THE HYBRID APPROACH

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THE HYBRID APPROACH TO COLLATERAL
EVALUATION Artificial Intelligence and Street
Smarts
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• BEST OF BOTH WORLDS COMBINING AUTOMATED
  ESTIMATES WITH STREET SMARTS
• MI understands the strengths and pitfalls of both
  automated estimates as well as traditional
  appraisals. To really meet the needs of real
  estate lenders, MI combines the speed and data of
  todays information providers with the street
  smarts of veteran real estate appraisers.
  Through innovative information systems
  technology, shrewd understanding of real estate,
  and its position as an independent provider of
  valuation services, MI has created a unique
  hybrid solution to meet the needs of its clients.
  
• NATIONAL COVERAGE (ALL 50 STATES)
• MI was the first appraisal services provider to
  develop a national network for the delivery of
  appraisals and appraisal alternative field
  reports to major lenders. With over 15,000
  appraisers and real estate professionals, and its
  proprietary vendor management system, MI can
  deliver a wide range of collateral evaluation
  products within competitive time frames.

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• FULL RANGE OF PRODUCTS MATCH RISK WITH COST
• MI recognized early on that sophisticated lending
  clients wanted to safeguard their underwriting
  decisions while at the same time enhancing their
  competitiveness in service and price. MI product
  range extends from Automated Valuation Models
  (AVMs) and hybrid appraisal alternatives to full
  URAR conventional appraisals. This tiered
  product structure allows clients to optimize
  their valuation costs by matching the appropriate
  valuation product with the level of the
  underwriting risk.
• HYBRID APPROACH INCREASES SAFETY AND SOUNDNESS
• MI can economically run property valuation
  requests through a battery of the major AVM
  models. Using multiple independent models
  overcomes the inconsistency inherent in any
  particular model. Further statistical
  correlation and review by an experienced real
  estate appraiser or analyst gives the model a
  reality check. The result is a more supported
  estimate of collateral value than can be obtained
  from a limited model selection. Significant
  costs are still saved, and turnaround times
  remain competitive.
• SEAMLESS UPGRADES TO DRIVE-BY INSPECTIONS 100
  COVERAGE
• Even the best models in the most data rich areas
  dont have enough data to generate a reliable
  conclusion of value all the time. This becomes a
  real problem in remote areas and non-disclosure
  states. When a value can not be concluded
  through available information, MI automatically
  upgrades the property request to a drive-by in
  its national field agent network. This seamless
  upgrade keeps the service momentum going for the
  borrower, and puts MI in the unique position of
  being able to deliver a 100 hit rate on all
  requests.

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• 100 QUALITY REVIEW
• All evaluations and appraisals are reviewed for
  quality as part of the MI process. Field work is
  reviewed and signed off by a qualified real
  estate appraiser. Random audits of field data
  are also conducted as part of an on-going review
  process.
• CUT COSTS AND TURNAROUND TIMES
• MI evaluations significantly cut costs while
  improving turnaround. Major lenders have reduced
  their collateral evaluation costs by over 50 and
  saved millions. These lenders have also
  experienced a simultaneous reduction in
  turnaround times of 50-70. More competitive
  service has increased the application yield, as
  more loan applicants close before losing interest
  or borrowing from another bank.
• STATE OF THE ART SERVICE THROUGH MULTIPLE EDI
  LINKS
• MI offers a complete menu of connectivity
  solutions for rapid order acceptance and
  delivery. Current clients communicate with MI
  through Internet, point to point, and full
  mainframe to mainframe connections.
• PROVEN TRACK RECORD WITH NATIONAL LENDERS
• We not only talk about it. We have been doing it
  for years. Confidential references from major
  lenders will validate our performance.

