The document discusses Capital Financial Solutions' (CFS) expertise that could help Freddie Mac address quality control issues. CFS offers strategic consulting services utilizing decades of mortgage industry experience. CFS experts can perform quality control file reviews, loss mitigation programs, and technology solutions to help optimize Freddie Mac's operations and minimize losses. The document also provides an example model for how CFS could help triage and resolve issues with Freddie Mac servicers.

1. FREDDIE MAC QUALITY CONTROL BUISNESS STRATEGY DISCUSSION October 2008 Providing Strategic Business Development Services, and Strategic Business and Technology Consulting Services to the Financial Services Industry

2. The Capital Financial Solutions (CFS) Executive Team Brian O’Reilly Business development and solution design executive Over 20 years of operations & legal experience in financial services, including with Fannie Mae, regional mortgage lender, large community bank and national law firm Extensive risk management and loss mitigation experience, including business strategy and business process development and implementation experience Bill Biagi 25 years of leadership experience in technology development, deployment and management. A proven record of success in financial services harnessing technology to optimize market opportunities, revenue, profit and operations, including work for Freddie Mac & Fannie Mae in the areas of collateral, fraud, and credit risk management and underwriting systems. Work supporting national loss and claims management systems provider. Joe McCloskey 30 years of mortgage servicing expertise with Government-backed and conventional loans Consulting services to major national mortgage servicers, including operational reviews, policy development, training, and quality assurance reviews Developed and directed FHA Loss Mitigation Program and outsourced FHA REO operations Tim Rood Business development and solution design executive Consulting large and small lenders for 10 yrs on strategic decision making for operational, technical, and economic drivers 17 years of mortgage experience: startup mortgage company, startup B2B tech company, senior leadership at Fannie Mae and First American

3. Bringing CFS Assets to Bare Executive- and operational-level quality control experts Risk management (fraud, collateral, credit, and default) Borrower financial information analytics On-going default and re-performing loan monitoring Expertise in investor reporting and compliance Solution design and delivery to ensure scalability Knowledge, experience and access to qualified, competent service provider partners QC reviews and supporting analytics Partial or complete outsourced origination Special servicing Loss mitigation Solicitation, Processing, Analysis, Outreach, and settlement

4. Capital Financial Solutions Overview & Approach Solutions Broad and deep assessment & triaging of business problems – FAST! Triage the Problem Objectively Explore Solution Options Solve The Problem as Quickly & Cost Effectively as Possible Is it better that I try to solve the problem with help, or are there existing full/partial solutions in the market?

5. CFS’ Human & Strategic Assets Strategic Partnerships Expertise & Human Capital QC bulk file reviews: rep/warrant breach audits and forensic documentation Partial or complete outsourced origination (loss mit via refi/short refi) Special servicing/sub servicing Loss mitigation: Solicitation, Processing, Analysis, Outreach, and settlement Technology: rules administration and management for loss mitigation workflow compliance, and short sale acceptance Consulting or specialized staff augmentation QC due diligence (pre and post closing, and reporting) Servicing management and oversight Portfolio analysis for proactive and predictive loss mit special counseling REO management , contract negotiations, and sales On-going default and re-performing loan monitoring IT systems and software design/testing Origination, processing, and QC/Compliance technology eClosing, Imaging, and Enterprise Content Mgmt vendors Partial or complete outsourced lead generation, and origination (loss mit via refi/short refi) Pipeline and Interest rate hedging Special servicing/sub servicing Strategic, Operational, and IT Systems Expertise QC/Compliance & Fraud policy makers and support staff Credit Risk Analytics Fair value accounting and analysis Tactical and operational contract resources

