An Overview Of The Housing/Credit Crisis And
Why There Is More Pain To Come
T2 Accredited Fund, LP
Tilson Offshore Fund, Ltd.
T2 Qualified Fund, LP
June 2, 2009

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Registered Investment Advisor
145 E. 57th Street 10th Floor
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3

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and Is the #1 Selling Investing Book in the Country
4

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Register at www.valueinvestingcongress.com
5

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6

For the Second Half of the 20th Century,
Housing Was a Stable Investment
300
Shiller
Lawler
275
Real Home Price Index (1890=100)
250
225
200
175
Trend Line
150
125
100
0
4
8
2
6
0
4
8
2
6
0
4
8
5
5
5
6
6
7
7
7
8
8
9
9
9
19
19
19
19
19
19
19
19
19
19
19
19
19
Source: Robert J. Shiller, Irrational Exuberance, Princeton University Press 2000, Broadway Books 2001, 2nd edition, 2005, also Subprime
Solution, 2008, as updated by the author at http://www.econ.yale.edu/~shiller/data.htm; Lawler Economic & Housing Consulting
7

…And Then Housing Prices Exploded
300
Shiller
Lawler
275
Real Home Price Index (1890=100)
250
225
200
Housing
Bubble
175
Trend Line
150
125
100
86
94
02
62
70
78
98
06
82
90
66
74
50
4
58
5
20
19
19
19
19
20
19
19
19
19
19
19
19
19
19
SOURCES: Robert J. Shiller, Irrational Exuberance: Second Edition, as updated by the author; Lawler Economic & Housing Consulting.
8

From 2000-2006, the Borrowing Power of a
Typical Home Purchaser Nearly Tripled
$400,000
Pre-Tax Income
Borrowing Power
$300,000
$200,000
9.2x in January 2006
$100,000
3.3x in January 2000
$0
Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Factors contributing to the ability to borrow more and more were:
1. Slowly rising income
2. Lenders being willing to allow much higher debt-to-income ratios
3. Falling interest rates
4. Interest-only mortgages (vs. full amortizing)
5. No money down
Source: Amherst Securities 9

Housing Became Unaffordable in Many
Areas
80
Riverside, CA
70 Los Angeles, CA
San Diego, CA
60
Housing Opportunity Index
50
40
30
20
10
0
96
97
98
99
00
1
05
06
07
02
04
0
20
20
20
19
20
20
19
20
19
19
20
3
3
3
1
3
1
1
1
1
1
1
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
SOURCES: NAHB/Wells Fargo Housing Opportunity Index, which measures percentage of households that could afford the average home with a standard
mortgage 10

Americans Have Borrowed Heavily Against Their Homes Such
That the Percentage of Equity in Their Homes Has Fallen
Below 50% for the First Time on Record Since 1945
$12,000 90%
80%
$10,000
70%
Equity as a % of Home Value
$8,000 60%
Mortgage Debt (Bn)
1945 50%
$6,000 Mortgage Debt: $18.6 billion
Equity: $97.5 billion
2008 40%
Mortgage Debt: $10.5 trillion
Equity: $8.5 trillion
$4,000 30%
20%
$2,000
10%
$0 0%
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
SOURCE: Federal Reserve Flow of Fund Accounts of the United States
11

