Dr. Eric Klopfer March 12, 2003

1. g GE Insurance Housing Finance In Emerging Markets: A Private Sector Perspective On Credit Insurance And Guarantee Programs Dr. Eric Klopfer March 12, 2003

2. Potential Value Of Private Mortgage Insurance Why is Private Mortgage Insurance Worth Discussing? • Improves Risk Selection And Reduces Non-Price Credit Rationing, By Encouraging Data Collection/use And Applying Risk-Decisioning Technologies • Improves Mortgage Process Management, By Putting Private Capital At Risk To Ensure Effective Property Valuation And Credit Information And Delinquency Management Systems • Provides Highly Rated Specialist Risk Protection To Lenders, Through Long-Term Commitment Of Risk Capital As Part Of A Global Mortgage Insurance Franchise • Acts As A Risk Transformer To Normalize Risk For Mortgage Investors, By Serving As The “Investor’s Eyes” And Providing A Source Of Credit Enhancement For MBS And Mortgage Bonds. Value Of Private Mortgage Insurance • “The Wealth Gap”. Once Macroeconomic Stability Is Achieved, Declining Interest Rates Can Be Expected. With Declining Interest Rates, Downpayment Size Matters More Than Debt Service As a Barrier to Homeownership • Housing As A Political Issue. Consistent Access To Low-Cost Mortgage Finance Allows Individual Wealth Accumulation, Strengthens Communities, And Reinforces Popular Support For Private Property Rights • Funding And Regulatory System Still Developing. With Limited Resources, Lenders And Regulators Need To Work Toward “Global” Standards To Access Investment Capital And Ensure Financial Stability Housing Market Issues Mortgage Insurance Encourages Development Of A Data-Driven And Risk-Sensitive Housing Market

3. Capital Requirements Private MI Model Mortgage Insurance Works At Multiple Levels In The Mortgage Value Chain g GE Mortgage Insurance Secondary Market Transactions Funding MI Claims Payments Insurance Premium Home Buyer Payments Homeowner Acquires MI If Down Payment < 20-30% Investors Premium • Benefits: • Improved Confidence In MBS/ Mortgage Bond Quality And Performance • Benefits: • Access To High LTV Mortgage • Lower Interest Rate Mortgage Lending Institutions • Benefits: • Serve Mortgage Market Without Increased Risk Or Capital Burden • Improved RAROC Or Secondary Market Execution MI Is A Tool To Encourage Lenders To Fulfill Housing Policy … Without Increasing Risk In Financial System

4. Pricing Private Mortgage Insurance Uses An Actuarial Approach Drawn Heavily From Rating Agency Methodologies Lender Provides Loan By Loan Data MI Analyses Data MI Provides Price / LOI Loss Curve • Loss Assumptions • Historic Portfolio Performance • Economic Cycles • Geographic Dispersion • Lending Criteria • Lender & Legal Process • Depth Of Coverage • LTV Default Years Claims by Year Lender Specific Price Less Risk More Risk Mortgage Type Fixed-Rate Adjustable Occupancy Status Owner-Occupied Investor Employment Status Employee Self-Employed Mortgage Size Average Size Jumbo Property Type Single-Family Detached Condominium Mortgage Documentation Standard Limited Credit Scoring High Score Low Score Loan Purpose Purchase “Cash Out Refi” • MI Premiums Generally Are Expressed • In Terms Of Basis Points • The Base Rate Is Determined By The LTV Ratio, Supplemented By Other Factors Like ... • Where The Base Rate Is Multiplied By The Original Principal Amount Of The Loan MI Is Priced To Reflect Lender Specific Mortgage Performance History

5. Mortgage Loan Process Mortgage Insurance Is Integrated Into Existing Loan Processes … Overall Strengthening Of Risk Management CONTRACT APPLICATION PROCESS FOLLOW UP FORECLOSURE PROCESS LOAN APPLICATION ANALYSIS & APPROVAL FORMALI- SATION OF OPERATION NORMAL RISK FOLLOW UP LENDER NORMAL FOLLOW UP MORTGAGE ENFORCEM. Foreclosure ends ARREARS Foreclosure starts Doubtful Default Loan Loans MASTER POLICY AGREEMENT INDEMNITY INSURER • MI Application • Commitment Certificate • Premium Payment At Drawdown Date • Risk Monitoring • Benchmarking Analysis • Delinquency Reporting • Insured To Give Notice Of Default To Insurer • Delinquency Management • Loss Mitigation Effort • Claim filing • Claim settlement MI Improved, Streamlined Process … Loans Are Covered Individually

