**Appendix D: Economic Forecasts**

In order to measure the MMI Fund's soundness against potential future
losses in either its current mortgage portfolio or its future books of
business, the Fund's economic values were analyzed under alternative
economic scenarios by predicting the consequent future loan performance
as well as the financial performance of the Fund. We began this analysis
with the base case. The base-case economic scenario is extracted from
the August 2007 forecast of the U.S. economy published by Global
Insight, Inc. The economic factors of the Global Insight forecast used
in our analysis are:

-   OFHEO national housing price index

-   Ten-year Treasury rate

-   One-year Treasury rate

-   Commitment rate on 30-year fixed-rate mortgages

Data used in the baseline scenario are summarized in Exhibit D-1. The
listed economic factors forecasted by Global Insight, Inc. are available
from FY 2007 through FY 2017.

**Exhibit D-1**

  ---------------------------------------------------------------------------
  **Economic                                                  
  Forecast**                                                  
  -------------- -------------- -------------- -------------- ---------------
  **(Base-Case                                                
  Scenario)**                                                 

  Fiscal Year    National       10-Year        1-Year         Commitment Rate
                 Housing Price  Treasury Rate  Treasury Rate  on 30-Year
                 Index          (%)            (%)            Fixed-Rate (%)

                                                              

                                                              

  2007           409.75         4.68           5.01           6.22

  2008           396.26         5.08           5.01           6.72

  2009           396.63         5.36           5.18           6.99

  2010           410.37         5.59           5.32           7.21

  2011           427.30         5.65           5.34           7.27

  2012           445.92         5.65           5.34           7.27

  2013           465.11         5.52           5.13           7.14

  2014           484.66         5.26           4.81           6.88

  2015           505.34         5.26           4.81           6.88

  2016           526.88         5.26           4.81           6.88

  2017           549.52         5.26           4.81           6.88
  ---------------------------------------------------------------------------

**Alternative Economic Scenarios**

To conduct sensitivity analysis of the Fund's economic value, four
alternative scenarios were used to assess the financial viability of the
Fund. The selected scenarios are summarized as follows:

1.  ***Extended Housing Recession Scenario*** -- We assumed that the low
    house price appreciation forecasted by Global Insight, Inc. will
    last for three consecutive years from FY 2008 to 2010, then return
    to base-case levels in FY 2011.

2.  ***High Interest Rate with Extended Housing Recession Scenario*** --
    The assumption regarding house price appreciation is the same as in
    scenario 1. We further assumed that all three interest rates are 300
    basis points higher than in the Global Insight forecast for FY 2008
    through FY 2010, and then they return to the baseline levels in
    FY 2011.

3.  ***High Claim Loss-Severity Rates Scenario***-- We assumed loss
    rates on claimed mortgages were five percentage points higher than
    the baseline level. For the current Review, different loss rates
    were assigned to each of the loan types. The loss rates used for the
    sensitivity analysis are as follow:

> *Judicial States:*

-   30-year FRMs

    a.  With downpayment gift from non-profit organization = 52.97
        percent

    b.  Others = 52.40 percent

-   15-year FRMs

    a.  With downpayment gift from non-profit organization = 48.05
        percent

    b.  Others = 66.42 percent

-   ARMs

    a.  With downpayment gift from non-profit organization = 50.97
        percent

    b.  Others = 47.01 percent

-   30-year SRs = 47.79 percent

-   15-year SRs = 56.10 percent

-   ARM SRs = 47.75 percent.

> *Non-Judicial States:*

-   30-year FRMs

    a.  With downpayment gift from non-profit organization = 42.49
        percent

    b.  Others = 41.00 percent

-   15-year FRMs

    a.  With downpayment gift from non-profit organization = 44.15
        percent

    b.  Others = 44.11 percent

-   ARMs

    a.  With downpayment gift from non-profit organization = 38.84
        percent

    b.  Others = 36.48 percent

-   30-year SRs = 36.27 percent

-   15-year SRs = 36.39 percent

-   ARM SRs = 37.42 percent.

> Note that this alternative scenario is based on the same forecasted
> variables as the base-case scenario. In other words, this sensitivity
> analysis examines the marginal impact of a change in loss rates.

4.  ***Continued High Concentration of Loans with Gift Letters from
    Non-Profit Organization*** -- This scenario assumes that the
    concentration in loans with downpayment assistance from non-profit
    organizations will remain high (vs. quickly declining throughout the
    FY 2008 as assumed in the base-case scenario).

The projected performance of the MMI Fund in response to the selected
scenarios listed above is provided in Section V of this Review.