There Was a Dramatic Decline in Mortgage
Lending Standards from 2001 through 2006
Combined Loan to Value 100% Financing
86 18%
84
17%
• In 2005, 29% of
84
83
16%
new mortgages
82
81 81
14%
14%
were interest only
80 12% — or less, in the
Combined Loan to Value (%)
Percent of Originations
78 10%
9%
case of Option
76
76
8%
8%
ARMs — vs. 1%
74
74
74 6%
in 2001
72 4%
3% • In 1989, the
70 2%
1%
average down
1%
68
2001 2002 2003 2004 2005 2006 2007
0% payment for first-
2001 2002 2003 2004 2005 2006 2007
time home buyers
Limited Documentation 100% Financing & Limited Doc was 10%; by
70% 12%
2007, it was 2%
65%
63% 11%
60%
• The sale of new
10%
56%
homes costing
49%
50%
45% 8% 8%
$750,000 or more
quadrupled from
Percent of Originations
Percent of Originations
40% 39%
33% 6%
5%
2002 to 2006.
30%
4% The construction
4%
20% of inexpensive
2%
1%
homes costing
10%
0%
$125,000 or less
0%
0%
2001 2002 2003 2004 2005 2006 2007
0%
2001 2002 2003 2004 2005 2006 2007
fell by two-thirds
SOURCES: Amherst Securities, LoanPerformance; USA Today (www.usatoday.com/money/economy/housing/2008-12-12-homeprices_N.htm) 12

Among the Many Causes of The Great
Mortgage Bubble, Two Stand Out
• The companies making crazy loans didn’t care very much if the
homeowner ended up defaulting for two reasons:
1. Either they didn’t plan to hold the loan, but instead intended to pass it along
to Wall Street, which would bundle, slice-and-dice it and sell it (along with
any subsequent losses) to investors around the world;
2. Or, if they did plan to hold the loan, they assumed home prices would keep
rising, such that homeowners could either refinance before loans reset or, if
the homeowner defaulted, the losses (i.e., severity) would be minimal.
• There were many other reasons, of course – a bubble of this
magnitude requires what Charlie Munger calls “Lollapalooza Effects”
– The entire system – real estate agents, appraisers, mortgage lenders,
banks, Wall St. firms and ratings agencies – became corrupted by the vast
amounts of quick money to be made
– Regulators and politicians were blinded by free market ideology or the
dream that all Americans should own their homes, causing them to fall
asleep at the switch, not want to take the punch bowl away and/or get
bought off by the industries they were supposed to be overseeing
– Debt became increasingly available and acceptable in our culture
– Millions of Americans became greedy speculators and/or took on too much
debt
– Greenspan kept interest rates too low for too long
– Institutional investors stretched for yield, didn’t ask many questions and
took on too much leverage
– In general, everyone was suffering from irrational exuberance
13

As Long As Home Prices Rise Rapidly,
Even Subprime Mortgages Perform Well –
But If Home Prices Fall, Look Out Below!
Cumulative Five-Year Loss Estimates for a Bubble-Era Pool of Subprime Mortgages
60%
50%
40%
Cumulative Loss (%)
30%
20%
10%
0%
20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% -40%
Home Price Appreciation
Source: T2 Partners estimates
14

Deregulation of the Financial Sector Led to a
Surge of Leverage, Profits and Compensation
Ratio of Financial Services Wages to Nonfarm Private-Sector Wages, 1910-2006
• Among the most profitable areas for Wall Street firms was producing Asset-Backed Securities
(ABSs) and Collateralized Debt Obligations (CDOs)
• To produce ABSs and CDOs, Wall Street needed a lot of loan “product”
• Mortgages were a quick, easy, big source
• It is easy to generate higher and higher volumes of mortgage loans: simply lend at higher
loan-to-value ratios, with ultra-low teaser rates, to uncreditworthy borrowers, and don’t bother
to verify their income and assets (thereby inviting fraud)
• There’s only one problem: DON’T EXPECT TO BE REPAID!
Source: Ariell Reshef, University of Virginia; Thomas Philippon, NYU; Wall St. Journal, 5/14/09 15

Over the Past 30 Years, We Have Become a
Nation Gorged in Debt – To The Benefit of
Financial Services Firms
3.0% 350%
Low Debt Era Rising Debt Era
Financial Profits as Percent of GDP
2.5%
Total Debt as Percent of GDP
300%
2.0%
250%
1.5%
Total Debt
Financial Profits 200%
1.0%
150%
0.5%
0.0% 100%
Dec- 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05
Sources: Federal Reserve, BEA, as of Q2 2007, GMO presentation
16

