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Structured Finance
RMBS/Greece Performance Report
Analysts Aksel Etingü +44 20 7682 7135 aksel.etingu@fitchratings.com Peter Dossett +44 20 7862 4027 peter.dossett@fitcharatings.com Spyros Michas +44 20 7070 5801 spyros.michas@fitchratings.com

Greek RMBS Performance Bulletin 2008 n Summary In this performance report, Fitch Ratings present an overview of the performance of Greek RMBS transactions. To date, Fitch Ratings has provided a rating to all Greek RMBS transactions that have been issued. In 2007, the number of new issuances was half of 2006; nevertheless the issuance volume was still high due to larger transaction sizes. In February 2008, EFG Eurobank launched the fifth transaction of the Themeleion series. Overall, the outstanding size of the Greek RMBS market has grown steadily, with new transactions coming to the market and no transactions having yet redeemed.

Contents Summary ..........................................1 Performance Overview......................2 Greece – Market Overview................5 Appendix 1: Comparison Charts......10 Appendix 2: Credit Cover Methodology...................................11 Appendix 3: Transaction Details......12

Issuance Volume of Greek RMBS
Issuance amount (LHS) Number (RHS)

(EURbn) 4.0
3.5 3.0 2.5 2.0 1.5 1.0 0.5

(No.) 5
4 3 2 1 0 2003 2004 2005 2006 2007

Related Research The following reports are available on www.fitchratings.com: “Around the Houses – Quarterly European RMBS Performance Update”, 25 January 2008; “Greek RMBS Rating Criteria”, 13 December 2006; “A Guide to Cash Flow Analysis for RMBS in Europe”, 20 December 2002; “Scanning the Horizon – Rating Outlooks in European Structured Finance”, 01 June 2007.

0.0 Source: Fitch

Currently, there are 11 outstanding transactions in Greece, of which two were reviewed by Fitch for the first time at the beginning of 2008 and were not included in the agency’s previous performance report, published in 2007. The overall performance of Greek RMBS transactions remains strong, with increased payment rates across most deals driving a substantial build up in credit enhancement levels. Due to the high payment rates, arrears levels have shown an upward trend as well due to an element of adverse selection in the pools. Despite this the continued strength in performance has resulted in a number of tranches being upgraded with Outlooks being revised to Positive from Stable. This report will focus on the performance of Greek RMBS transactions to date, examining how recent market trends and the structure of the transactions have contributed to their overall performance. Given the growth in the Greek RMBS market it is now possible for Fitch to produce an arrears index for Greek RMBS, the first version of which is included in this report.

2 April 2008 www.fitchratings.com Structured Finance
This index is constructed according to the same methodology as for other European jurisdictions and an updated version will be incorporated in the agency’s quarterly report ‘Around the Houses’. This report will also look briefly at the Greek economy as a whole, the housing and mortgage market, and trends that may have an effect on the performance of outstanding RMBS transactions in the future. n Performance Overview Arrears and default levels in Greek RMBS transactions remain low in comparison to other European jurisdictions. Greek RMBS transactions have been performing well, in line with the agency’s expectations.
Rating Actions

over an 18­24 month period. Outlooks may be Positive, Stable or Negative. A Positive or Negative Rating Outlook does not imply a rating change is inevitable. As transactions are reviewed, Fitch assesses the current status for each tranche and amends the Outlook as necessary. Within the reviewed Greek RMBS transactions, 12 tranches are currently assigned Positive Outlooks and 19 tranches have Stable Outlooks. No Greek RMBS tranches currently have Negative Outlooks, highlighting the good performance of these transactions.
Transaction Performance

As stated earlier, the overall performance of all Fitch rated Greek RMBS transactions has been strong and in line with expectations. The following sections of this report highlight deal­ specific features and performance. Fitch has included deal­specific details within the appendices of this report for reference. For more information please refer to the New Issue reports and the Press Releases Fitch has published on its research website: www.fitchresearch.com.
Byzantium Finance Plc

Fitch reviewed all Greek RMBS transactions at the beginning of 2008, upgrading seven tranches and affirming all others. The upgrades reflect the growth of availbale credit enhancement levels in the transactions, generated by the sequential pay­down of the notes, and an increase in the payment rates of the transactions due to increased competition in the Greek mortgage market. The upgrades in Fitch’s 2008 review included: · Byzantium Finance Plc: class B was upgraded to ‘AA­’ from ‘A+’, and class C was upgraded to ‘BBB+’ from ‘BBB’; Lithos Mortgage Financing Plc: class B was upgraded to ‘AA­’ from ‘A’; Themeleion Mortgage Finance Plc: class B was upgraded to ‘AA+’ from ‘AA’; Themeleion Mortgage Finance II Plc: class B was upgraded to ‘AA­’ from ‘A+’; Themeleion Mortgage Finance III Plc: class M was upgraded to ‘AA’ from ‘AA­’ and class B was upgraded to ‘A+’ from ’A’.

