HNAH Retail Credit Management

1. HNAHRetail Credit Management Basel II \ Risk MI Steering Committee Update March 25, 2008

2. Basel II \ Risk MI Program Status • RCM, HBIO, HBUS and HBCA Finance teams delivered a successful Q4 parallel run submission for Pillar I FSA004 reporting. Basel data quality dipped slightly to 93% overall data quality for December 2007 data. The issue was structural and did not relate to the quality of HNAH retail data content. The issue is identified and being rectified. • Business units have completed their Phase 3 implementation of ‘go forward’ data and have begun to restate their Basel data under the latest Phase 3 segmentation methodology. Some business units are having their HTS budgets reduced for large enterprise initiatives. This will impact delivery of backfilled data. • An automated data validation process has been created to ensure all restated Basel data is complete and reconciles to the general ledger. Data will be restated back to January of 2006. • FIM Certification (for Basel II) is complete. We have not identified any areas where we are out of compliance. RCM is expecting to engage in a FIM Certification audit later this year. • Implemented adjustments for Basel II long-run average Pillar One PDs for Mortgage Services second lien portfolios (HELOC and HELOAN) have been adjusted upward to reflect the impact of environment and portfolio deterioration. Other CML exposures are being monitored and additional adjustment will be made as justified. • Implemented the required changes to feed the dimensionalized Basel data into Risk MI. Testing of the load of this data (into Risk MI) will conclude in March. Backfill of the dimensionalized Basel data in Risk MI will align to restatement of business unit CDW data timelines. • Significant progress has been made in Stage 3 Monitoring except for CRS. Requirements have been thoroughly reviewed and detail\technical design sessions are commencing. In addition to new data feeds, Stage 3 Monitoring will leverage existing data currently in the repositories. Phase 3 Models are continuing to be developed in HFC Canada and HBCA, per plan. • FRB has completed discovery review of CML. Independent Review team has completed their first full-scope review of a business unit (CML). The Basel analytics team has worked with CML to manage each of these reviews and is awaiting comments. • SME<$350K implementation has been delayed until Q2 2008. See appendix 2 for details

3. Light Check: Basel II Phase 3 Snapshot Status as of March 17, 2008 Snapshot indicates RCM’s assessment of the business unit’s achievement of status and their ability to maintain it for the next 4 weeks. - Sufficient and consistent with our target dates Caution Unsatisfactory / Late - Completed - TBD - N/A X

4. Dashboard: Basel II Phase 3 Snapshot Status as of March 17, 2008

5. 2008 Basel II\RMI Checkpoints as of March 17, 2008 • Q1 2008 • Review/Categorize Analytical Models & Model Documentation – In Process • Model Analytical Validation • Stage 2 Monitoring Execution Plan – In Process • State 3 Monitoring Functional Design – Complete • Capital Forecasting and Analysis Functional Requirements • DLGD Functional Requirements – In Process • Benchmarking Functional Requirements – In Process • Regulatory Review (CML) - Complete • Stress Testing Execution • Q2 2008 • Analytical Segmentation Optimization • Analytical Quantification Optimization • Stage 3 Monitoring Development • Capital Forecasting and Analysis Functional Design • Downturn LGD Functional Design • Benchmarking Functional Design • Stress Testing Enhancement Functional Design • Q3 2008 • Stage 3 Monitoring Implementation • Capital Forecasting and Analysis Functional Development • Downturn LGD Development • Benchmarking Development • Analytical Certification – Complete • Phase 3 CDW Development And Testing – Complete • BII Phase 3 Functional And Technical Specs (Business Units) – Complete • Q4 2008 • Stage 3 Monitoring Implementation • Capital Forecasting and Analysis Functional Implementation • Downturn LGD Implementation • Benchmarking Implementation • Stress Testing Enhancement Execution

6. Appendices Appendix 1: Basel II/RMI Phase 3 FTE Report Appendix 2: SME < $350K Project Status

7. Basel II \ RMI Phase 2: FTE Report Resource Update - February 2008 FTE Report *These Business Units are in the process of sending February FTE’s. The FTE reflects last month’s actuals. **Only Retail Finance Basel Operations resources are indicated here.

8. SME < 350K: New Plan Resulting From UAT. Status - On Track. • Phase 1 Summary: 2008 End Q2 Time Frame – Built Into 2008 Program Plan • Overall Phase 1 Completion is 50% • Use existing PD Segmentation model • Include new ELGD and LEQ Segmentation models • Implement CDW changes based on new models and issue resolutions • Phase 1 Part One. The initial PD segmentation models for SME < 350 is believed to be sound.However, there are issues in the segmentation implementation.This requires IT to make changes to CDW and delay implementation until Q2 2008. • Phase 1 Part Two. LGD segmentation and estimation is progressing for Q2/2008 completion • Key product categories for LGD have been identified. • Data sources to accurately track recoveries and calculate the LGD consistent with Basel requirements have been found. • HBUS resources are in process of developing a reasonable approach for identifying recoveries for 24 months following Basel default. This recovery information will also be validated against Special Credits (SCU) recovery experience. A sample of loans will be taken and validated against SCU documentation of that loan’s recovery experience. • PFS Analytics will develop a template for the SCU staff to use in documenting their review.RCM will provide commentary and support in developing the template. • Phase 2 Summary: 2009 Time Frame – Detail Plan Available For Review • Develop a system for reporting accurate delinquency status for SCU Loans • SCU compliance with FFIEC retail credit management guidelines around charge-off and re-aging policies • Establish credit/workout policies based on specific performance criteria with a strict override policy. • Develop a procedure for risk management oversight of the work-out process within SCU. • Enhance the data systems to support submission of updated performance information • Changes in the SME < 350 Portfolio Management in 2009