Exhibit 99.1
ANALYSIS OF PROJECTED YIELD
This presentation contains an analysis of the projected yield on the
Company's mortgage investments as of March 31, 1994, under the specific
assumptions set forth herein. This presentation does not seek to predict, nor
should it be interpreted as a prediction of, the actual present or future
yield on such investments since the actual interest rates and prepayment rates
in the future will be different than those assumed in any of the projected
scenarios. Capitalized terms used herein and not defined herein shall have
the respective meanings assigned to them in the Glossary.
Resource Mortgage invests a portion of its equity in a portfolio of mortgage
investments. These investments include mortgage loans and mortgage securities
subject to collateralized mortgage obligations (CMOs), adjustable-rate
mortgage securities, fixed-rate mortgage securities, other mortgage securities
and participations in mortgage warehouse lines of credit.
The Company has pursued its investment strategy of concentrating on its
mortgage conduit activities in order to create investments for its portfolio
with attractive yields and also to benefit from potential securitization
income. Through its single-family mortgage conduit activities the Company
purchases mortgage loans from approved mortgage companies, savings and loan
associations and commercial banks; in its multi-family conduit activities, the
Company originates the loans directly. When a sufficient volume of loans is
accumulated, the Company securitizes these mortgage loans through the issuance
of mortgage-backed securities. The mortgage-backed securities are structured
so that substantially all of the securities are rated in one of the two
highest categories (i.e. AA or AAA) by at least one of the nationally
recognized rating agencies.
The yield on the Company's investment portfolio is influenced primarily by
(i) prepayment rates on the underlying mortgage loans, (ii) the level of
short-term interest rates and (iii) the relationship between short-term
financing rates and adjustable-rate mortgage yields. The following analysis
provides a projection of the yield of the Company's investment portfolio in
variety of interest rate and prepayment rate environments. The Company's
investment strategy is to create a diversified portfolio of mortgage
securities that in the aggregate generate stable income in a variety of
interest rate and prepayment rate environments. For purposes of this analysis
only, certain of the Company's assets and liabilities have been excluded, and
certain liability balances have been reduced to better reflect the Company's
net investment in its investment portfolio.
Summary of Mortgage Investments
For purposes of calculating the projected yield, the Company calculates its
net investment in its mortgage investments as of March 31, 1994 and December
31, 1993 and can be summarized as follows (amounts in thousands):
March 31, December 31,
1994 (2) 1993
--------- ------------
Collateral for CMOs, net of CMO
liabilities $ 3,346 $ 8,403
--------- -----------
Adjustable-rate mortgage securities,
net (1) 140,479 132,401
--------- -----------
Fixed-rate mortgage securities, net (1) 14,216 14,520
--------- -----------
Other mortgage securities:
Mortgage residual interests 41,501 22,900
----------- -----------
Mortgage derivative securities 38,023 37,494
----------- -----------
Other mortgage securities subtotal 79,524 60,394
----------- -----------
Mortgage warehouse participations,
net of related liabilities 9,081 9,393
----------- ------------
Net investment $ 246,646 $ 225,111
========== ==========
(1) Net of repurchase borrowings and discounts recorded by the Company to
compensate for certain risks on mortgage securities collateralized by mortgage
loans purchased by the Company for which mortgage pool insurance is used as
the primary source of credit enhancement. At March 31, 1994 the discount
totaled $16.4 million on adjustable-rate mortgage securities and $2.0 million
on fixed-rate mortgage securities. Amounts exclude certain first-loss class
securities retained by the Company from mortgage securties for which a senior/
subordinated security structure is used as a primary source of credit
enhancement.
(2) Amounts exclude adjustments related to unrealized gains and losses on
available-for-sale mortgage investments in accordance with the Statement of
Financial Accounting Standards No.115.
The following tables list the Company's various investments (and related
information) as of March 31, 1994 that were used in the calculation of the
projected yield.
Collateral Pledged to Secure CMOs
(Dollars in thousands)
Type of Weighted
Mortgage Average Net
Series Collateral Coupon Rate (1) Investment (2)
MCA1, Series 1 Loans (3) 8.97 (3,043)
RAC Four, Series 77 Loans 9.55 1,690
RMSC Series 89-4A Loans 10.60 257 (89-4A&B)
RMSC Series 89-4B Loans 10.59
RMSC Series 91-2 Loans 9.81 909
RMSC Series 92-12 Loans 8.10 1,333
RMSC, 4 Misc. Series Loans 11.18 46
RAC Four, 26 Misc. Series Various 9.90 2,154
------
Total $ 3,346
=========
- ---------------------
(1) Based on the weighted average coupons of the underlying mortgage loans or
mortgage certificates when the CMOs were issued and the current principal
balances of such mortgage collateral. This information is presented as of
December 31, 1993.
