Investor Presentation
April 2007
Saxon
IMPORTANT INFORMATION AND IRS CIRCULAR 230 NOTICE
This material has been prepared for information purposes to support the promotion or marketing of
the transaction or matters addressed herein. This is not a research report and was not prepared by the
Morgan Stanley research department. It was prepared by Morgan Stanley sales, trading, banking or
other non-research personnel. This material was not intended or written to be used, and it cannot be
used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer
under U.S. federal tax laws. Each taxpayer should seek advice based on the taxpayer’s particular
circumstances from an independent tax advisor. Past performance is not necessarily a guide to future
performance. Please see additional important information and qualifications at the end of this
material.
STATEMENT REGARDING THIS FREE WRITING PROSPECTUS
The depositor has filed a registration statement (including a prospectus) with the SEC for the offering
to which this communication relates. Before you invest, you should read the prospectus in that
registration statement and other documents the depositor has filed with the SEC for more complete
information about the issuer and this offering. You may get these documents for free by visiting
EDGAR on the SEC web site at www.sec.gov. Alternatively, the depositor or any underwriter or any
dealer participating in the offering will arrange to send you the prospectus if you request it by calling
toll-free 1-866-718-1649.
Important Notice
Information presented is for the period 12/1/2006 to 2/28/2007 unless otherwise stated
FORWARD LOOKING STATEMENTS
We have included in this document, and from time to time may make in other public statements, certain statements that may
constitute forward-looking statements. These forward-looking statements are not historical facts and represent only our
beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control.
The nature of our business makes predicting future trends difficult. The risks and uncertainties involved in our business could
affect the matters referred to in such statements and it is possible that our actual results may differ from the anticipated results
indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the
forward-looking statements include (without limitation):
decreases in residential real estate values, which could reduce both the credit quality of our mortgage loan portfolio and the
ability of borrowers to use their home equity to obtain cash through mortgage loan refinancing, which would adversely
impact our ability to produce new mortgage loans;
changes in overall regional or local economic conditions or changes in interest rates, particularly those conditions that affect
demand for new housing, housing resales or the value of houses;
our ability to successfully implement our growth strategy throughout the various cycles experienced by our industry;
greater than expected declines in consumer demand for residential mortgage loans, particularly sub-prime, non-conforming
loans;
our ability to sustain loan production growth at historical levels;
continued availability of financing facilities and access to the securitization markets or other funding sources;
deterioration in the credit quality of our loan portfolio and the loan portfolios of others serviced by us;
challenges in successfully expanding our servicing platform and technological capabilities;
increased competitive conditions or changes in the legal and regulatory environment in our industry; and
other risks and uncertainties detailed in this document and in other filings with the Securities and Exchange Commission.
Accordingly, you are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on
which they are made. We undertake no obligation to update publicly or revise any forward-looking statements to reflect the
impact of circumstances or events that arise after the dates they are made, whether as a result of new information, future
events or otherwise except as required by applicable law. You should, however, consult further disclosures we may make in
future filings with the Securities and Exchange Commission.
Important Notice
Information presented is for the period 12/1/2006 to 2/28/2007 unless otherwise stated
Table of Contents
Initiatives and Program Changes
Section 5
Servicing
Section 6
Production
Section 4
Growth Strategy
Section 3
Organizational Structure
Section 2
Morgan Stanley’s Acquisition of Saxon
Section 1
Morgan Stanley’s Acquisition of Saxon
Section 1
Synergies Overview
Strong
Credit
Culture
Sophisticated
Trading/Risk
Transfer
Capabilities
Risk
Management
Structuring
Expertise
Origination
Capabilities
Servicing
Capabilities
Key Success Factors
Morgan Stanley’s Strengths
Saxon’s Strengths
Saxon compliments
Morgan Stanley’s
overall mortgage
business
Morgan Stanley’s Acquisition of Saxon
Organizational Structure
Section 2
Organizational Structure
Saxon Senior Management
Saxon
Kevin Rodman (MS)
Managing Director
Co-head, US Residential Mortgage Business
20+ years exp
Chief Admin Officer
Kevin Norris
(MS)
20+ years exp
Capital Markets
Ernie Bretana, EVP
(SMI)
10+ years exp
Servicing
David Dill, President
(SMSI)
20+ years exp
Production
Wes Iseley, President
(SMI)
25+ years exp
Michael Dubeck (MS)
Managing Director
Co-head, US Residential Mortgage Business
20+ years exp
Growth Strategy
Section 3
The Next Five Years
Production objectives over the next five years:
Grow origination volumes
Offer a broader selection of residential mortgage product offerings
Reduce origination costs
Add scale in lower CTP (Cost to Produce) channels, increase loan
sizes, etc.