6. Although Mortgage Insurance Can Provide 100% Protection To Lenders, Generally It Covers Only The “Top-Slice” Portion Most Vulnerable To Loss, Replacing A Large Portion Of The Borrower’s Down Payment … Product Structure And Example W/ MI W/O MI Lender Mortgage Insurance Customer Financed 5% 80% 20% 80% Customer Financed • Underwrites Loans • Shares Credit Risk • Markets Program • Manages Customer Relationships • Underwrites Referrals/Audits Underwriting • Takes Insurance Credit Risk • Administers Program • Risk Monitoring / Benchmarking Analyses 15% Bank Financed Bank Financed Proposed Property Valuation € 100 K Agreed Loan € 95 K Borrower Equity € 5 K Four Scenarios In Case Of Inability Of The Borrower To Pay* (For Example After 5 Years) Balance of Mortgage € 80,0 K € 80,0 K € 80,0 K € 80,0 K Property Sold/Valued 60,0 K 65,0 K 75,0 K 90,0 K Gross Gain (Loss) (20,0 K) (15,0 K) (5.0 K) 1,7 K Payment by GE 15,0 K 15,0 K 5,0 K No Insurance Claim Net Gain (Loss) To Bank € (5,0 K) € 0,0 €0,0 €10.0 K * Irrespective Of The Reason For The Inability To Pay € 100 K € 95 K Borrower Loan € 5K € 95 K Loan (€ 15 K Insured) Coverage Levels Can Be Adjusted To Eliminate Any Bank Losses, Simplifying Provisioning

7. Public/Private Partnership (“PPP”) Partnering With Rated Private Mortgage Insurers Offers Powerful Possibilities For Homeownership While Limiting Additional Risks An Approach To Managing Credit Risk That Combines The Best Attributes Of The Public And Private Sectors Emerging Market Countries Are Using Interest Subsidies, Tax Incentives, And Even MI To Advance Housing Policy But… A Government Guarantee Allows Banks To Carry 0% Risk Weighted Assets For Regulatory Capital Purposes The Government Can Specify Standards And Ensure Uniformity, Which Creates Necessary Preconditions For Easier Loan Origination/Sale And Greater Liquidity Mortgage Credit Risk Specialists Like GE Want To Offer Their Services Developed In Other Markets On A Long-Term Basis Customers Expect New Products And Services, And Shareholders Expect Increasing Returns, So Companies Like GE Are Under Constant Pressure To Improve Favorable Risk Weighting Standardization Risk Appetite And Expertise Innovation And Efficiency Public Sector Strengths Private Sector Strengths PPP Could Be Used To Encourage Low Down Payment Mortgage Lending On A Cost-Effective Basis

8. PPP – How It Might Work PPP Could Work Either As An Insurance Or Securitization Program, With Flexibility And Benefits To All Participants Purchases Insurance Borrows To Purchase Or Refinance PGC Insures Mortgage Lenders Provides Lower Cost Financing Generated By PGC Structure Home Buyers Private Mortgage Insurers Assume Non-Catastrophic Credit Risk & Administer Credit Risk Program Consumers, Lenders And Investors Benefit From Reduced Credit Risk Because Of Sovereign Guarantee … But Government Benefits By Having Most Of The Credit Risk Re-Assumed By Private Risk Capital Investors AA Re-Insurers AA Re-Insurers AA Re-Insurers Buy PGC-Guaranteed Mortgages Provides Liquidity/Assumes Interest-Rate Risk Lower Credit Cost For Consumers, Capital Relief And Liquidity For Banks, Economic Growth And Risk Transfer For Government, And Deeper, More Liquid Asset Pool For Investors

9. PPP – Credit Risk Allocation PPP Stimulates The Flow Of Funds Into Low Down Payment Mortgage Lending At A Minimal Cost To The Government With More Flexibility Than Other Alternatives Illustrative Loan 90% LTV Borrower Equity Up To 90% Private Sector Exposure To First Loss Position On Each Loan And For Substantially All Expected Losses Ensures That Underwriting Discipline/Risk-Based Pricing Is Maintained Private Sector Risk Exposure Private Capital Reinsures The Government Risk Down To 50-55% LTV, Which Includes All Loans Short Of Economic Catastrophe Private Sector Risk Exposure 50-55% PGC Risk Exposure Property Values Must Fall 45-50%, “AAA” Stress Levels, Before Any Government Loss Is Incurred PGC Will Receive Premiums Sufficient To Cover Actuarially Calculated Losses, Which Will Make The Program Self-Funded PGC Risk Exposure PPP Reduces Risk Exposure To The Government To AAA Levels, With Private Sector Capital Incented To Manage Loans Rigorously