(2) Equal to the outstanding principal balance of the mortgage collateral
plus unamortized discounts, premiums, accrued interest receivable and deferred
issuance costs, and net of bond principal, discounts, premiums and accrued
interest payable as of March 31, 1994.
(3) Multi-family loans.
Adjustable-Rate Mortgage Securities
(Dollars in thousands)
Remaining
Principal Interest Net
Description (1) Balance (2) Rate (3) Investment (4)
- -------------- ------------ --------- --------------
FNMA Pools, various $ 376,290 3.78-5.23%(A) $ 21,594
FNMA and FHLMC Pools, various 136,372 3.85-5.61 (B) 7,920
FNMA and FHLMC Pools, various 6,136 3.85-5.61 (C) 347
LIBOR ARM Trust 1991-19, Class B 40,01 5.60 (A) 2,298
LIBOR ARM Trust 1992-1, Class B 40,350 5.55 (A) 2,223
LIBOR ARM Trust 1992-4, Class B 59,940 5.57 (A) 3,314
LIBOR ARM Trust 1992-6, Class B 70,109 5.61 (A) 3,994
LIBOR ARM Trust 1992-8, Class B 105,208 5.54 (A) 6,018
LIBOR ARM Trust 1992-10, Class B 32,945 5.50 (A) 1,884
RMSC, AHF 1989-1 Trust, Class A-2 7,051 5.61 (B) 399
RMSC, Series 1991-5 55,445 6.26 (A) 3,058
RMSC, Series 1991-7, Class B 48,003 5.85 (A) 2,767
RMSC, Series 1991-11 69,160 5.70 (A) 3,961
RMSC, Series 1991-12, Class B 45,983 5.65 (A) 2,639
RMSC, Series 1991-15, Class B 39,972 5.73 (A) 2,293
RMSC, Series 1991-16, Class B 57,109 5.82 (A) 3,275
RMSC, Series 1991-17, Class B 39,523 5.63 (A) 2,269
RMSC, Series 1992-5 81,407 5.74 (A) 4,665
RTC M-1, A-4 410 7.01 (C) 23
RTC M-6, A-1, A-2 40,238 5.59, 5.68 (C) 2,326
SMSC, Series 1992-1, Class B 5,000 5.55 (A) 285
SMSC, Series 1992-4, Class B 55,900 5.47 (A) 3,157
SMSC, Series 1992-6, Class B 60,193 5.41 (A) 3,415
SMSC, Series 1993-1, Class B-1, B-2 9,963 5.59, 5.53 (A) 570
SMSC, Series 1993-3, Class A-2, B-2 112,103 5.55 (A) 6,410
SMSC, Series 1993-5, Class A-2, B-2 67,169 5.29 (A) 3,866
SMSC, Series 1993-6, Class B 16,951 5.11 (A) 971
SMSC, Series 1993-7, Class B 30,147 4.99 (A) 1,725
SMSC, Series 1993-9, Class A-2, B-2 96,560 4.74 (A) 5,563
SMSC, Series 1993-11 147,681 3.66 (A) 8,530
SMSC, Series 1994-1, Class A, B 98,082 3.89 (A) 5,652
SMSC, Series 1994-3, Class M 44,121 4.00 (A) 2,380
LIBOR Cap Agreements (5) 20,688
-------
Total $ 140,479
========
(A) Index - Six-month LIBOR
(B) Index - 1-yr CMT
(C) Index - COFI
(1) All the "Class B" adjustable-rate mortgage securities were created from
the Company's mortgage conduit operations, and represent a AA rated class that
is subordinated to AAA rated class(es) within the security offering.
(2) As of March 31, 1994.
(3) Pass-through rate as of March 31, 1994.
(4) Equal to the outstanding principal balance of the adjustable-rate
mortgage securities, plus any unamortized premiums and net of any unamortized
discounts, less repurchase borrowings, if any, calculated at 94% of such
amount.
(5) The Company has purchased various LIBOR cap agreements in regard to
the adjustable-rate mortgage securities. Pursuant to the cap agreements, the
Company will receive additional cash flows should six-month LIBOR increase
above certain levels as specified below.