There Was a Surge of Toxic Mortgages
Over the Past 10 Years
$4,000
Conforming, FHA/VA
Jumbo
$3,500 Alt-A
Subprime
Seconds
$3,000
$2,500
Originations (Bn)
$2,000
$1,500
$1,000
$500
$0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
SOURCE: Inside Mortgage Finance, published by Inside Mortgage Finance Publications, Inc. Copyright 2009.
17

Private Label Mortgages (Those Securitized by
Wall St.) Are 15% of All Mortgages, But Are 51%
of Seriously Delinquent Mortgages
Approximately two-thirds of homes have mortgages and of these, 56% are owned or
guaranteed by the two government-sponsored enterprises (GSEs), Fannie & Freddie
Number of Seriously
Number of Mortgages (million) Delinquent Mortgages (000)
Banks & Thrifts
Banks & Thrifts 397 Fannie Mae
8
444
Fannie Mae
Freddie Mac
18
232
Private Label
15% 8
Ginne Mae/FHA
378
Ginne Mae/FHA
6
Private Label
Freddie Mac 1734
13
51%
SOURCE: Freddie Mac, Q4 2008.
18

Percentage of Home Loans
Q
4
Q 19
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
4 7
Q 19 9
4 80
Q 19
4 8
Q 19 1
4 82
Q 19
4 8
Q 19 3
4 84
Q 19
4 8
Q 19 5
4 86
Q 19
4 87
Q 19
4 88
Q 19
4 89
Q 1 99
4 0
Q 19
4 91
Q 19
4 92
Q 19
4 93
Q 19
4 9
Q 19 4
4 95
Q 19
4 9
Q 19 6
4 97
Q 19
4 9
Q 19 8
4 99
Q 20
4 0
Q 20 0
4 01
Q 20
4 0
Over 9% of Mortgages on 1-to-4-Family Homes
Q 20 2
4 03
Were Delinquent or in Foreclosure as of Q1 2009
Q 20
4 0
Q 20 4
4 05
SOURCE: National Delinquency Survey, Mortgage Bankers Association. Note: Delinquencies (60+ days) are seasonally adjusted.
Q 20
4 06
Q 2 00
4 7
20
08
19

All Types of Loans, Led by Subprime, Are
Seeing a Surge in Delinquencies
45%
Alt A
Option ARM
40%
Jumbo
Subprime
35% Prime
Home Equity Lines of Credit
30%
Percent Noncurrent
25%
20%
15%
10%
5%
0%
Q 01
Q 01
Q 99
Q 99
Q 00
Q 00
Q 02
Q 03
Q 03
Q 04
Q 04
Q 05
Q 06
Q 06
Q 07
Q 08
08
Q 07
Q 02
Q 05
20
20
20
20
20
20
20
20
20
20
20
19
19
20
20
20
20
20
20
20
3
1
1
3
3
1
1
3
1
3
3
3
1
3
1
3
1
3
1
1
Q
SOURCES: Amherst Securities, LoanPerformance; National Delinquency Survey, Mortgage Bankers Association; FDIC Quarterly Banking Profile;
T2 Partners estimates. Note: Prime is seasonally adjusted. 20

The Decline in Lending Standards Led to a
Surge in Subprime Mortgage Origination
$700 25%
$600
20%
20% 20%
18% % of
$500
T ota l
Origina tions
(Bn)
15%
$400
$300
10% 10% 10%
10% 10%
9% 9%
9%
8%
$200 7% 8%
7%
5%
$100
$0 0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Reprinted with permission; Inside Mortgage Finance, published by Inside Mortgage
Finance Publications, Inc. Copyright 2009.
21

