
                         Q3 08                       ‐7.80          ‐6.98        ‐7.25
                         Q4 08                        3.98         ‐22.95       ‐18.75
                         2008                        ‐4.93         ‐29.11       ‐24.99

                         Q1 2009                    ‐1.93           9.80        5.63


                                                                                            78
Source: Barclay’s Capital, S&P/LSTA, Citigroup
 Credit Spreads vs. Defaults
                     2500
                                                           IG Corp Spread                      HY Spread   Spec. Grade Default Rate

                     2000


                     1500


                     1000


                       500


                           0
                    A 88
                    A 89
                    A 90
                    A 91
                    A 92
                    A 93
                    A 94
                    A 95
                    A 96
                    A 97
                    A 98
                    A 99
                    A 00
                    A 01
                    A 02
                    A 03
                    A 04
                    A 05
                    A 06
                    A 07

                         8
                       -0
                       -
                       -
                       -
                       -
                       -
                       -
                       -
                       -
                       -


                       -


                       -
                       -




                       -


                       -


                       -
                       -
                       -
                       -
                       -
                       -
                     ug

                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                     ug
                 A




                                                                                                                                      79
Source: Barclays Capital www.lehmanlive.com,, Moodys Default Rates | As of February 28, 2009
    Senior Secured Loans Market Environment
    As of April 3, 2009

    Bank Loan Spreads
     • Historically high loan spreads present an attractive investment opportunity
           1,800                      S&P/LSTA Leveraged Loan Index Discounted Spread to Maturity

           1,600


           1,400


           1,200


           1,000


             800


             600


             400


             200


                 0
              1/31/1997         1/31/1999       1/31/2001      1/31/2003       1/31/2005       1/31/2007   1/31/2009
                                                                                                                       80
Source: Standard & Poor’s LCD
Historical High Yield Default & Recovery Rates
Annual Issuer-Weighted Corporate Default Rates by Letter Rating 1971 - 2007
                                        Speculative Grade (HY)                         Baa      Ba       B     Caa-C
           Mean                                 3.46%                                 0.16%   0.99%    5.17%   21.78%

Senior Unsecured Bond Recovery 1982 – 2007*
                        50%
                        45%
                        40%
                        35%
                        30%
                        25%
                        20%
                        15%
                        10%
                          5%
                          0%
                                        Speculative                           Baa       Baa           Baa        Caa-C
                                        Grade (HY)

                                                                                                                         81
* Issuer-weighted based on 30-day post-default market prices | Source: Moody’s, TCW
         Credit Performance Through Economic Cycles

                 February 1, 1990 – January 28, 1995                                                                                       November 1, 2000 – October 31, 2005
                 Annualized Returns                                                                                                        Annualized Returns

                                                                                                                       10.00%                                                      8.59%
14.00%                                                                                                                                       7.41%
                                                       12.47%
                                                                                           11.91%                        8.00%
12.00%
                                                                                                                         6.00%                                     5.22%
10.00%             8.97%
                                                                                                                         4.00%
8.00%
6.00%
                                                                                                                         2.00%

4.00%                                                                                                                    0.00%
                                                                                                                                                                                                   ‐1.88%
2.00%                                                                                                                   -2.00%
0.00%                                                                                                                   -4.00%
         Inv. Grade Corporate                   High Yield Bonds                       U.S. Equities                                Inv . Grade Corporate        Bank Loans   High Yield Bonds   U.S. Equities
                 Bonds                                                                                                                        Bonds




         •Bank loan performance data was not available for the first period                                                                                                                                 82
         Source: Barclay’s Capital Investment Grade Corporate Credit Index, S&P/LSTA Lev Loan Index, Citigroup High Yield Cash Pay Custom Index, S&P 500 Index
Commercial Property Values Continue to Decline




•Moody’s/Real National All Property Type Aggregate Index (CPPI) measure the change in actual transaction prices for commercial real estate assets based on repeat sale of the same assets at different   83
points in time.
CMBS Delinquencies Still Lagging RMBS




                                         84
Data source: JP Morgan, Realpoint, TCW
CMBS Super Senior Trading Level




                                  85
Data source: TCW
Rating Downgrades will Likely Continue
                                      Moody's CMBS Upgrades and                                                     S&P CMBS Upgrades and
                                        Downgrades 1999-2009*                                                        Downgrades 1999-2009*
                                  Year              UG                DG            UG-DG Ratio              Year          UG          DG        UG-DG Ratio
                                  1999              98                12               8.17                  1999          64           5           12.80
                                  2000              91                19               4.79                  2000          70          15           4.67
                                  2001              134               35               3.83                  2001          174         51           3.41
                                  2002              57                190              0.30                  2002          133         170          0.78
                                  2003              183               172              1.06                  2003          296         212          1.40
                                  2004              291               209              1.39                  2004          513         166          3.09
                                  2005              677               145              4.67                  2005          958         117          8.19
                                  2006             1209               116              10.42                 2006          878         113          7.77
                                  2007              908               80               11.35                 2007          678         130          5.22
                                  2008             1003              1369              0.73                  2008          473        2056          0.23
                                  2009              52               3694              0.01                  2009          28          716          0.04


                                      Moody's Fixed‐Rate Conduit‐Fusion Downgrade Summary (2/6/09 ‐ 2/12/09)