10. Basel II Implications According To A Leading Authority*, “Asian Banks Currently Lack The Critical Data To Build Basel II – Compliant Internal Ratings – Based Systems,” Since … • 80% Of Asian Banks Have <3 Years Of Probability Of Default Data • 100% Of Asian Banks Have <3 Years Of Loss Given Default Data • Operational Risk Data Are Lacking Which Is Important Because IRB Banks Will Enjoy A Capital Advantage Even In Emerging Markets * Standard & Poor’s (8/26/02) Why Is This Important? How Can Mortgage Insurance Help? • Basel II Is Data-Driven • Basel II Uses Probability Of Default (“PD”) As A Means Of Establishing Capital Levels • Basel II Uses Loss Given Default (“LGD”) As A Means Of Establishing Capital Levels • Basel II Encourages Banking Supervisors To Value Sound Risk Management Principles • Basel II Requires Timely And Meaningful Disclosures To Be Made About Bank Operations • Basel II Rewards Efficient Operations With Lower Capital Charges • Mortgage Insurance Encourages Generation Of Loan-Level Data • The Additional Underwriting, Servicing And Loss Mitigation Rigor Of Private Mortgage Insurance Can Reduce PDs • Third-Party Mortgage Insurance Minimizes LGD And Reduces Capital Requirements • Mortgage Insurance Has Facilitated Product Innovation And The Orderly Transfer Of Billions Of Dollars Of Credit Risk Exposures Outside The Banking System • Mortgage Insurance Provides Transparent Credit Risk Mitigation Well Understood By Regulators And Investors • Mortgage Insurance Streamlines Processes And Generates Better Delinquency Monitoring And Loss Mitigation Mortgage Insurance Can Help Emerging Market Banks Close The Gap On Basel II

11. Potential Benefits In Summary, We Would Like To Restate The Potential Benefits Of Private Mortgage Insurance In Emerging Markets • Deconcentration Of Credit Risk – Several Transition Economies Already Have Embraced Mortgage Insurance As An Instrument, But Within Small Open Economies Characterized By Highly Concentrated Banking, Insurance And Asset Management Sectors. Credit Risk Transfer Outside The Financial System To Better Diversified Credit Risk Counterparties Reduces Systemic Risk. • Risk Management – In The Absence Of Meaningful Time Series Data, The Effectiveness Of Lenders’ Underwriting Criteria And Their Ability To Service Loans In A Sour Market Remains Unproved. Mortgage Insurers Can Facilitate Movement Toward Advanced Risk Management Techniques From The Perspective Of 40+ Years Of Managing Mortgage Credit Risk. • Credit Enhancement – Banks Need Additional Capital To Fund Loan Growth, And Flexibility In Balance Sheet Management. Mortgage Insurers Can Help With Capital Markets Solutions. • Supplemental Supervisory Resources – Since Mortgage Insurers Bear Risk Of First Loss, They Are Motivated To Demand Better Quality Credit Information, Robust Property Valuations, Rigorous Underwriting Standards, And Active Delinquency Management. Mortgage Insurers Are Consultants That Back Their Advice With Their Own Capital. • Homeownership Opportunity – Reducing Down Payment Restrictions Remains Critically Important, Especially To Leverage The Benefits Of Declining Interest Rates. Mortgage Insurers Can Suggest How A Public/Private Partnership Might Create A Prudent And Long-Term Alternative To Interest RateSubsidy Programs. These Benefits Could Be Accelerated By Thoughtful Official Action

12. How To Contact Us For Further Information GE Mortgage Insurance Eric Klopfer Vice President, Global Regulatory Affairs 6601 Six Forks Road Raleigh, NC 27615 919-846-4153 E-mail: eric.klopfer@ge.com Sacha Polverini Head Of European Regulatory Affairs 2-4 Rond Point Schuman Brussels 1040 Belgium +32-2-235-6967 E-Mail: sacha.polverini@ge.com