Notional Amount Cap Rate
--------------- --------
Cap agreements expiring between 2001 and 2002 230,500 11.50%
Cap agreements expiring between 2001 and 2002 108,000 10.50%
Cap agreements expiring in 1999 235,000 10.00%
Cap agreements expiring between 2000 and 2003 490,000 9.50%
Cap agreements expiring between 2002 and 2004 525,000 9.00%
-----------
$ 1,588,500
===========
Fixed-rate Mortgage Securities
(Dollars in thousands)
Remaining
Principal Interest Net
Description Balance (1) Rate Investment (2)
- ----------- ----------- --------- --------------
Citibank, Series 1990-B,
Class B-5 $ 1,172 9.60 % $ 720
RMSC, various series 21,004 8.19 1,285 (3)
RMSC, various series 3,517 10.02 227 (3)
RMSC, Series 91-2,Class 2-B (4) 11,672 10.00 1,513 (3)
SMSC, Series 1993-3,
Class A-1, B-1 (4) 82,364 6.75 5,103 (3)
SMSC, Series 1993-5,
Class A-1, B-1 (4) 53,262 6.51 3,293 (3)
SMSC, Series 1993-9,
Class A-1, B-1 (4) 32,240 6.09 1,993 (3)
LIBOR Cap Agreements(5) 82
--------
Total $ 14,216
==========
(1) As of March 31, 1994.
(2) Equal to the outstanding principal balance of the securities, plus any
unamortized premiums and net of any unamortized discounts at March 31, 1994.
(3) Equal to the outstanding principal balance of the securities, plus any
unamortized premiums and net of any unamortized discounts, less the associated
repurchase agreement borrowings at March 31, 1994.
(4) These series become adjustable-rate in 1995-1998.
(5) The Company has purchased various LIBOR cap agreements in regard to the
repurchase borrowings on SMSC Series 1993-3, Series 1993-5 and Series 1993-9.
Pursuant to the cap agreements, the Company will receive additional cash flows
should six-month LIBOR increase above certain levels ranging from 6.58%-6.75%.
The aggregate notional amount of these cap agreements was $16 million at March
31, 1994.
Other Mortgage Securities
(Dollars in thousands)
Other Mortgage Securities are comprised of mortgage residual interests and
mortgage derivative securities as set forth below.
Mortgage residual interests:
Type of Weighted
Mortgage Percent Average Net Net
Series Collateral Owned Coupon Rate (1) Investment (2)
- ------ ---------- ------- --------------- --------------
FNMA REMIC Trust
1988-22 FNMA 40.00 % 9.50 % $ 1,585
GMS, Series 1994-1 FNMA 100.00 3.76 2,032
GMS, Series 1994-2 FHLMC 100.00 4.11 3,280
GMS, Series 1994-3 FHLMC 100.00 3.93 2,739
LIBOR ARM Trust
1991-19 Loans 100.00 5.60 298
LIBOR ARM Trust
1992-1 Loans 100.00 5.46 329
LIBOR ARM Trust
1992-4 Loans 100.00 5.51 374
ML Trust XI FHLMC 49.00 8.50 739
NMF, Series 1994-1 FNMA 100.00 3.83 6,281
NMF, Series 1994-2 FHLMC 100.00 3.80 1,654
NMF, Series 1994-3 FHLMC 100.00 3.90 2,538
RAC Four, Series 39 FHLMC 49.90 10.20 487
RAC Four, Series 62 GNMA 30.00 10.00 451
RAC Four, Series 73 GNMA 55.00 11.50 4,637
RAC Four, Series 74 GNMA 23.60 10.50 1,759
RAC Four, Series 75 GNMA 36.00 9.50 1,336
RAC Four, 22
Misc. Series Various Various 11.54 400
RMSC, Series 1991-7 Loans 100.00 6.01 436
RMSC, Series 1991-12 Loans 100.00 6.59 21
RMSC, Series 1991-15 Loans 100.00 6.67 106
RMSC, Series 1991-16 Loans 100.00 6.79 5
RMSC, Series 1991-17 Loans 100.00 5.62 97
Shearson Lehman,
Series K FNMA 50.00 10.00 181
LCPI Various 100.00 9.00 9,647
LIBOR Cap Agreements (3) 89
------
Total $ 41,501
=========
- --------------------
(1) Based on the weighted average coupons of the underlying mortgage loans or
mortgage certificates when the mortgage securities were issued and the current
principal balances of such mortgage collateral. This information is presented
as of December 31, 1993.
(2) Equal to the amortized cost of the mortgage residual interests as of
March 31, 1994.
(3) The Company has purchased LIBOR cap agreements through June 1994 in
regard to portions of the exposure to higher short-term interest rates of
certain of the mortgage residual interests. These cap agreements reduce the
Company's risk should one-month LIBOR exceed 8.50%. The aggregate notional
amount of these cap agreements was $150 million at March 31, 1994.
