HNAH Retail Credit Management

1. HNAHRetail Credit Management Basel II \ Risk MI Steering Committee Update February 26, 2008

2. Basel II \ Risk MI Program Status • All AIRB portfolios scheduled to implement new models in February (that were part of the original scope for retail) have gone live on-time, except for SME < 350K (which was added to retail scope in mid-2007). • The temporary suspense in implementation of the SME<350 retail model is due to variance in the reserve calculation uncovered during pre-production review. The analytics and the underlying data used in testing appear to yield accurate reserve calculations. RCM and HBUS are investigating the reserves methodology, process and data currently in production to determine the source – and resolution - of the issue. Upon review of data and new SME < 350K retail model, implementation will be split into phases. • Phase 1: 2008 Implementation plan • Business unit will use the 2007 PD segmentation model in place of the old CRR for the time being • New retail LGD and EAD models will be implemented • Business unit management has agreed to adopt the new reserve methodology • Phase 2: 2009 Implementation plan • Additional data investigation/improvement and improvement of models • Significant HTS Development and process improvement of Special Credit Unit (SCU) • Separation of Basel II segmentation process from reserve process.

3. Basel II \ Risk MI Program Status • The retail gap analysis of the Final Basel (NPR) rule is complete. Identified gaps have been added to the retail sections of the HNAH Gap Analysis and Implementation Plan. • RCM, HBIO, HBUS and HBCA Finance teams are working to deliver the GHQ 2007 Q4 parallel run submission for Pillar I FSA004 reporting. Basel data quality remains consistent at 95% overall data quality for December 2007 data. • Based upon analysis of recent PDs and more recent performance data (than was available in the model development time frame in 2007) - Mortgage Services second lien portfolios (HELOC and HELOAN) are experiencing increasing PDs beyond that observed in previous stress periods. The Basel II long-run average PDs will be adjusted upward to reflect this. The portfolios will continue to be monitored closely – and adjustments will be reflected accordingly. Impact will be integrated with stress testing work in 2008. • Key initiatives kicked off or continuing in January include Stage 3 Monitoring detail design and development, downturn LGD architecture and design, process improvement of quantification methodologies, and design of more rigorous and data driven methods to incorporate systematic risk into forward-looking capital estimation (capital forecasting).

4. Light Check: Basel II Phase 3 Snapshot Status as of Feb15, 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

5. Dashboard: Basel Workstreams for 2008

6. 2008 Basel II\RMI Checkpoints as of Feb 15, 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 – In Process • Capital Forecasting and Analysis Functional Requirements • DLGD Functional Requirements – In Process • Benchmarking Functional Requirements – In Process • Regulatory Review (CML) • 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

7. Appendices Appendix 1: Basel II/RMI Phase 3 FTE Report

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