The Wave of Resets from Subprime
Loans Is Mostly Behind Us
$35
$30 We are
here
$25
Loans with Payment Shock (Bn)
$20
$15
$10
$5
$0
07
7
0
6
08
09
7
0
6
8
8
09
10
0
6
7
9
06
8
9
-0
-0
-1
-0
l-0
l-0
l-1
l-0
r-0
-0
-0
-1
-0
l-0
n-
n-
n-
r-
n-
n-
ct
pr
pr
pr
ct
ct
ct
ct
Ju
Ju
Ju
Ju
Ju
Ap
Ap
Ja
Ja
Ja
Ja
Ja
O
O
O
O
O
A
A
A
Sources: LoanPerformance, Deutsche Bank; slide from Pershing Square presentation, How to Save the Bond Insurers, 11/28/07. 22

Numerous Areas of the Mortgage Market Will
Suffer Significant Losses Going Forward
Prime Mortgage
Commercial Real Estate
Alt-A
Other Corporate
Commercial & Industrial
Subprime
High-Yield / Leveraged Loans
Jumbo Prime
Home Equity
Credit Card
Auto
Option ARM
Construction & Development
Other Consumer
CDO/ CLO
$0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0
Amount Outstanding (Trillions)
SOURCES: Federal Reserve Flow of Funds Accounts of the United States, IMF Global Financial Stability Report October 2008, Goldman Sachs Global
Economics Paper No. 177, FDIC Quarterly Banking Profile, OFHEO, S&P Leverage Commentary & Data, T2 Partners estimates. 23

Two Waves of Losses Are Behind Us…
But Three Are Looming
Losses Mostly Behind Us
• Wave #1: Borrowers committing (or the victim of) fraud & speculators, who
defaulted quickly. Timing: beginning in late 2006 (as soon as home prices
started to fall) into 2008. Mostly behind us.
• Wave #2: Borrowers who defaulted when their mortgages reset due to
payment shock. Timing: early 2007 (as two-year teaser subprime loans
written in early 2005 started to reset) to the present. Now tapering off as
low interest rates mitigate payment shock.
Losses Mostly Ahead of Us
• Wave #3: Prime loans (most of which are owned or guaranteed by the
GSEs) defaulting due to job loss and home price declines (i.e., underwater
homeowners). Timing: started to surge in early 2008 to the present.
• Wave #4: Jumbo prime, second lien and HELOCs (most of which are on
banks’ books) defaulting due to job loss and home price declines/
underwater homeowners. Timing: started to surge in early 2008 to the
present.
• Wave #5: Losses among loans outside of the housing sector, the largest of
which will be in the $3.5 trillion area of commercial real estate. Timing:
started to surge in early 2008 to the present.
24

Recent Signs of Stabilization Are Likely
the Mother of All Head Fakes
• Rather than representing a true bottom, recent signs of stabilization
are likely due to two short-term factors:
1. Home sales and prices are seasonally strong in April, May and June
due to tax refunds and the spring selling season
2. A temporary reduction in the inventory of foreclosed homes
– Shortly after Obama was elected, his administration promised a new, more
robust plan to stem the wave of foreclosures so the GSEs and many other
lenders imposed a foreclosure moratorium
– Early this year, the Obama administration unveiled its plan, the Homeowner
Affordability and Stabilization Plan, which is a step in the right direction –
but even if it is hugely successful, we estimate that it might only save 20%
of homeowners who would otherwise lose their homes
– The GSEs and other lenders are now quickly moving to save the
homeowners who can be saved – and foreclose on those who can’t
– This is necessary to work our way through the aftermath of the bubble, but
will lead to a surge of housing inventory later this year, which will further
pressure home prices
25

There Is a Surge of Notices of Default and
Foreclosures Among the GSEs
Prime Notices of Default
Subprime Notices of Default
Subprime Foreclosures
Prime Foreclosures
SOURCE: The Field Check Group.
26