Other Mortgage Securities (continued)
Mortgage derivative securities: Weighted
Type of Average
Type of Mortgage Net Coupon Net
Description Securities (1) Collateral Rate (2) Investment (3)
- ----------- -------------- ---------- ----------- --------------
Chemical, Series 1988-4 I/O Loans 9.82 % $ 92
FNMA Trust 29 I/O GNMA 9.50 8,580
FNMA Trust 151 I/O FNMA 10.00 1,677
Interest-only strips,
various I/O Loans Various 5,432
LIBOR ARM Trust 1992-8,
Class I I/O Loans 5.54 789
LIBOR ARM Trust 1992-9,
Class I I/O Loans 5.46 561
LIBOR ARM Trust 1992-10,
Class I I/O Loans 5.41 474
Principal-only strips,
various P/O Loans Various 4,281
RMSC, Series 89-6, 6F I/O Loans 10.62 281
RMSC, Series 1989-7A,
A-2 I/O Loans 10.33 70
RMSC, Series 1989-7B,
B-2 I/O Loans 10.39 154
RMSC, Series 1991-14,
Class 14-P P/O Loans 9.77 146
RMSC, Series 1991-16,
Class I I/O Loans 5.79 266
RMSC, Series 1991-20,
Class P P/O Loans 8.96 254
RMSC, Series 1992-2,
Class I I/O Loans 9.07 3,500
RMSC, Series 1992-2,
Class P P/O Loans 8.47 46
RMSC, Series 1992-18,
Class P P/O Loans 8.18 148
RMSC, Series 1992-18,
Class X I/O Loans 8.18 1,232
SMSC, Series 1992-1,
Class I I/O Loans 5.46 478
SMSC, Series 1992-2,
Class I I/O Loans 5.53 527
SMSC, Series 1992-3,
Class I I/O Loans 5.56 259
SMSC, Series 1992-4,
Class I I/O Loans 5.46 288
SMSC, Series 1993-8,
Class 1I, 2I I/O Loans 7.97 1,271
SMSC, Series 1993-10,
Class I I/O Loans 7.72 2,843
SMSC, Series 1994-4,
Class 1I, 2I I/O Loans 7.09 4,374
-------
Total $ 38,023
==========
- ---------------------
(1) I/O means an interest-only security; P/O means a principal-only security.
(2) Based on the weighted average coupons of the underlying mortgage loans or
mortgage certificates when the mortgage securities were issued and the current
principal balances of such mortgage collateral. This information is presented
as of December 31, 1993 or as of the date purchased if purchased in 1994.
(3) Equal to the amortized cost of the mortgage derivative securities as of
March 31, 1994. The Company owned 100% of each such security, except for the
FNMA Trusts.
Mortgage Warehouse Participations
(Dollars in thousands)
Description Weighted Average Coupon (1) Net Investment (2)
- ----------- -------------------------- ------------------
Various Participations 5.64% $ 9,081
- ----------------------
(1) Based upon the weighted average rate on each participation as of
March 31, 1994.
(2) Equal to equity invested in mortgage warehouse participations as of
March 31, 1994.
YIELD ON MORTGAGE INVESTMENTS
This presentation contains an analysis of the yield sensitivity to different
short-term interest rates and prepayment rates of the Company's Mortgage
Investments (as described in the previous section) as of April 1, 1994. The
Company utilizes this analysis in making decisions as to the cash flow
characteristics of investments that the Company desires to create or acquire
for its investment portfolio. The Company's investment strategy is to create
a diversified portfolio of mortgage securities that in the aggregate generates
stable income in a variety of interest rate and prepayment rate environments
and preserves the capital base of the Company. Capitalized terms used herein
and not defined within this section are defined in the glossary on page 15 of
this Exhibit.
This presentation does not reflect all of the Company's assets and
liabilities (or income and expenses of such excluded assets or liabilities)
nor any of the general and administrative expenses of the Company. This
presentation also does not purport to reflect the liquidation or ongoing value
of the Company's business or assets. The yield information presented herein
is provided solely for analytical purposes. This presentation does not seek
to predict, nor should it be interpreted as a prediction of, the actual
present or future yield on such investments.
The table below sets forth the estimated cash yields calculated on a semi-
annual equivalent basis as of March 31, 1994 of the projected net cash flows
on the Company's existing investment portfolio as set forth in "Mortgage
Investments" above, based upon the current balances of the assets as of April
1, 1994, and upon assumptions set forth below on pages 10 through 14 for each
of the respective cases. The most important of these assumptions are the
prepayment rates applicable to each mortgage investment and the level of
short-term interest rates.
MORTGAGE INVESTMENTS YIELD SENSITIVITY ANALYSIS
-----------------------------------------------
YIELD ON INVESTMENT (%)
Short-Term Interest Rate Assumption Case
----------------------------------------
Prepayment
Assumption
Case Case I Case II Case III Case IV Case V Case VI Case VII
---- ------ ------- -------- ------- ------- ------- --------
Case A 23.5% 22.6% 21.1% 18.7% 15.6% 11.9% 8.4%
Case B 25.4 24.5 23.1 20.7 17.8 14.3 10.9
Case C 27.0 26.2* 24.7 22.5 19.6 16.3 13.1
Case D 28.5 27.6 26.2 24.0 21.3 18.2 15.1
Case E 29.8 28.9 27.6 25.6 22.9 19.9 16.8
Case F 31.0 30.1 28.8 26.7 24.3 21.4 18.3
Case G 32.0 31.1 29.9 27.9 25.7 22.8 19.6
The case most representative of short-term interest rates and prepayment
rates as of April 1, 1994, is case C-II, represented by the "*." This "base
case" is not in the center of the table due to the relatively low levels of
short term interest rates and relatively high projected prepayment speeds as
of March 31, 1994.