Servicing objectives over the next five years:
Improve servicer ratings
Expand servicing platform
Build Special Servicing platform
Expand servicing product capabilities (for example: HELOCs and Option
Arms)
Invest in technology to improve efficiencies
Key benefits of vertical
integration include:
Strong origination base
Scaleable servicing
platform
Growth Strategy
Production
Section 4
Current Business Profile (as of February 28, 2007)
Saxon employs over 392
production staff, including
approximately 176 Account
Executives and
approximately 216
operations and
management staff
Originate loans in 50 states
plus Washington, DC
Top 5 states of loan
production for the period
Dec 1, 2006-Feb 28, 2007:
CA, MD, FL, NY, VA
Regional Loan production
office in CA, TX, VA &
FL (as of April 2, 2007)
Production
Tampa,
Florida (as of
April 2, 2007)
Production Volume by Channel
Production
100.00%
100%
100%
100%
100%
100%
100%
16.5%
8.2%
0.0%
0.0%
0.0%
0.0%
0.0%
Conduit
0.00%
0.5%
5.6%
5.2%
7.2%
10.2%
24.2%
Correspondent -
Bulk
22.30%
23.0%
28.0%
24.3%
24.6%
16.6%
15.2%
Correspondent -
Flow
16.40%
19.8%
21.3%
27.6%
26.8%
28.1%
19.2%
Retail
44.80%
48.6%
45.1%
42.9%
41.3%
45.1%
41.4%
Wholesale
$0.94
$3.35
$3.35
$3.49
$2.84
$2.30
$2.33
Volume ($B)
1st Qtr 2007*
2006
2005
2004
2003
2002
2001
*First Quarter 12/1/2006-2/28/2007
Production Profile (for the period Dec 1, 2006-Feb 28, 2007)
Production
Documentation Type *
Credit Score Distribution
WA Credit Score
LTV/CLTV
Production Profile Contd. (for the period Dec 1, 2006-Feb 28, 2007)
Production
Product
Top 5 States Funded Volume YTD
Purpose
53.51%
503,880,652
5.68%
53,530,544
VA
6.30%
59,341,216
NY
10.31%
97,084,231
FL
10.86%
102,244,322
MD
20.36%
191,680,339
CA
Percent
Loan Amount - Original
State
Occupancy
Initiatives and Program Changes
Section 5
Initiatives – Quality Enhancements
Completed Initiatives
Sales - implemented a new, performance based compensation plan
Pricing - tiered adjustments and layered risk adjustments
Underwriting – guideline changes including greater restrictions on first-time homebuyers
Collateral evaluation procedures incorporating History Pro risk analysis and AVM
Offsite Management Workshop focused on production center organizational structure and
work flows
Verbal verification of employment procedures
Future Initiatives
Underwriting
Underwriter training, certification program and annual assessments
Fraud training (borrower and property)
Purchase transaction fraud review and stated income reasonableness test
Property Valuation
Implementation of MARS
In-house appraisal review group with licensed appraisers
Fraud & Quality Control
Update risk analysis review
Broker Channel Management – enhancing new business partner screening and relationship
monitoring
Additional pre-funding QC requirements (risk based) and revamping of post funding QC
selections and reporting
Mavent system to automate regulatory risk management
ClosingProtectionLetter.com to verify status of title agent and wire information
Production
Highlights of Guideline Changes (effective April 11, 2007)
Guideline Changes and Loan Programs
Maximum LTV
First Time Home Buyers
Reserves/Other
Minimum Product Score
85
100
Stated
90
100
Limited
90
100
12 mo. Bank statement
95
100
Full/24 mo. Bank statement
NEW
OLD
550
500
General Minimum
575
500
50/30
Not
Offered
600
80/20
550
500
40/30
600
560
I/O Stated
580
560
I/O Full
NEW
OLD
4 (purch) /
3 (refi)
2
Min. Credit -#
Open Accts
2 months
N/A
Stated/Limited
Bal>$500k
2 months
>90 LTV
2 months
>95 LTV
Stated/Limited
W-2
2 months
>= 95 LTV
N/A
Full/12 months
NEW
OLD
If Stated
& >80
LTV, 2
months
If Stated&
> 95 LTV
2 months
Reserves
36
months
1 day to 24
months
Bk Discharge
Not
offered
100
Maximum LTV – Stated
95@
600+
100
Maximum LTV – Full
575
500
Minimum Score
NEW
OLD
Primary Product Overview (effective April 11, 2007)
Max 50%
Max 55% if LTV<=80, else 50%
DTI
3 months PITI if >500K,
else 2 months PITI;
sourced & seasoned 60
Days
Full/12 month: 2 months PITI if