Future Losses Will Be Driven By Three
Primary Factors
1. The Economy
• Especially unemployment
2. Interest rates
• Ultra-low rates have helped mitigate some of the damage
• But if the recent spike in rates continues, it could lead to an even greater surge
in defaults and losses
3. Behavior of homeowners who are underwater
• Roughly one-fourth of homeowners with mortgages are currently underwater,
some deeply so
• For many, it is economically rational for them to walk – so called “jingle mail” –
but how many will do so?
• There is little historical precedent – we are in uncharted waters
• As home prices continue to fall and homeowners become more and more
underwater, they are obviously more likely to default, thereby creating a vicious
cycle, but what exactly will the relationship be? Have millions of foreclosures led
to a diminution of the stigma of losing one’s home?
• Our best guess is that there will be rough symmetry: for homeowners 5%
underwater, an additional 5% will default due to being underwater; 10%
underwater will lead to 10% more defaults, and so forth…
27

24% of Homeowners With a Mortgage Owe
More Than the Home Is Worth, Making
Them Much More Likely to Default
Among people who bought homes in the past five years, 30%+ are underwater*
In Bubble Markets, Far More
Homeowners Are Underwater
Price Index Is % of Last 5 Yrs
at Lowest Price Drop Purchasers Who
Metro Area Level Since Since Peak Are Under Water* There Has Been a Dramatic Rise in
New York 2004-Q3 -15.2% 23.0% Homeowners Who Are Underwater
Los Angeles 2003-Q4 -32.0% 56.4%
Boston 2002-Q2 -21.8% 27.8%
25%
24%
Washington 2004-Q1 -24.8% 50.3%
Miami 2004-Q1 -36.6% 65.1%
San Francisco 2003-Q3 -27.8% 51.2%
20%
Atlanta 2004-Q4 -10.4% 23.2%
20%
San Diego 2002-Q4 -34.4% 63.9%
Phoenix 2004-Q3 -37.7% 36.4%
16%
Las Vegas 2003-Q4 -41.8% 61.4%
Percent Underwater
15%
* The actual figures are likely even worse,
as this data doesn’t capture people who
bought since 2003 and subsequently did a 10%
cash-out refi or after-the-fact second
mortgage. 50% of all subprime and Alt-A 6%
loans in existence when the collapse 5%
4%
happened were cash-out refis that carried a
higher loan balance than the original
0%
purchase loan amount. Dec-06 Dec-07 Sep-08 Dec-08 Mar-09
Source: Zillow.com Q4 08 Real Estate Market Report; Moody's Economy.com, First American CoreLogic, T2 Partners estimates 28

Certain Types of Loans Are Severely
Underwater
80%
73%
70%
60%
50%
Percent Underwater
50%
45%
40%
30%
25%
20%
10%
0%
Prime Alt A Subprime Option ARM
SOURCES: Amherst Securities, LoanPerformance, Standard & Poor’s.
29

Outlook for Housing Prices
• We think housing prices will reach fair value/trend line, down 40% from the peak based on the
S&P/Case-Shiller national (not 20-city) index, which implies a 5-10% further decline from where
prices where as of the end of Q1 2009. It’s almost certain that prices will reach these levels
• The key question is whether housing prices will go crashing through the trend line and fall well
below fair value. Unfortunately, this is very likely. In the long-term, housing prices will likely settle
around fair value, but in the short-term prices will be driven both by psychology as well as supply
and demand. The trends in both are very unfavorable
– Regarding the former, national home prices have declined for 33 consecutive months since their peak in July
2006 through April 2009 and there’s no end in sight, so this makes buyers reluctant – even when the price
appears cheap – and sellers desperate.
– Regarding the latter, there is a huge mismatch between supply and demand, due largely to the tsunami of
foreclosures. In March 2009, distressed sales accounted for just over 50% of all existing home sales
nationwide – and more than 57% in California. In addition, the “shadow” inventory of foreclosed homes
already likely exceeds one year and there will be millions more foreclosures over the next few years,
creating a large overhang of excess supply that will likely cause prices to overshoot on the downside, as
they are already doing in California.
• Therefore, we expect housing prices to decline 45-50% from the peak, bottoming in mid-2010
• We are also quite certain that wherever prices bottom, there will be no quick rebound
• There’s too much inventory to work off quickly, especially in light of the millions of foreclosures
over the next few years
• While foreclosure sales are booming in many areas, regular sales by homeowners have plunged,
in part because people usually can’t sell when they’re underwater on their mortgage and in part
due to human psychology: people naturally anchor on the price they paid or what something was
worth in the past and are reluctant to sell below this level. We suspect that there are millions of
homeowners like this who will emerge as sellers at the first sign of a rebound in home prices
• Finally, we don’t think the economy is likely to provide a tailwind, as we expect it to contract the
rest of 2009, stagnate in 2010, and only then grow tepidly for some time thereafter
30