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MATCH RISK WITH COST
Tiered Products that Match Underwriting Risk
Profile
Appraiser Walk-through (5-10 day fax)
PRODUCT COST
SMPE Interior (3-5 day fax)
Appraiser Drive-by (5-7 day fax)
SMPE Drive-by (2-4 days)
FAV Drive-by (48-72 hours)
QCE Desktop (same day)
AVMs HVE Home Value Explorer, Basis 100 PASS
Others (instant)
Tax Assessment, AVMs (same day)
LOWER
HIGHER
Loan Amount, CLTV, Credit Score
BANK UNDERWRITING RISK PROFILE
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HIGHLIGHTS OF SEPARATE METHODOLOGIES
Interior Inspection
AVM
QCE
Drive-by
() Fastest turnaround Speed () Lowest Cost ()
Objectivity () High Confidence Potential
for Portfolios (-) Limited Coverage (-) Wide
Variability - to benchmark appraisal
- among competing models (-) Cannot Verify
Exterior Condition (-) Cannot Guarantee
Property Existence (-) Single Methodology
for Value Determination (-) Cannot Verify
Interior Condition
() Faster than Inspection () Cost Less than
Inspection () Multiple Data Providers ()
Correlation for Risk Reduction () Independent
Analyst Review Sanity Check () Automatic
Upgrade to Inspection () Lowest Overhead /
Labor Cost for Client () Greater Coverage
than Single AVMs (-) Cannot Verify
Exterior Condition (-) Cannot Guarantee
Property Existence (-) Cannot Verify
Interior Condition
() Faster Turnaround vs Interior () Lower Cost
vs Interior () Local Market Knowledge () Local
Public Records () 100 Coverage () Verification
of Exterior Condition () Guarantee of
Property Existence (-) Turnaround vs
AVM/QCE (-) Cost vs AVM/QCE (-) Cannot Verify
Interior Condition
() Verification of Exterior
Condition () Verification of Interior
Condition () Highest Correlation to
benchmark URAR () Local Market Knowledge ()
Local Public Records () 100 Coverage (-)
Highest Cost (-) Slowest Turnaround
QCE is a trademark of Market Intelligence
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PRODUCT DESCRIPTIONS
A computer generated conclusion of value based on
available data and single proprietary decision
methodology. An Automated Valuation Model (AVM)
does not include a drive-by or site inspection
it does not include a review by a qualified real
estate analyst. An AVM is not an appraisal and
cannot provide information about property
condition, or existence. More generally
well-known AVMs are offered by Experian,
DataQuick, Solimar, REASONS, HNC and Mortgage
Risk Assessment (MRAC).
AVMAutomated Valuation Model
An independent desktop valuation analysis that
utilizes input from multiple real estate data
providers. Correlation among various AVM
conclusions and raw data points are reviewed
on-line by a qualified real estate analyst. When
available data does not permit a value
conclusion, the QCE is electronically upgraded to
a drive-by or interior property inspection,
depending on client credit risk policy. The QCE
is not an appraisal and cannot provide
information about property condition or guarantee
physical condition.
QCEQuick Collateral Evaluation
QCE is a trademark of Market Intelligence
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FAVField Asset Verification
A drive-by property evaluation of residential
real estate, performed by a licensed real estate
agent or appraiser. The Field Asset Verification
(FAV), combines the field agents drive-by
opinion of value with a supporting nearby
comparable sale and other available public
information about the subject property. The FAV
is not an appraisal and does not include (a) a
physical inspection of the interior of the
subject property, (b) photographs of the interior
or exterior, or (c) any representations or
warranties regarding Flood Plain certifications
or potential environmental hazards.
A property evaluation of residential real estate
performed by a licensed real estate agent or
appraiser. The Second Mortgage Property
Evaluation (SMPE) is based on a direct sales
comparison approach. The field agent value
conclusion is supported by three nearby sold
comparable sales and public records information.
The SMPE is not an appraisal and does not include
any representations or warranties regarding Flood
Plain certifications, title, marketability, or
potential environmental hazards. An interior
inspection is available (SMPEi) and recorded on
an addendum form. It may come with photos,
depending upon client specifications.
SMPESecond MortgageProperty EvaluationSMPEi
(with Interior Inspection)
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Appraisal Services
An estimate of value communicated by reporting
requirements as set forth in the Standards Rules
relating to Standards 2 and 5 of the Uniform
Standards of Professional Practice (USPAP) on
report forms prepared and used by lending
institutions, government agencies and employee
transfer firms. Appraisal report forms include
(1) the Uniform Residential Appraisal Report
form (2) the Individual Condominium or PUD Unit
Appraisal Report form (3) the Individual
Cooperative Interest Appraisal Report Form (4)
the Small Residential Income Property Appraisal
Report form (5) the Desktop Qualitative
Appraisal Report form, Cooperative Appraisal
form and (6) the Residential Appraisal Field
Review Report form.
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COMPANY OVERVIEW