The yields for each case expressed above are level yields relative to the
Company's aggregate net investment of $246.6 million in the various listed
mortgage investments as shown beginning on page 2. In addition to the
foregoing, the projected yields assume that the Company is able to reinvest
principal received on its investments at the same yield as the yield in each
case; consequently, these yields do not purport to reflect the return when
such reinvestment is not available.
Such yields do not give effect to the operating expenses of the
Company. These yields are also exclusive of the yields on mortgage assets of
the Company not listed in "Mortgage Investments" above. In particular, the
listed mortgage investments do not include (i) mortgage loans in warehouse,
and (ii) certain first-loss class securities, and (iii) certain other
adjustable-rate and fixed-rate mortgage securities. These other
securities are excluded in an amount equal to the discount which compensates
the Company for certain risks on mortgage securities collateralized by
mortgage loans for which mortgage pool insurance is used as the primary source
of credit enhancement. There is no assurance that any particular yield
actually will be obtained. Prepayment speeds may exceed those shown in the
tables on pages 11 and 12 and/or short-term interest rates may exceed those
shown in the table on page 13. If this happens, the portfolio yields may
differ significantly from those shown below. Also, the table shows changes in
short-term interest rates and prepayment rates occurring on a gradual basis
over one year. If these factors change more rapidly, the portfolio yields may
be significantly affected.
The Company also calculates the MacCauley duration of the aggregate cash
flows on its mortgage investments. The duration is 2.5 years in Case C-II,
the base case, and ranges from a high of 5.2 years in Case G-VII to a low of
2.2 years in Case A-I.
The assumptions that are set forth below detail certain information with
respect to the mortgage investments as of March 31, 1994, or other dates as
specified.
Factors Affecting Return
The return on the Company's portfolio of investments will be affected by a
number of factors. These include the rate of prepayments of the mortgage loans
directly or indirectly securing the mortgage investments and the
characteristics of the net cash flows available. Prepayments on mortgage
loans commonly are measured by a prepayment standard or model. Two models are
used herein. One such model which is used primarily for fixed-rate mortgage
loans (the "PSA" prepayment assumption model) is based on an assumed rate of
prepayment each month of the unpaid principal amount of a pool of new mortgage
loans expressed on an annual basis. A prepayment assumption of 100 percent of
the PSA assumes that each mortgage loan (regardless of interest rate,
principal amount, original term to maturity or geographic location) prepays at
an annual compounded rate of 0.2% of its outstanding principal balance in the
first month after origination. The prepayment rate increases by an additional
0.2% per annum in each month thereafter until the thirtieth month after
origination. In the thirtieth month and each month thereafter each mortgage
loan prepays at a constant prepayment rate of 6% per annum.
The other model used herein is the Constant Prepayment Rate ("CPR"), which
is used primarily to model prepayments on adjustable-rate mortgage loans. CPR
represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of mortgage loans. A prepayment
assumption of 18% CPR assumes a rate of prepayment of the then outstanding
principal balance of such mortgage loans in each month equal to 18% per annum.
The Prepayment Assumption Model and CPR do not purport to be either an
historical description of the prepayment experience of any pool of mortgage
loans or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including mortgage loans underlying the mortgage investments.
The actual prepayment rate of the mortgage loans will likely differ from the
assumed prepayment rates.
The rate of principal payments on a single-family pool of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. In
general, however, mortgage loans are likely to be subject to relatively higher
prepayment rates if prevailing long-term interest rates fall significantly
below the interest rates on the mortgage loans. Conversely, the rate of
prepayments would be expected to decrease if long-term interest rates rise
above the interest rate on the mortgage loans. Other factors affecting
prepayment of mortgage loans include changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties, assumability of mortgage loans and servicing decisions.
The terms of the multi-family mortgage loans that collateralize the multi-
family investments prohibit the prepayment of principal during the lock-out
period, a period generally equal to fifteen years after origination of the
loan. Subsequent to the lock-out period, prepayments will be subject to a
prepayment premium based on 1% of the remaining principal balance of the
multi-family mortgage loan.