Byzantium Finance Plc was the first public residential mortgage­backed securities issue from Greece and the first Greek securitisation to be originated by a non government­related entity, Aspis Bank S.A. Loans include non­subsidised loans as well as loans subsidised (74%) by the Greek government and the Workers Housing Association (Organismos Ergatikis Katoikias, OEK), the government­sponsored social housing agency in Greece. Since origination there have been two draws on the reserve fund, caused by the timing of payments from the Greek government for the subsidised loans within the pool. As this is related to timing rather than a credit quality issue, Fitch has not taken any rating action following these draws. The reserve fund draw in January 2006 was cured the following quarter. For the most recent reserve fund draw (which took place in January 2007), Fitch has been informed that the reserve should be fully funded as of Q208 Byzantium Finance Plc has the lowest payment rate of all Fitch rated Greek RMBS transactions. The low level of payment rates is likely a consequence of the high prepayment fees charged on loans in this pool. Aspis was, for a period, the only private bank specialising in mortgage lending in Greece. As such, its borrower profile is likely to be different from that

· · · ·

Fitch expects a slowdown in the build up of credit enhancement on some of the Greek transactions. This is due to the switch from sequential to pro­rata pay­down, based on certain performance criteria that have been incorporated into the structure of these deals; especially in the Themeleion series transactions.
Rating Outlooks

Since 2007, Fitch has assigned Rating Outlooks to all RMBS tranches. Rating Outlooks offer investors a forward­looking opinion of the likely rating actions
Greek RMBS Performance Bulletin 2008: April 2008 2

Structured Finance of state controlled mortgage lenders and may include borrowers who are unable to switch to other available mortgage products that meet their requirements. However, payment rates have been increasing. The current annualised principal payment rate (PPR) is 15.54% while the current constant prepayment rate (CPR) stands at 5.53%. (For comparison, refer to Appendix I) As the most seasoned deal rated by Fitch, the arrears levels have been extremely low. The current reported three­month plus arrears is 2.42% of the outstanding collateral balance.
Estia Mortgage Finance Plc Series

Due to loans being granted to civil servants and the payments being directly deducted from the borrower prepayment rates have been low, thus limiting the growth in credit enhancement levels and potential upgrades.
Kion Mortgage Finance Plc

Both Estia transactions, originated by Piraeus Bank S.A., have been performing in line with Fitch’s expectations. However, there were some reporting issues on the reserve fund levels for Estia Mortgage Finance II Plc at the first interest payment date (IPD). Estia Mortgage Finance II Plc reported a reserve fund draw in its first quarter, which Fitch was told would be replenished to its target amount as of the second IPD. At its second IPD the reserve fund was still below its target level, this time due to an early amortisation of the reserve fund that did not meet the performance criteria for amortisation. This has been acknowledged by the related counterparties and Fitch was informed that the reserve fund would be fully funded in its next quarter of reporting. Along with the other Greek RMBS transactions, the arrears levels for these two securitisations have remained low. Estia Mortgage Finance Plc and Estia Mortgage Finance II Plc have reported loans in arrears by more than three months of 0.41% and 0.32% of their current collateral balance respectively. Although the arrears levels are low, it is important to note that there has been a significant increase in the amount of new loans in foreclosure, while a drop in recoveries was also observed.
Grifonas Finance No.1 Plc

Kion Mortgage Finance Plc is comprised of first­lien loans, originated by Millennium Bank S.A. At closing, 4.46% of the portfolio was one monthly payment in arrears. Consequently, the overall performance of the arrears level has been weaker compared to other Greek RMBS transactions. As of January 2008, loans more than three months in arrears constituted 0.93% of the current collateral balance with cumulative defaults at 0.16% of the original balance. Although the arrears levels in this transaction are higher than other Greek RMBS it has also demonstrated some of the highest CPR levels. This has resulted in a rapid growth in credit enhancement that has offset the risk of higher arrears levels.
Lithos Mortgage Financing Plc