LTV >=95; Limited/stated W2: 2
months PITI if LTV >90; sourced &
seasoned 60 days
Cash Reserves
24 months from discharge
6 months if score >=600; else varies
by LTV from discharged >2 years to
simply discharged
Bankruptcy
History – 11/13
24 months from discharge
6 months if score>=600; else varies
by LTV from discharged > 2 years
to simply discharged
Bankruptcy
History – Ch7
3 years
2 years if score >=600 and CLTV
<=90; else 3 years
Foreclosure
History
0x30
Max delinquency 1x90 in the last 12
months
Mortgage History
Middle of three
Middle of three
Credit Score –
Selection
620
550
Min Credit Score
ScorePlus2
Score Plus (Full Doc & 12 mo
Bank statements)
Guideline Changes and Loan Programs
FICO Distribution by Program
(for the period Dec 1, 2006-Feb 28, 2007)
667
611
WA
Score
0.00%
0.02%
801 -
850
0.89%
0.81%
751 -
800
10.26%
3.65%
701 -
750
60.16%
16.73%
651 -
700
28.69%
38.52%
601 -
650
0.00%
30.61%
551 -
600
0.00%
9.54%
501 -
550
0.00%
0.11%
451 -
550
Score
Plus 2
Score
Plus
Guideline Changes and Loan Programs
Servicing
Section 6
Ratings (as of March 31, 2007)
RSS2+
Residential Mortgage Special Servicer
RPS2+
Residential Mortgage Sub-prime Servicer
Fitch
Average
Residential Mortgage Special Servicer
Above Average
Residential Mortgage Sub-prime Servicer
S&P
SQ2
Special Servicer of Sub-prime Loans
SQ2+
Primary Servicer of Sub-prime Loans
Moody's
Rating
Category
Agency
Current Servicer Ratings
Key initiative is to
improve ratings from
each rating agency
Servicing
Servicing Portfolio Summary (as of March 31, 2007)
Servicing Portfolio Balance
Total Delinquency Trend
60 Day Delinquency Trend
30 Day Delinquency Trend
Servicing
Geographic Servicing Concentration (as of Dec 31, 2006)
Top 5 states equal approximately 50% of servicing portfolio
Top Five States
(Approx % of Total Portfolio)
1. California 26.35%
2. Florida 10.19%
3. New York 4.62%
4. Texas 4.53%
5. Maryland 4.01%
Servicing
Servicing Department Overview (as of Dec 31, 2006)
Customer Service/Early Collections
Loans per FTE: 1,011
Teams of 8-10 representatives, all reps handle inbound and outbound
service and collection calls (answer rate: 97.58%)
Welcome calls
ARM change/escrow change notification:
Letters: sent both 45 days prior to change and within the monthly bill
which arrives approximately 15 days prior to impacted due date
Calls: initiated 1 month prior to payment change date and within first few
days of the month of the payment change
Call center resolution desk – to handle customer escalation issues
Call center operations – statistical analysis (coverage, contacts, success) and
dialer setup/strategy
Predictive Modeling – calling campaigns using FHLMC EIS on entire 0-59
portfolio
High risk (2nd day of delinquency); low risk (17th day of delinquency)
Special collections unit for large balance, EPD or no contact loans
Early mitigation/repayment plans – 4 months or less/max 2 in 12 months
Cure Ratios
(for the period Oct 1, 2006-
Dec 31, 2006)
1-29 days: 94.06%
30-59 days: 73.52%
Servicing
Servicing Department Overview Continued
(as of Dec 31, 2006)
Loss Mitigation
Cure delinquencies in the 60+ category through collection and workout options
Target staffing: 135 loans/FTE, Actual staffing: 153 loans/FTE
60 day team: high contact collections with goal of full reinstatement with use of pre-
foreclosure/short-term prepayment and plans and identifying candidates for alternative
workouts
Collection/Workout Teams (7): focus on alternatives to foreclosures (Collection,
Forbearance/repayment plans, modifications, short sales and assumptions, deeds-in-
lieu)
Loan Recovery Specialist: orphan 2nd lien monitoring, collections and charge-offs
Workout team Administration: workout team oversight, resolution approval &
execution/completion
Loan Review Team: supports DRP, BPO orders, property preservation, and insurance
claims
90+ day east/west team: primarily a post-foreclosure resolution team, manual calling,
letters skip tracing
Predictive Modeling with FHLMC/EIS – focus on higher risk delinquencies delay
