**Appendix D: Economic Forecasts**

In order to measure the MMI Fund's soundness against potential future
losses on the current and future portfolios, the economic value of the
Fund was estimated under alternative economic scenarios. We began this
analysis with a base case scenario. The base-case economic scenario is
extracted from the July 2008 forecast of the U.S. economy published by
Global Insight, Inc. The economic factors of the Global Insight, Inc.
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 base‑case scenario are summarized in Exhibit D-1. The
economic factors forecasted by Global Insight, Inc. are available from
FY 2008 through FY 2018.

**Exhibit D-1**

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

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

                                                              

                                                              

  2008           387.5          3.66           2.10           5.87

  2009           346.6          3.61           2.20           5.69

  2010           344.9          4.79           3.91           6.51

  2011           347.0          5.44           4.84           7.12

  2012           356.8          5.44           4.84           7.12

  2013           374.3          5.44           4.84           7.12

  2014           393.3          5.44           4.84           7.12

  2015           411.9          5.44           4.84           7.12

  2016           434.0          5.44           4.84           7.12

  2017           453.4          5.44           4.84           7.12

  2018           478.9          5.44           4.84           7.12
  ---------------------------------------------------------------------------

**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
    national house price growth rates during FY 2008 in the base-case
    will extend for one more year to FY 2009, and then return to
    base-case levels in FY 2010.

2.  ***Higher Interest Rate Scenario*** --We assumed that all three
    interest rates are 300 basis points higher than in the Global
    Insight, Inc. forecast for FY 2009 through FY 2011, and then they
    return to the base-case levels in FY 2012.

3.  ***Higher Claim Loss-Severity Rates Scenario*** -- We assumed loss
    rates on claimed mortgages were five percentage points higher than
    the base-case level. For the current Review, different loss rates
    were assigned to each of the loan types. The loss rates used for
    this sensitivity analysis are 5.0 percentage points greater than the
    corresponding loss-rates applied in the base-case scenario.

> 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 Concentration of Loans with Downpayment Assistance from
    Non-Profit Organizations*** -- This scenario assumes that the
    concentration in loans with downpayment assistance from non-profit
    organizations will be reduced but still accounts for 10% of future
    books of business. (vs. completely eliminated starting in the FY
    2009 book and beyond as assumed in the base-case scenario).

5.  ***Less Pessimistic Economic Scenario*** -- We assume that the
    actual 2Q 2008 OFHEO house price appreciation will repeat four
    subsequent quarters, and then return to base-case levels in the
    third quarter of FY 2009.

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