The net cash flows on the Company's CMOs will be derived principally from
the difference between (i) the cash flow from the collateral pledged to secure
the CMO together with reinvestment income, and (ii) the amount required for
payment on the CMOs together with related administrative expenses. Certain of
the Company's other mortgage securities have similar net cash flow
characteristics (collectively, net cash flow investments). Distributions of
net cash flows on such net cash flow investments represent both income
relative to the investment and a return of the principal invested.
Assumptions Employed in Projecting the Net Cash Flows
In calculating the "Mortgage Investments Yield Sensitivity Analysis" above,
the projected net cash flows on the Company's mortgage investments were
calculated on the basis of the following:
(1) Prepayments on the mortgage loans underlying the mortgage investments
(other than adjustable-rate mortgage securities) were projected to be received
in proportion to the PSA model described in this report. Prepayments on the
adjustable-rate mortgage securities were projected to be received in
proportion to the CPR model described in this report.
The tables below show the prepayment rate projections, expressed as a
percentage of the PSA or CPR, on the mortgage loans underlying the mortgage
investments in which the Company has an interest under the assumed Case A,
Case B, Case C, Case D, Case E, Case F and Case G scenarios. Neither the
prepayment projections used in this report nor any other prepayment model or
projection purports to be a historical description of prepayment experience or
a prediction of the anticipated rate of prepayment of any pool of mortgage
loans. It is unlikely that actual prepayments on the mortgage collateral will
conform to any of the projected prepayment rates shown in the table below.
Prepayment rate projections for certain of the Company's smaller investments
are not listed in the tables below.
The prepayment rate for each type of mortgage loan is projected to begin at
the prepayment rate used in Case C in the table below. For cases other than
Case C, the applicable rate increases or decreases ratably over a one-year
period to the prepayment rate set forth for the applicable case. The
prepayment rates set forth in Case C are the average of the published
estimates of projected prepayment rates of a number of major Wall Street
firms, excluding the highest and lowest estimates, as published on Bloomberg
on April 1, 1994. Cases A through B and Cases D through G represent the
average of the prepayment estimates from two investment banking firms
multiplied by the ratio of Case C and the average of the comparable prepayment
estimates of the two investment banking firms.
PREPAYMENT ASSUMPTION TABLE
FIXED-RATE MORTGAGE LOANS OR CERTIFICATES
Pass
Through Percentage of PSA
-----------------
Mortgage
Certificates Rate (%) Case A Case B Case C* Case D Case E Case F Case G
------- ----- ------- ------ ------- ------ ------ ------
GNMA Certif. 9.50 590 380 330 230 200 175 160
10.00 525 400 330 230 200 175 160
10.50 490 335 330 265 210 185 165
11.50 395 325 305 270 235 200 190
FNMA Certif. 9.00 685 430 310 225 200 185 175
9.50 590 450 365 250 220 195 175
10.00 590 450 370 295 240 215 190
FHLMC Certif. 8.50 670 465 270 220 200 190 180
10.00 580 445 390 305 255 230 215
10.25 565 435 390 320 260 235 220
10.50 555 430 390 335 265 240 225
Fixed-rate Mortgage Loans:
MCA 1, Series 1 340 335 330 325 320 315 310
RAC Four, Series 77 565 435 390 320 260 235 220
RMSC, Series 1989-4A
and 1989-4B 565 430 390 330 255 230 210
RMSC, Series 91-2** 435 370 300 235 170 100 70
RMSC, Series 92-12 730 430 240 205 190 180 175
* Case C is the case most representative of projected prepayment speeds as
of April 1, 1994. This is representative of the yield on a FNMA 30-year
pass-through security of 7.95%. (Case A represents a FNMA pass-through yield
of 5.95%, Case B 6.95%, Case D 8.95%, Case E 9.95%, Case F 10.95% and Case G
11.95%).
** The mortgage loans underlying the security become adjustable-rate in
1996-1998.