foreclosure on lower risk borrowers
EIS below 200 refer at 76 days past due, EIS above 200 refer at 90 days past due
Titanium Solutions – 3 rd party face-to-face contact solution for no contact loans,
submission of financial packages (approximately 42% success rate)
Servicing
Servicing Department Overview Continued
(as of Dec 31, 2006)
REO
Assets are managed from Foreclosure Sale or Deed-in-Lieu through each
step of the disposition process: Redemption periods, evictions, available for
sale, listed, under contract, liquidation
Disposal of REO assets outsourced to three national REO asset management
companies:
First American REO
Fidelity National Asset Management
NRT Inc., a division of Coldwell Banker
Assignments based on an even distribution of loan count, UPB and
geography
Delegated authority matrix for establishing value, list price, reductions to
price and contract acceptance
Expenses carried by outsourcer until liquidation
Performance tracking via outsourcer report cards and annual audits
REO Performance (for
the period Jan 1, 2006-
Dec 31, 2006)
Turn Rate 19%
SP to FMV 96%
Days on Mkt 116
Servicing
Method of Cure Overview (as of Dec 31, 2006)
Servicing
10.77
13.47
12.14
150+ Days
Cure Rates based on UPB
120-149 Days
90-119 Days
60-89 Days
Cure Rates
19.93
25.19
26.44
30.61
39.19
44.04
49.24
54.33
58.38
2006
2005
2004
Assess customers ability and willingness to pay:
Financial packages obtained
Review of credit score, Freddie Mac Early Indicator Score (EIS) score and reason for
default
A BPO is obtained and an estimate of total recovery is determined based on historical
foreclosure and REO timelines & expenses.
Using Saxon’s Default Resolution Plan (DRP) System, a loss mitigation decision is made
to deliver the best economical outcome for the customer and investor.
If a repayment plan is used, Saxon requires that the customer be committed.
Commitment is measured by ability to contribute 30-50% of the outstanding delinquency
upfront.
A customer’s EIS score is one of the determining factors as to the amount of down
payment required coupled with customer’s recent payment history/broken plans.
Method of Cure Plan Summary
Servicing
Informal Repayment Plans
Modification
Stipulated to Modification Plan
Formal Repayment Plans
Pre-Foreclosure Referral
Verbal Agreement
General Term of Repayment: 4-7
months
Requires larger down payment (30-50%
of delinquency)
Contractually delinquent until customer
catches up on payments
Post-Foreclosure Referral
Legal Agreement
General Term of Repayment: 7-18
months or any customer having two
broken plans in the last 12 months
Contractually delinquent until borrower
catches up on payments
A modification test case which may be
used prior to an actual modification of
the borrowers loan terms
Enables Saxon to determine the
customer’s willingness to continue
payments if loan is modified
Implemented on a short term basis (3
months)
Allows cash flow without a worsening
delinquency status
A permanent change to original loan
terms – delinquency is cured upon
execution.
Do not extend maturity except where
allowed by PSA
Increases to principal balance cannot
exceed original debt
Rate reductions - generally step back up
by 25 bps every 6 months (or under
present ARM change schedule) until
reach original rate.
Reported on remittance tape
Deal Information Source
Reg AB static pool data can be found at
www.saxonmortgage.com/staticpool.
Underwriting guidelines, matrices and product profiles can
be found at www.esaxon.com/wholesale/index.jsp (under
Matrices).
Securitization program (SAST) information can be found at
www.saxonmortgage.com (click on the Securitization link).
Information available includes:
Pricing information and the prospectus for our
transactions
Remittance statements and transaction profile reports
Monthly CPR analysis and actual vs. pricing CPR
Quarterly loss reports and loss severity report
Prepayment penalty collection and roll rate
information
Corporate presentations
Servicing