                                      Rating From                                                 Rating To (# of Bonds)
                                                                 Aa1          Aa2    Aa2   A1     A2    A3   Baa1 Baa2 Baa3           Ba1    Ba2    Ba3
                                      Aaa                                      1     23    41     37
                                      Aa2                                                  1      21    34     30
                                      A2                                                                       1      20         35   29     1
                                                                                                                                                               86
*Comprised of only CMBS Fixed Rate Conduit transactions, data as of 2/27/09
PPIP/TALF: CMBS for Legacy Securities Program
• 10-yr. Super Senior CMBS has
  attractive features among legacy assets                                           Effect of PPIP on AAA (A4 Tranche) Yields1
  eligible for PPIP and TALF:                                                         Unlevered                   1X PPIP
   • CMBS cash flows have longer duration                              30%
     vs. ABS in addition to less cash flow
     variability than RMBS                                             25%




                                               Yield  to  M atu rity
   • 30% subordination provides good support                           20%
     as CRE fundamentals continue to
     deteriorate                                                       15%
                                                                       10%
• Attractive carry (among TALF eligible
  collateral) due to 4.5%-6% fixed                                     5%
  coupons                                                              0%
                                                                             $100      $95    $90    $85    $80    $75      $70   $65
• Current yield and returns will ultimately
                                                                                                    Purchase Price
  depend on haircuts, financing
  rates, duration and purchase price
                                                                                                                                   87
       Sample Example of Poor Loan Underwriting: Riverton Apartments
                 Loan Information                             Property Information                                  Property Information
 Trust Balance                      $225,000,000   Location                     New York, NY           As-Stabilized Appraised Value
                                                                                                       (1/1/2011)                       $340,000,000
 Mezz Loan (non trust)               $25,000,000
                                                   Property Type                 Multi-Family
                                                                                                       Purchase Price 1/2006            $132,000,000
                                                   Occupancy 12/07                       97%           Stabilized Value Cap Rate- Pro
 Total Debt                         $250,000,000
 Loan Origination Date                   Dec-06
                                                   Size (Units)                         1,230          Forma                                  7.06%
 Loan Term                             5 year IO
                                                   Year Built                            1947          As-Is Cap Rate                         1.54%
 Mtge Rate                                6.00%    As-Is Appraised Value                               Total Debt LTV based on As-Is
                                                   (12/10/2006)                 $260,000,000           Value                                 96.15%
 Loan Purpose                         Refinance                                                        Total Debt LTV based on
 Loan Sponsor                   Rockpoint Group                                                        Stabilized Value                      73.53%
                                     and Stellar
                                   Management                                               Deregulation Schedule        Planned Rate
                                                                                                    2007                     11%
                                                                                                    2008                     11%
•This loan is secured by a 1,228 apartment property located in Harlem,                              2009                      8%
New York.                                                                                           2010                      4%
                                                                                                    2011                      4%
•Rockpoint purchased the property back in 1/2006 for $132,000,000.
Purpose of this loan is for refinancing.                                   • Based on Rockpoint’s deregulation schedule, the loan was underwritten with a
                                                                           current value of $260M and a stabilized 1/1/2011 value of $340M due to
•Property units are currently under New York rent stabilization            projected increase in cash flow from rent conversions.
agreement for low income housing, thus property rents were significantly
below market. Rockpoint’s business plan was to roll units from rent        • Deutsche Bank structured an up front interest reserve of $19,000,000 to fund
stabilized rate to market rates via various strategies.                    debt service shortfalls until 2011, at which point based on Rockpoint’s
• Deutsche Bank underwrote the loan based on Rockpoint’s ability to roll   deregulation rate, the property will generate enough cash flow to operate
rent stabilized units to market rents at the following rates:              sufficiently.                                                           88
  Sample Example of Poor Loan Underwriting:
  Riverton Apartments
               Riverton Performance Summary   Most Recent 7/07-6/08     2007        Underwritten
                                                                                    Pro-Forma 2011
            NOI                                    4,377,516           4,192,455         24,007,857
            Capital Expenditures                    510,586             346,094           346,094
            NCF                                    3,866,930           3,846,361         23,661,763
            Trust Debt Service                     13,497,750         13,497,750         13,497,750
            NCF DSCR to Trust                         0.29                0.31              1.75
            Trust Debt Service Shortfall           9,630,820           9,651,389             NA
            Market Cap Rate                            8%                 8%                 NA
            Value based on Market Cap Rate         54,718,950         52,405,688             NA
            Adjusted LTV to Trust                    411%                429%                NA


• Based on the aggressive underwriting and tough economic conditions, Rockpoint never attained its deregulation target.
  In fact, as of July 2008, only 10% of units have been converted to market rents.
• Rockpoint issued a letter requesting for debt relief. The loan was transferred to the special servicer on August 7, 2008
  for imminent default, at which time the property was re-appraised at $196M, a -22% change from As-Is Appraised Value
  at underwriting.
• The property is currently undergoing foreclosure proceedings with both the mezzanine lender and the trustee.
• Based on the most recent appraised value of $196M, the mezzanine debt held out the trust is non-recoverable. In
  addition, significant losses to the trust are likely given the current property condition and macro economic factors.
                                                                                                                             89
Conclusion
CMBS at Crossroads:

We anticipate the CMBS market will remain volatile in the foreseeable future as the mix of
FUNDAMENTALS, TECHNICALS and GOVERNMENT INTERACTION play out amongst the backdrop of
the broader macro-economic environment.

Fundamentals: The CRE market continues to weaken sharply as rising vacancy rates, lack of refinancing
capital and normalization of borrowing costs/declining valuations impact the real estate.

Technicals: The impact of no new issuance (and none in the foreseeable future) and increasing interest
in the sector will compete with selling by insurance companies, banks and mutual funds are likely to
contribute to volatility in the sector.

Government Intervention: A major wildcard in the sector is the potential of government intervention in
the form of TALF/PPIP, direct purchase by the Fed or other programs in an attempt to provide a floor to
bond prices with a hope of stimulating lending activity.

                                                                                                          90

								
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