Originated by Emporiki Bank of Greece S.A., Lithos Mortgage Financing Plc had the highest levels of arrears at closing of any Greek RMBS transaction (approximately 10.5%). Within this percentage, 51% of the portfolio was one month in arrears, 22% was two months in arrears and 27% was more than three months in arrears. As of the latest investor report in November 2007, loans more than three months in arrears comprised 6.00% of the current pool, with cumulative defaults at 0.65%. As the pool had high arrears at closing this was incorporated into Fitch’s original analysis, therefore the high level of arrears seen in the pool to date has not required any negative rating action. Although it has decreased, the speed of prepayments in the transaction has been extremely high, with annualised CPR averaging 50% prior to the last quarter, where it fell to 28.22%. The high payment rates have contributed to the strong build up of credit enhancement, resulting in the upgrade of the class B notes and the revision of Outlooks to Positive from Stable.
Themeleion Mortgage Finance Series

Grifonas Finance No.1 Plc is the first securitisation of Consignment Deposits and Loans Funds (CDLF), a public law entity wholly owned by the Hellenic Republic. It comprises solely loans granted to civil servants. This feature makes it unique amongst Greek RMBS transactions, as the loan payments are deducted directly from the borrower’s salary or pension, therefore resulting in extremely low levels of arrears. Furthermore, CDLF has the option of withholding up to 75% of any retirement lump sum to reduce the loan balance to an affordable portion of the borrower’s pension.
Greek RMBS Performance Bulletin 2008: April 2008 3

EFG Eurobank Egrasias, S.A. has been the largest issuer in the Greek RMBS market through its Themeleion series. To date, it has issued five transactions within the series, the latest closing in February 2008.

Structured Finance
The first three transactions in the series have already used up their replacement loan limits, which were allocated for replacing retired loans. Themeleion III reached its limit within two quarters of reporting. This was due to the significant increase in mortgage competition within Greece, to which Eurobank has responded by introducing new products and lower margins. The high prepayments within these transactions have caused a rapid increase in credit enhancement levels, resulting in the above­mentioned rating actions by Fitch. The agency expects a slowdown in the build up of credit enhancement levels due to the switch from sequential to pro­rata pay­down of the notes. The structures of the Themeleion series transactions also include amortisation of the reserve funds along with the switch to pro­rata. The amortising reserve fund, in combination with a pro­rata pay­down, will limit the potential for future upgrades of these transactions.
Performance Trends Prepayments

prepayments in many deals can be partly attributed to deals reaching their permitted variation limit and lenders having to repurchase loans from RMBS portfolios in breach of the representations and warranties. It should be noted that the high amount of loans being retired and the increase in payment rates may result in performance issues later on in these deals due to adverse selection. This is where borrowers who can move to other products and lenders with lower margins will slowly switch. The loans that will remain in the pool will be the ones who can not, potentially causing an increase in arrears levels.
Recovery Rates

Even though the foreclosure process in Greece is lengthy, Fitch expects the transactions issued to date to have high recovery rates on foreclosed loans. Although historic data is limited due to the time it takes for foreclosure proceeding to end, additional data provided by EFG Eurobank on the Themeleion series transactions suggests high recovery rates. The main reason for the high recovery rates is the low loan­to­value (LTV) rates seen to date in Greece. Recovery rates should continue to be high ­ despite an increase in LTV rates observed in recently issued transactions ­ as long as no significant drop is seen in the Greek housing market.
Subsidised Loans

Due to the low level of prepayments, the growth in credit enhancement has traditionally been slower in Greek RMBS than in many other European jurisdictions. However, this trend has recently changed as a result of high levels of market competition leading to falling margins and new products, such as Swiss Franc denominated loads and an increase in fixed rate lending (refer to Appendix 3). This has caused borrowers to re­ evaluate their positions and has led to an increase in borrowers moving between lenders or to alternative products. Due to the competitive market and new options for borrowers, large amounts of loans have been retired from pools that breached the representations and warranties of the transactions. The retired loans can be replaced; however, the transaction structure places limits on the value of loans that can be brought in. This limit has been reached for the first three Themeleion deals and on Themeleion Mortgage Finance IV Plc, half of this amount has already been used in two IPDs. In Themeleion Mortgage Finance III Plc, the replacement loans limit was reached in the first two quarters of reporting. In most RMBS transactions, the structure allows for a limited portion of the pool to be subjected to “permitted variations”, whereby the lender retains the flexibility to renegotiate the mortgage contract terms (i.e. margin). The recent increase in
Greek RMBS Performance Bulletin 2008: April 2008 4

