The document discusses the enormous potential of the U.S. home equity market, estimated at around $20 trillion, and the need for innovative financing solutions like home-equity, fractional-interest (HEFI) securities to complement traditional debt financing for homeowners. It outlines how HEFIs can facilitate passive equity investments, improve market access, and aid in foreclosure abatement for distressed homeowners. The document also highlights supportive methodologies and potential commercialization efforts by Home Equity Securities LLC to address the subprime mortgage crisis.

1. Securitization of the Single-Family, Owner-Occupied Home Equity Market John O’Brien Nelson Schneider Home Equity Securities LLC March 2008

2. The Potential The U.S. housing market is around $20 trillion — even larger than the U.S. stock and bond markets Institutions have had very limited access to this enormous equity market Presently, homeowners access equity in their homes only through debt instruments Development of an equity alternative is necessary to provide a logical supplement and support to debt-financing

3. Opportunity Provide new financing opportunities for homeowners and developers Create a capital market for fractional-equity securities in single-family, owner-occupied residential real estate Provide a new investment asset class for institutional asset managers and investors Offer a solution to Subprime workouts

4. Today’s Situation Home ownership is “all-or-nothing” Financing is debt only; it’s as if equity-share ownership hadn’t been invented Home price valuation is without meaningful market discipline Homeowner delinquency forces foreclosure; “downsizing in place” is not possible

5. How Did We Get Here? Home ownership traditionally has been a family affair, generally supported with debt — but rarely with a commercial equity investor Not until recently — when consumer’s began to target home equity for wealth accumulation (accompanied by soaring debt loads) — has fractional home equity become an important option

6. Alternative Solutions Alternative structure debt instruments Reverse Mortgages Hybrid Structure/Asymmetric payoff instruments Shared Appreciation Mortgages Home-Equity, Fractional-Interest (HEFI) security – a standardized, stand alone, equity security innovation

7. What is a HEFI? Home-Equity, Fractional-Interest security Stand-alone equity security, separate from mortgage Allows homeowner to offer fractional ownership while retaining homeowner benefits Offers investors passive equity investment in single-family, owner-occupied market Facilitates fungibility, valuation, and transferability; can be pooled into Collateralized Home-Equity Obligations

8. Collateralized Home Obligations (CHOs) Offer diversified Single-Family, Owner-Occupied (SFOO) equity exposure Could be traded OTC or on an exchange Indexes of CHOs would allow price discovery Derivatives on these Indexes allow hedging

9. Benefits of HEFIs and CHOs Flexible financing/diversification for established homeowners Market expansion for developers and resale market Foreclosure abatement for distressed homeowners Recovery vehicle for mortgage restructuring Investment opportunity for asset managers and institutional investors

10. Are Investors Ready for HEFIs and CHOs? National and regional housing indices Spot price proxies Listed futures and options OTC products

11. Fed Chairman Bernanke March 4, 2008 “ A recent estimate based on subprime mortgages foreclosed in the fourth quarter of 2007 indicated that losses exceeded 50 percent of the principal balance… ” “ The fact that many troubled borrowers have little or no equity suggests that greater use of principal write-downs or short payoffs, perhaps with shared appreciation features , would be in the best interests of both borrowers and lenders.”

12. Home Equity Securities LLC Attributes Developed the HEFI security and related methodologies Holds 7 enabling patent filings that underpin intellectual property Uniquely positioned to support an accelerated commercial launch of the SFOO equity capital market Boasts experienced team that combines professionals from Wall Street and academia

13. Home Equity Securities LLC Near Term Commercialization: Adapted HEFI Program for Use in Subprime Workouts Conferring with interested Federal, State and commercial entities intrigued by HES’s Model Ready to License Out HES Program

14. HES Subprime Workout Plan Reduce Mortgage Size to Meet Homeowner’s Ability to Pay Dollar Differential from Old Mortgage Converts to Equity Owned by Banker Banker Now Has Performing Mortgage and Potential Upside if Home Price Rises Homeowner Stays in Home