1. Mike Awadis Managing Director HilltopSecurities 16000 Ventura Blvd, Suite 1100 Encino, CA 91436 Phone: 310.401.8060 mike.awadis@hilltopsecurities.com July 28, 2016 Making the Most of TBA Executions NCSHA 2016 Annual Conference Miami, Florida

2. ©2016 Hilltop Securities Inc. All rights reserved. Disclaimer This presentation is intended for educational and informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this presentation was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute HilltopSecurities’ views as of the date of the report and are subject to change without notice. This presentation represents historical information only and is not an indication of future performance. 2

3. ©2016 Hilltop Securities Inc. All rights reserved. 3 Production Trends Over 35 state HFAs use some sort of TBA execution in their programs Since July 2012 representing 11 HTS state HFAs and over $13.3 billion in locks Year-to-date locks of over $5.1 billion and MBS purchases of $3.87 billion Average daily locks are up over 50% in the last 12 months

4. ©2016 Hilltop Securities Inc. All rights reserved. Why has production picked up? (Macro Themes) Steady economic growth has helped put households and housing on firmer footing FHA reduced annual MIP in Jan’15 by 50bps thus making FHA mortgages more affordable Mortgage rates still at historic lows Fed continues its MBS purchase activity – average $7.5 billion a week in July & August In light of increasing rents, studies about renting vs. buying show buying is a better deal in most markets – big changes in household formation are finally pushing these numbers Home prices continue to increase and are now up 5.1% YTD as of June New home sales was most positive YoY increase of 33% in July Existing home sales continue to increase and are 2.6% higher than 2015 YTD Share of distressed transactions at lowest rate since 2007 Visible inventory of homes in July was at its lowest level since 2002 Homeownership rate hits 50 year low (63.5%). The drop in rates was present across almost all age cohorts and ethnicities First-time buyers currently make up 32% of all buyers -- the lowest in 30 years -- compared with historical average of 40% Finally we are seeing some marginal credit loosening by lenders as evident by August DTI and FICO averages 5

5. ©2016 Hilltop Securities Inc. All rights reserved. Why has production picked up? (Micro Themes) HFAs rolling out more products More aggressive marketing to lenders HFAs making products more lender friendly Push by GSEs (Fannie and Freddie) to do more affordable housing business 5

6. ©2016 Hilltop Securities Inc. All rights reserved. Bank CRA Lending Partnership with HFA Community Reinvestment Act (CRA) – Enacted by Congress in 1977 with the intention of encouraging depository institutions to help meet the credit needs of surrounding communities (particularly low and moderate income neighborhoods) The CRA requires federal regulators to assess the record of each bank or thrift in helping to fulfill its obligations to the community. This record will then be used in evaluating applications for future approval of bank mergers, charters, acquisitions, branch openings and deposit facilities Traditionally, Banks have been meeting their CRA requirements by purchasing MBS or whole loans in the secondary market – at a premium Current bank CRA loan purchase programs seldom benefit the borrower in making the loan more affordable The pay-up in loan purchase goes to the seller of the loan post loan closing and doesn’t result in a lower mortgage payment or lower loan amount for borrower Banks entering into forward purchase agreements with HFAs is a win-win for both entities 6

7. ©2016 Hilltop Securities Inc. All rights reserved. Bank CRA Investment Partnership with HFA HFA gets a forward dollar commitment at the beginning of each year from Bank for the purchase of HFA Agency Backed MBS made up of loans in its CRA assessment areas HFA gets a forward dollar commitment at a specified spread to market (typically 1% over spec/TBA) Allows the HFA to price the pay-up into the daily rate setting process making programs more competitive and attractive to its borrowers Benefits Bank by allowing it to lock-in the cost of acquiring CRA investments Allows Bank to specify the type, location and characteristics of collateral to be purchased Potentially helps Bank get a more favorable CRA rating in their periodic exams with regulators Excellent media/PR opportunity for the Bank The HFA will provide all of the necessary HMDA data to Bank prior to loan purchase and ask that Bank confirm borrower/loan eligibility 7

8. ©2016 Hilltop Securities Inc. All rights reserved. Bank Comm. Development Loan for HFA DPA – Case Study The purpose of the Community Development loan is to be used to provide DPA in Bank’s CRA Assessment Areas with the following terms: Loan Amount:$10 million Rate: 1% Per Annum Simple Interest Loan Term:Ten (10) years Payments:All principal and interest due at maturity Collateral: Certain HFA DPA loans, of sufficient quantity to secure the full outstanding amount of the Loan. DPA loans serving as collateral will be substituted / replaced as necessary in the event of collateral prepayment or runoff Due Diligence: Bank shall have the right to conduct an underwriting review of the collateral Prepayment: HFA may prepay the outstanding principal balance of the Loan in full or in part without penalty. Reserve Req.None 8

9. ©2016 Hilltop Securities Inc. All rights reserved. Quantifying the Benefit to Bank and HFA In CY 2016 Bank is anticipated to purchase over $250 million in mortgages in order to meet CRA in a particular assessment area Based on past experience and current mortgage trading levels, the anticipated premium Bank would be paying to acquire the mortgages is over 6% or $15 million In order to meet CRA in 2016, Bank will have to invest almost $250 million of capital to purchase first mortgages. The anticipated return for the bank is 4.00% annually The only way for Bank to recover a portion of the premium is to securitize the loans after purchase. Any prepayments will be reimbursed at par thus costing Bank 6% or the premium Under the program, in 2016 Bank can meet of exceed its CRA objective by making a $10 million CD loan for DPA Allows HFA to leverage the loan into funding DPA needs for $250 million in first mortgages (assuming 4% DPA based on first mortgage loan amount) Bank saves $5 million and eliminates prepayment risk 9

10. ©2016 Hilltop Securities Inc. All rights reserved. Quantifying the Benefit to Bank (continued) Although varies by geography, the average life of DPA loans is 5 to 10 years The agreement with the HFA could be structured to minimize or eliminate the default risk to Bank To compensate the bank for the lack of return, Bank may be able to purchase the loans at a discount from the HFA HFA would service the loans on behalf of Bank without additional cost to Bank Monthly investor accounting and delinquency reports will be provided to Bank for reconciliation purposes The HFA will provide all of the necessary HMDA data to Bank prior to loan purchase and ask that Bank confirm borrower/loan eligibility 10