Percent Noncurrent (60+ days)
Q
1
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
19
Q 99
3
19
Q 99
1
Are Soaring
20
Q 00
3
20
Q 00
1
20
Q 01
3
20
Q 01
1
20
Q 02
3
20
Q 02
1
20
Q 03
SOURCE: Mortgage Bankers Association National Delinquency Survey.
3
20
Q 03
1
20
Q 04
3
20
Q 04
1
20
Q 05
3
Delinquencies of Prime Mortgages
20
Q 05
1
20
Q 06
3
20
Q 06
1
20
Q 07
3
20
Q 07
1
20
Q 08
3
20
08
31

15 States With the Highest Prime
Mortgage Foreclosure Rates
SOURCE: New York Times, 5/24/09.
32

Delinquencies of Prime and Alt-A
Mortgages Are Soaring
SOURCE: New York Times, 5/24/09.
33

There Are $2.4 Trillion of Alt-A Mortgages
and Their Resets Are Mostly Ahead of Us
$300
$10
We are $9
here
$250
Estimated Cumulative Reset Amount (Bn)
$8
$7
$200
$6
Amount (Bn)
$150
$5
$4
$100
$3
$2
$50
$1
$0
$0
4
0
2
15
13
10
12
5
3
1
14
11
l-1
l-1
l- 1
l-1
l-1
l-1
n-
n-
n-
n-
n-
n-
Ju
Ju
Ju
Ju
Ju
Ju
Ja
Ja
Ja
Ja
Ja
Ja
SOURCES: Credit Suisse, LoanPerformance.
34
NOTE: This chart only shows resets for a small fraction of Alt-A loans, but is representative of all of them.

Percent Noncurrent (60+ days)
Ja
n-
0%
5%
10%
15%
20%
25%
99
Ju
l-9
Ja 9
n-
0
Ju 0
l-0
Ja 0
n-
01
Ju
SOURCES: Amherst Securities, LoanPerformance.
l-0
Ja 1
n-
0
Ju 2
l-0
Mortgages Are Soaring
Ja 2
n-
03
Ju
l-0
Ja 3
n-
0
Ju 4
l-0
Ja 4
n-
05
Ju
l-0
Delinquencies of Securitized Alt-A
Ja 5
n-
0
Ju 6
l-0
Ja 6
n-
07
Ju
l-0
Ja 7
n-
0
Ju 8
l-0
Ja 8
n-
09
35

Alt-A Delinquencies By Vintage Show the
Collapse in Lending Standards in 2006 and 2007
30%
2007 2006
25%
Percent Noncurrent (60+ days)
20%
15%
2005
10%
2004
5%
2003
0%
0 5 10 15 20 25 30 35 40 45 50 55 60
Months of Seasoning
SOURCES: Amherst Securities, LoanPerformance.
36

Percent Noncurrent (60+ days)
Ja
n-
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
99
Ju
l-9
Ja 9
n-
0
Ju 0
l-0
Ja 0
n-
01
Ju
SOURCES: Amherst Securities, LoanPerformance.
l-0
Ja 1
n-
02
Ju
l-0
Mortgages Are Soaring
Ja 2
n-
03
Ju
l-0
Ja 3
n-
04
Ju
l-0
Ja 4
n-
05
Ju
l-0
Ja 5
n-
06
Ju
l-0
Ja 6
n-
07
Ju
l-0
Delinquencies of Securitized Jumbo Prime
Ja 7
n-
08
Ju
l-0
Ja 8
n-
09
37