• Fidelity National Financial, Inc. (FNF) announced
  March 20, 2000 that it had completed its
  acquisition of Chicago Title Corp., uniting two
  of the top companies in the Title Insurance and
  Real Estate Services Business to form the market
  leader. Fidelity is now the largest title
  insurer and provider of real estate related
  products and services in the world, distinguished
  by an unsurpassed distribution system comprising
  more than 1,000 offices and 7,000 agents. The
  complimentary strengths of Fidelity National and
  Chicago Title will create the unparalleled leader
  in the Real Estate Services Industry.
• In July of 1996, Chicago Title and Trust Co.
  acquired Market Intelligence, Inc., a privately
  held property evaluation firm located near Boston
  in Hopkinton, Massachusetts. Founded in 1989,
  Market Intelligence provides residential
  appraisal and evaluation products for both the
  origination and servicing sides of the lending
  business. A leader in augmenting database
  research with drive-by/onsite verification, the
  company has grown rapidly over the last three
  years. Market Intelligence compliments existing
  company services, allowing customers to
  appropriately match their risk with cost by
  ordering alternative forms of property evaluation
  or full appraisals, depending upon their needs
  and regulatory guidelines.
• With a national network of over 15,000 licensed
  real estate professionals and appraisers, Market
  Intelligence provides a wide array of collateral
  evaluation products and services throughout the
  country which include
• Alternatives to Appraisals
• Conventional Appraisal Services
• Market Intelligence uses state of the art
  technology that allows for complete electronic
  transmission of each of its products. Market
  Intelligence also has the rights to use and sell
  most of the top Automated Valuation Models
  (AVMs) including HNC, Solimar, Experian, REASONS
  and MRAC. These models offer alternative
  appraisal software that calculates value from
  data that includes comps (comparable sales),
  purchase price, past sales of the property,
  tax-assessed values, and characteristics of the
  home. Most real estate markets can thus be
  tracked by zip code through data sources and
  proprietary statistical models. For automated
  evaluations in areas not served by the AVMs, MI
  also has access to on-line services, multiple
  listing services, and public records data.

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FEDERAL GUIDELINES

• Title XI of the Financial Institutions Reform,
  Recovery, and Enforcement Act of 1989 (FIRREA)
  and the fair lending regulations included in the
  Equal Credit Opportunity Act (ECOA), Fair Housing
  Act (FHA), Community Reinvestment Act (CRA), and
  Home Mortgage Disclosure Act (HMDA) define
  appraisal and property evaluation guidelines. A
  summary selection of important points from this
  body of legislation is included below.
• Interagency Appraisal and Evaluation Guidelines
  (1994)
• The Office of the Comptroller of the Currency
  (OCC), the Board of Governors of the Federal
  Reserve System (FRB), the Federal Deposit
  Insurance Corporation (FDIC), and the Office of
  Thrift Supervision (OTS) (the agencies) have
  jointly issued the following guidelines, which
  supersede each of the agencies appraisal and
  evaluation guidelines issued in 1992. The
  guidelines
• Address management responsibilities relating to
  real estate appraisals and evaluations used to
  support real estate-related financial
  transactions.
• Provide guidance to examining personnel and
  federally regulated institutions about prudent
  appraisal and evaluation policies, procedures,
  practices, and standards.
• Background
• Title XI of FIRREA requires the agencies to adopt
  regulations on the preparation and use of
  appraisals by federally regulated financial
  institutions. Such real estate appraisals must
  be in writing and performed in accordance with
  uniform standards by an individual whose
  competency has been demonstrated and whose
  professional conduct is subject to effective
  state supervision.