CONSTANT PREPAYMENT RATES (CPR) TABLE (%)
ADJUSTABLE-RATE MORTGAGE LOANS OR CERTIFICATES
Case A Case B Case C* Case D Case E Case F Case G
------ ------ ------- ------ ------ ------ -------
FNMA Pools, Various 36 32 28 26 22 18 14
FHLMC Pools, Various 26 22 18 14 10 6 2
LIBOR ARM Trust 1991-19 26 22 18 14 10 6 2
LIBOR ARM Trust 1992-1 26 22 18 14 10 6 2
LIBOR ARM Trust 1992-4 26 22 18 14 10 6 2
LIBOR ARM Trust 1992-6 26 22 18 14 10 6 2
LIBOR ARM Trust 1992-8 26 22 18 14 10 6 2
LIBOR ARM Trust 1992-10 26 22 18 14 10 6 2
RMSC, AHF 1989-1 40 36 32 28 26 22 18
RMSC, Series 1991-5 26 22 18 14 10 6 2
RMSC, Series 1991-7 28 24 20 16 12 8 4
RMSC, Series 1991-11 26 22 18 14 10 6 2
RMSC, Series 1991-12 28 24 20 16 12 8 4
RMSC, Series 1991-15 28 24 20 16 12 8 4
RMSC, Series 1991-16 26 22 18 14 10 6 2
RMSC, Series 1991-17 26 22 18 14 10 6 2
RMSC, Series 1992-5 26 22 18 14 10 6 2
RTC M-1 15 13 10 7 5 5 5
RTC M-6 17 15 10 7 5 5 5
SMSC, Series 1992-4 26 22 18 14 10 6 2
SMSC, Series 1992-6 26 22 18 14 10 6 2
SMSC, Series 1993-1 26 22 18 14 10 6 2
SMSC, Series 1993-3** 26 22 18 14 10 6 2
SMSC, Series 1993-5** 26 22 18 14 10 6 2
SMSC, Series 1993-6 26 22 18 14 10 6 2
SMSC, Series 1993-7 26 22 18 14 10 6 2
SMSC, Series 1993-9** 26 22 18 14 10 6 2
SMSC, Series 1993-11 26 22 18 14 10 6 2
SMSC, Series 1994-1 26 22 18 14 10 6 2
SMSC, Series 1994-3 28 24 20 16 12 8 4
- ----------------------
* Case C is the case most representative of projected prepayment speeds as of
April 1, 1994.
** The mortgage loans underlying these securities become adjustable-rate in
1995-1996.
(2) Principal and interest payments on the mortgage collateral was assumed to
be received monthly with interest payments received in arrears.
(3) The LIBOR, commercial paper, COFI, 1 Yr-CMT, and reinvestment income
rates are assumed to be as set forth in the table set forth below. The
applicable rate is assumed to begin at the rate set forth in Case II in the
table below. For cases other than Case II, the applicable rate increases or
decreases ratably over a one-year period to the rate set forth for the
applicable case. The rates set forth in Case II are representative of the
rates as of April 1, 1994. Case I and Cases III through VII indicate rates
decreasing or increasing, respectively, from the rates of Case II in equal
steps each month over one year, to the rate indicated and continuing
thereafter at that rate. According to the scheduled resets and subject to the
periodic and lifetime caps, if applicable, the interest rates on the Company's
adjustable-rate mortgage securities, in each case, reset at the defined margin
relative to their respective indices.
SHORT TERM INTEREST RATE ASSUMPTIONS
Case I Case II* Case III Case IV Case V Case VI Case VII
------ -------- --------- ------- ------ ------- --------
LIBOR
One-month 2.750% 3.750% 4.750% 5.750% 6.750% 7.750% 8.750%
Three-month 3.000 4.000 5.000 6.000 7.000 8.000 9.000
Six-month 3.375 4.375 5.375 6.375 7.375 8.375 9.375
COFI 2.987 3.687 4.387 5.087 5.787 6.487 7.187
1 Yr-CMT 3.500 4.500 5.500 6.500 7.500 8.500 9.500
Reinvestment
Rates 2.375 3.375 4.375 5.375 6.375 7.375 8.375
- ---------------------
* Case II is the case most representative of short-term interest rates as of
April 1, 1994.
(4) Principal and interest payments on each mortgage investment were assumed
to be made in accordance with the terms for each such mortgage investment.
(5) It was assumed that no optional redemptions are exercised on any of the
mortgage investments.
(6) Administrative fees for each series of mortgage securities have been
calculated using the assumptions set forth in the prospectus relating to each
such series. The administrative fee generally is based upon a fixed
percentage of the principal amount of such mortgage securities outstanding.
(7) For the purposes of calculating the net cash flows on the adjustable-rate
mortgage securities that are subject to repurchase borrowings, it was assumed
that the repurchase borrowings were equal to 94% of the Company's cost basis
in such adjustable-rate mortgage securities, and that such ratio would remain
constant. Actual repurchase borrowings were greater on March 31, 1994 than
the amount used for modeling. If the ratio that the Company was able to
borrow were to decrease to a level below the 94% for adjustable-rate mortgage
securities used in modeling due to either increases in short-term interest
rates or other market conditions, the yield to the Company would be lower in
each case.
(8) For purposes of calculating the net cash flows on the fixed-rate mortgage
securities that are subject to repurchase borrowings, it was assumed that the
repurchase borrowings were equal to 93.5% of the Company's basis in such
fixed-rate mortgage securities, and that such ratio would remain constant.
Actual repurchase borrowings were greater on March 31, 1994 than the amount
used for modeling. If the ratio that the Company was able to borrow were to
decrease to a level below the 93.5% for fixed-rate mortgage securities used in
modeling due to either increases in short-term interest rates or other market
conditions, the yield to the Company would be lower in each case.
