Comparative Housing Valuation Kestrel Advisors, Inc. Delivering keen insights, enabling companies to soar higher. Comparative Housing Valuation The applicability and benefits of comparative housing market valuations when making credit decisions

Status and recent developments in the housing market: There have been some notable declines in home sales in certain areas of the country Home price appreciation is still positive, but slowing At the national level, the housing market is fairly valued

Degree of Overvaluation / Undervaluation: Less than 5% overvalued Shiller data October nominal value: 205.85 Degree of Overvaluation / Undervaluation: Less than 5% overvalued

All real estate is local (“Location, Location, Location”) Metropolitan Statistical Areas (MSA’s) around the country exhibit wide variability Some are very overvalued, which presents risks; some are undervalued, and present opportunities

The methodologies that Kestrel Advisors has developed for determining fair housing valuation can provide guidance when considering new credit decisions: volume of lending in a particular market whether to offer certain products in a particular market suitable LTV’s for various markets reliability of collateral safeguarding loans

Degree of Overvaluation / Undervaluation: Approx. 25% Overvalued

Considerations for new credit issuance in the Seattle metropolitan market: continue lending without any change in lending volume or product mix offered reduce overall origination activity require 20% down payments (LTV of 80 or less) for new purchase loans eliminate use of very low down payment loans (3%), or use very sparingly (750+ FICO) eliminate use of Adjustable-Rate Mortgages and other creative loan products

Degree of Overvaluation / Undervaluation: > 30% Overvalued

Degree of Overvaluation / Undervaluation: < 25% overvalued Indexed prices declined by > 5% from June to December

Seattle clearly represented a risk, and probably still does Other MSA’s represented safety and opportunity

Degree of Overvaluation / Undervaluation: Approx. 10% undervalued

Considerations for new credit issuance in the Cleveland metropolitan market the Cleveland market remains significantly undervalued, but continues to steadily recover over time increase overall lending activity to generate greater revenue offer a full array of loan products to borrowers Increase offerings of 2nd loan products such as HELOC’s and HEL’s

Degree of Overvaluation / Undervaluation: Less than 5% undervalued

Conclusion The comparative home valuation data can help lenders: manage credit risk for new loan originations raise credit standards in overheated markets determine an appropriate schedule of product offerings for various markets identify opportunities to increase revenue by expanding origination activity