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PROPERTY EVALUATIONS
The property evaluation market has changed
radically in the last few years. Several
historical developments have led to these
changes. In 1994 federal regulatory agencies
revised Title XI of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989
(FIRREA) to raise the minimum threshold for
transactions requiring appraisals from 100,000
to 250,000. Banks were enabled to seek
alternatives to appraisals for many loans under
250,000. The ruling was especially intended to
facilitate lending for 1-4-family residences,
which make up a large majority of the sales and
over half the dollar volume of real
estate-secured loans in the commercial banking
industry. In place of appraisals, the agencies
ruled that banks could conduct property
evaluations that followed safe banking practices
and met a number of basic conditions. For
example, evaluations must be written, contain
enough information to support an estimate of
value, describe the property and its condition
and use, and be conducted by individuals with
relevant training or experience and knowledge.
The agencies also ruled that evaluations need not
be conducted only by licensed or certified
appraisers. The agencies published guidelines
for these rulings are discussed in Federal
Property Evaluation Guidelines, excerpts are
contained in the narrative below. Banks
immediately began exploring alternatives to
appraisals. Automated estimates drawing on real
estate databases and other electronic sources
have become common. However, banks also want to
supplement automated estimates with on-site field
inspections. Inspections help verify the
existence of the property and how it has been
maintained current geographic database coverage
for automated estimates is also limited.
Market Intelligence and other property
evaluation companies have combined automated
estimates and field inspections in a range of
products to meet lenders needs. These products
have proved accurate and reliable, and can be
provided at a cost below that of traditional
appraisals.
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TRANSACTIONS THAT REQUIRE APPRAISALS
Although the agencies appraisal regulations
exempt certain categories of real estate-related
financial transactions from the appraisal
requirements, most real estate transactions over
250,000 are considered federally related
transactions and thus require appraisals. A
federally related transaction means any real
estate-related financial transaction in which the
agencies engage, contract for, or regulate, and
that requires the services of an appraiser. An
agency also may impose more stringent appraisal
requirements than the appraisal regulations
require, such as when an institutions troubled
condition is attributable to real estate loan
underwriting problems.
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MINIMUM APPRAISAL STANDARDS

• The agencies appraisal regulations include six
  minimum standards for the preparation of an
  appraisal. The appraisal must

• Conform to generally accepted appraisal standards
  as evidenced by the Uniform Standards of
  Professional Appraisal Practice (USPAP)
  promulgated by the Appraisal Standards Board
  (ASB) of the Appraisal Foundation unless
  principles of safe and sound banking require
  compliance with stricter standards. Although
  allowed by USPAP, the agencies appraisal
  regulations do not permit an appraiser to
  appraise any property in which the appraiser has
  an interest, direct or indirect, financial or
  otherwise.
• Be written and contain sufficient information and
  analysis to support the institutions decision to
  engage in the transaction.
• As discussed below, appraisers have available
  various appraisal development and report options
  however, not all options may be appropriate for
  all transactions. A report option is acceptable
  under the agencies appraisal regulations only if
  the appraisal report contains sufficient
  information and analysis to support an
  institutions decision to engage in the
  transaction.
• Analyze and report appropriate deductions and
  discounts for proposed construction or
  renovation, partially leased buildings,
  non-market lease terms, and tract developments
  with unsold units.

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MINIMUM APPRAISAL STANDARDS CONTD...