(9) In modeling the mortgage warehouse participations, it was assumed that
each participation had a remaining average life of one year and the spread
between the weighted average coupon, associated costs and the commercial paper
rate remained constant.
(10) No losses are projected on any mortgage loans owned by the Company or
underlying any adjustable-rate mortgage security or other mortgage security
that would not be covered by external sources of insurance or the Company's
allowance for losses. Any losses not covered by such insurance or allowance
would lower the yield in each case to the Company.
(11) While the cost of the LIBOR cap agreements has been added to the
Company's investment in its portfolio, the projections do not include any
benefit from them, as such caps are generally above the range of the short-term
interest rate assumptions set forth on page 13.
(12) In modeling certain of the Company's smaller mortgage investments, the
cash flows of the investments were modeled by substituting for the actual
assets and liabilities a small number of representative assets or liabilities,
the characteristics of which summarize the actual mortgage loans or mortgage
securities and the related liabilities that comprise the investment.
GLOSSARY
AHF - American Home Funding.
Adjustable-rate mortgage loan (ARM) - A mortgage loan that features
adjustments of the loan interest rate at predetermined times based on an
agreed margin to an established index. An ARM is usually subject to
periodic and lifetime interest-rate and/or payment-rate caps.
Adjustable-rate mortgage securities - Mortgage certificates that represent the
pass-through of principal and interest on adjustable-rate mortgage loans.
Bloomberg - Bloomberg Business Services, Inc. information systems.
Chemical - Chemical Acceptance Corporation.
Citibank - Citibank, N.A., REMIC mortgage pass-through certificates.
COFI - Eleventh District Cost of Funds Index.
Collateralized Mortgage Obligations (CMOs) - Debt obligations (bonds) that are
collateralized by mortgage loans or mortgage certificates. CMOs are
structured so that principal and interest payments received on the
collateral are sufficient to make principal and interest payments on the
bonds. The bonds may be issued in one or more classes with specified
interest rates and maturities which are designed for the investment
objectives of different bond purchasers.
Company - Resource Mortgage Capital, Inc.
FHLMC - Federal Home Loan Mortgage Corporation.
Fixed-rate mortgage loan - A mortgage loan which features a fixed interest
rate that does not change during the life of the loan, or does not change
for at least one year from the date of the analysis.
FNMA - Federal National Mortgage Association.
FNMA Yield - FNMA 30-year mortgage certificate yield.
GAAP - Generally accepted accounting principles.
GMS - General Mortgage Securities, Inc. Two
GNMA - Government National Mortgage Association.
LIBOR - The London Inter-Bank Offered Rate for overseas deposits of U.S.
dollars. The LIBOR index generally follows the patterns of the short-term
interest rate environment in the U.S. market.
Long-term interest rates - The interest rates applicable to debt securities
with an average life of 10 years or more.
MCA 1 - Multi-family Capital Access One, Inc., a subsidiary of the Company
ML - Merrill Lynch
Mortgage certificates - Certificates which represent participation in pools of
mortgage loans. The principal and interest payments on the mortgage loans
are passed through to the certificate holders. GNMA, FNMA, or FHLMC may
issue and guarantee the payment of principal and interest on mortgage
certificates issued by them. Mortgage certificates may also be privately
issued.
Mortgage derivative securities - Mortgage securities that generally have a
market price that is substantially below or in excess of the principal
balance of the underlying mortgage loans or mortgage certificates (e.g., a
principal-only or interest-only security).
Mortgage loans - Mortgage loans secured by first liens on single-family
residential properties.
Mortgage residual interests - An investment which entitles the Company to
receive any excess cash flow on a pool of mortgage loans or mortgage
certificates after payment of principal, interest and fees on the related
mortgage securities.
Mortgage warehouse participations - A participation in a line of credit to a
mortgage originator that is secured by recently originated mortgage loans
that are in the process of being sold to permanent investors.
N/A - Not available.
NMF - National Mortgage Funding, Inc.
1 Yr-CMT - One-year constant maturity treasury index.
Other mortgage securities - Mortgage derivative securities and mortgage
residual interests.
Prepayment rates - Represent a measure as to how quickly the number of
mortgage loans in a pool are prepaid-in-full.
RAC Four - Ryland Acceptance Corporation Four.
REMIC - A real estate mortgage investment conduit pursuant to the Internal
Revenue Code of 1986, as amended.
RMSC - Ryland Mortgage Securities Corporation.
RTC - Resolution Trust Corporation
SMART - Structured Mortgage Asset Residential Trust.
SMSC - Saxon Mortgage Securities Corporation, an affiliate of the Company.
Short-term interest rates - Short-term interest rates are the interest rates
applicable to debt securities with an average life of six months or less.