6. How important is Quality Control? Fitch review of 2005/2006 subprime loans. More than one finding per loan in some cases: Right Data Often Not Representative of Real Risk 51% Property value or condition issues — Materially different from original appraisal, or original appraisal contained conflicting information or items outside of typically accepted parameters Provided by borrower or field inspector 66% Occupancy fraud (stated owner occupied — never occupied), based on information provided by borrower or field inspector 48% First Time Homebuyer — Some applications indicated no other property, but credit report showed mortgage information 44% Payment Shock (defined as greater than 100% increase) — Some greater than 200% increase 44% Questionable stated income or employment — Often in conflict with information on credit report and indicated to be outside “reasonableness” test 22% Hawk Alert — Fraud alert noted on credit report 18% Credit Report — Questionable ownership of accounts (name or social security numbers do not match) 17% Seller Concessions (outside allowed parameters) 16% Credit Report — Based on “authorized” user accounts 16% Strawbuyer/Flip scheme indicated based on evidence in servicing file 16% Identity theft indicated 10% Signature fraud indicated 6% Non-arms length transaction indicated Fitch selected a sample of 45 subprime loans, targeting high CLTV, stated documentation loans, including many with early missed payments. In particular, we selected loans that were primarily purchase transactions having a higher range of FICO scores (650 to 770), because high FICO scores and purchase transactions are historically attributes which generally reduce the risk of default. Fitch’s analysts conducted an independent analysis of these files with the benefit of the full origination and servicing files. The result of the analysis was disconcerting at best, as there was the appearance of fraud or misrepresentation in almost every file.

7. Repurchases and quality reviews are at record levels Forensic investigative file reviews are time consuming and require best in class service providers with experience, leadership, and judgment File review vendors qualifications Experience Scope of investigations Capacity Reports Integration Auditing and re-verifying loan data is necessary to minimize losses, but will not get to the root of the problem - rigor and integrity of underwriting and valuation processes and controls Automation and intelligent workflow required to address scaling issues with service providers Quality Control & Loss Mitigation Considerations & Observations UW and Process Reviews QC Process Reviews Third Party Involvement Third Party Involvement Appraisal Comparable Reviews Historic Appraisal Reviews Borrower and Involved Parties interviews Asset & Employment Verification Settlement and Closing Reviews Analysis of Issues Discovered Trend Analysis QC Opportunities Executive Summary and Detailed Reports

8. Next Steps Identify critical business needs Establish and Prioritize Action Plan Develop and Agree to Success Measurements and Milestones Execute!!!!!!!!!!!!

9. Appendix - Other Strategic Suggestions Recover lost value from auditing Private Label MBS purchased over the past 3 years Potential recapture of lost fair value in the $20-$100B range Create proxy service for managing Freddie Mac servicers to ensure health, compliance, consistency, and performance Human interface to servicers (extension of FRE) Third party service providers to augment servicer capacity in loss mitigation, and default management Assist Identification of Service Provider Companies - to address capacity shortages and quality gaps, including for example: Fraud Service Providers, Forensic File Review Specialists, Credit Analytics Providers, Loss Mitigation Specialists Ensure solution solves for Freddie Mac’s business needs vs. needs modified to meet available solutions

10. Illustration of a Loss Mitigation Triage Model - Phase I Freddie Mac Responsibilities One Illustrative Example of How CFS Assets Can Be Deployed CFS Servicer Management Organization Loss Mitigation Proxy for FRE Monitoring and oversight to ensure servicer consistency Minimize (mitigate) credit loss from failures of servicers or borrowers Leverage 3 rd party strategic partners to embellish or assume servicer responsibilities Help achieve corporate goals (financial and mission) FRE Servicers Established and enforced policies & procedures Capacity and capability to satisfy servicing functions Quality of loss mitigation and default Management Financial (Counter-party strength)

11. Illustration of a Loss Mitigation Triage Model - Phase II Audit/Assessment Ability to Manage Functions Counter-party Strength Ability to Maintain, Manage, and Execute Default Mgmt. plans Servicers Fail Fail Early Resolution Success Loss Mitigation Proxy ER Fail REO Manage Asset Servicers Remediation success rates Ultimate loss tolerances Adherence to delegated parameters Adherence to loss mitigation guidance Loss Mitigation Capacity/Capability Audit/Assessment Dispatch servicing specialist(s) for onsite visit and support Fail Over Mechanism Assign Interim Servicer/Counseling Home Saver Advantage Loan Modifications Refi/Short Refi CFS Dispatches a team of specialists to establish servicers’ health, processes, consistency, and performance When deficiencies are identified “Get Well Plans” are enacted where specialists are put on the ground at servicers’ operation, and 3 rd party servicer providers are leveraged to perform special counseling, remediation processing (deferment, payment plan, mods, refi & short refi, short sale, REO m&m) Get Well Plan Resolution Returns Responsibility Back to Servicer When Loan is Remediated