• Be based upon the definition of market value set
  forth in the regulation. Each appraisal must
  contain an estimate of market value, as defined
  by the agencies appraisal regulations.
• Be performed by state-licensed or certified
  appraisers in accordance with requirements set
  forth in the regulation.

This standard is designed to avoid having
appraisals prepared using unrealistic assumptions
and inappropriate methods. For federally related
transactions, an appraisal is to include the
current market value of the property in its
actual physical condition and subject to the
zoning in effect as of the date of the appraisal.
For properties where improvements are to be
constructed or rehabilitated, the regulated
institution may also request a prospective market
value based on stabilized occupancy or a value
based on the sum of retail sales. However, the
sum of retail sales for a proposed development is
not the market value of the development for the
purpose of the agencies appraisal regulations.
For proposed developments that involve the sale
of individual houses, units, or lots, the
appraiser must analyze and report appropriate
deductions and discounts for holding costs,
marketing costs and entrepreneurial profit. For
proposed and rehabilitated rental developments,
the appraiser must make appropriate deductions
and discounts for items such as leasing
commission, rent losses, and tenant improvements
from an estimate based on stabilized occupancy.
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TRANSACTIONS FOR WHICH FORMAL APPRAISALS ARE NOT
REQUIRED

• A formal opinion of market value prepared by a
  state-licensed or certified appraiser is not
  always necessary. Less formal evaluations of the
  real estate may suffice for transactions exempt
  from the agencies appraisal requirements. The
  agencies regulations allow an institution to use
  an appropriate evaluation of the real estate
  rather than an appraisal when the transaction
• Has a value of 250,000 or less.
• Is a business loan of 1,000,000 or less, and the
  transaction is not dependent on the sale of, or
  rental income derived from, real estate as the
  primary source of repayment.
• Involves an existing extension of credit at the
  lending institution, provided that (1) there has
  been no obvious and material change in the market
  conditions or physical aspects of the property
  that threaten the adequacy of the institutions
  real estate collateral protection after the
  transaction, even with the advancement of new
  monies or (2) there is no advancement of new
  moneys other than funds necessary to cover
  reasonable closing costs.
• Institutions should also establish criteria for
  obtaining appraisals or evaluations for the
  safety and soundness of transactions that are
  otherwise exempt from the agencies appraisal
  regulations.
• An institution should establish prudent standards
  for the preparation of property evaluations. At
  a minimum, an evaluation should
• Be written.
• Include the preparers name, address, signature,
  and the effective date of the evaluation.
• Describe the real estate collateral, its
  condition, and its current and projected use.
• Describe the source(s) of information used in the
  analysis.
• Describe the analysis and supporting information.
• Provide an estimate of the real estates market
  value, with any limiting conditions.

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QUALITY CONTROL
Market Intelligence understands that our clients
rely on our property evaluation and appraisal
products to make important financial decisions.
The estimates of market value which we provide
are an integral part of both the loss mitigation
process, and collateral underwriting for consumer
lending. Quality is a function of teamwork, all
hands in the organization working together
focused on the same goal serving the client.
Quality Control begins with the careful selection
and supervision of our field agents, and
continues through a 100 review process by
qualified real estate analysts and
appraisers. The Market Intelligence Quality
Control Policies and Procedures Manual, which
thoroughly outlines the Market Intelligence
Property Evaluation Quality Assurance Program and
the Market Intelligence Appraisal Quality
Assurance Program, is available upon request.
Limiting Conditions While an estimate of Fair
Market Value on each property evaluation is
deemed a reliable estimate by the local agent
assigned by MI, neither the field agent nor
Market Intelligence shall be held liable for any
damages resulting from reflecting or predicting
actual values of the subject properties. MARKET
INTELLIGENCE SHALL NOT BE DEEMED TO HAVE MADE ANY
REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED,
AS TO THE MARKETABILITY OF THE SUBJECT PROPERTY
OR ITS VALUE.