Most Greek RMBS transactions include subsidised loans in their portfolios. Subsidies are generally granted to purchase or build a first home or complete a home. Subsidised loans in the provisional pools are either granted by the Greek government or OEK (or both entities), based on their own eligibility criteria. It is important to note that the payments by the Greek government are made on a six­month basis in arrears, while OEK pays on a monthly basis, up to two months in arrears. Depending on the percentage of subsidies within pools, there could potentially be a revenue shortfall and a draw on the transaction reserve fund. In Byzantium Mortgage Finance Plc, where 74% of the pool contains loans subsidised by the Greek government and OEK, there were two reserve fund draws that were attributed, by the related entities, to this structure of payments, resulting in a revenue shortfall.
Structural Features Class Amortisation

Greek RMBS transactions begin with a sequential pay­down of the notes and, depending on the

Structured Finance structure, switch to pro­rata pay­down along with an amortising reserve fund. This structure provides protection against losses to the most senior noteholders, since the switch is based on a ratio of the senior notes to the rest of the note balance. In Estia and Lithos the note pay­down can switch to pro­rata whilst in the earlier Themeleion series transactions, the note pay­down has already switched to pro­rata. As stated above, there are built­in performance criteria within these transactions to keep performance in line with expectations. The first of these criteria is the amount still outstanding of the class A notes. Before the switch to pro­rata can occur, the class A notes have to have amortised to a certain level along with additional performance requirements, such as arrears levels and default ratios. There have been a number of deals where the timing of the switch from sequential to pro­rata has been incorrectly reported. In Themeleion Mortgage Finance II and III, the notes had started to pay­down pro­rata, however, the reserve fund remained at its original target level, thus providing an additional, artificial, support for the credit enhancement levels. In its reviews, Fitch has taken this into consideration and evaluated these deals with their correct target levels, according to the transaction documentation.
Reserve Funds Provisioning Mechanisms

A key feature of all the Greek RMBS transactions to date is the use of a provisioning mechanism to limit the cost of carry of defaulted loans. The provisioning mechanism works by writing off defaulted loans after a set period of time, using the available excess spread generated by the structure. This mechanism allows the structure to trap excess spread to cover for the potential loss of defaulted loans. Excess spread is used to cover the provision for the loss and is transferred to the principal ledger as available principal receipts. This results in an accelerated pay­down of the notes and helps to avoid the lengthy foreclosure process (which in Greece is estimated at between two and five years). n Greece – Market Overview

Mortgage Market

Established in 1927 and operating under government control, the National Mortgage Bank of Greece (predecessor to the contemporary National Bank of Greece) was the first lending institution in Greece to grant a mortgage loan. Further to that, and until the early 1980s, other state­owned institutions offered mortgage loans mostly to special interest groups, such as civil servants and farmers. In 1985, the state monopoly of mortgage lending ended, as commercial banks were eventually allowed to enter the market, albeit under strict policy restrictions. In 1992, the introduction of the Basic Banking Law liberalised the establishment, operation and supervision of credit institutions in Greece. Further regulatory reforms allowed lenders greater freedom by removing complicated credit rules, repealing credit limits and granting independence to set interest rates.
Greek Mortgage Market Evolution
Market (LHS) (EURbn) GDP (RHS) (%) 35 30 25 45 30 15 0 2001 2002 2003 2004 2005 2006 2007 20 15 10 5 0

All Greek RMBS transactions have reserve funds in place to provide additional protection and support to the transaction structure. Losses will be allocated first to the reserve fund, which can subsequently be topped up using excess spread generated by the performance of the pool. In all transactions, with the exception of Byzantium Finance Plc, there are triggers in place to allow the reserve funds to amortise as the notes pay­down and fulfil the required performance criteria. With the exception of Grifonas, Estia Mortgage Finance II Plc and Themeleion Mortgage Finance IV Plc, the initial reserve funds were not fully funded at close and built up to their target levels using available excess spread. In Estia Mortgage Finance II Plc, although it was fully funded at close, there was a reserve fund draw and an early amortisation, preventing it from being fully funded since close. This error has had an adverse impact on the credit enhancement levels initially anticipated. Fitch was informed that this error would be corrected in Q208.

75 60

Source: Bank of Greece, Eurobank

Greek RMBS Performance Bulletin 2008: April 2008 5

Structured Finance
In the meanwhile, substantial reductions in the cost of lending made mortgages a more accessible source of funding. Interest rates have been progressively decreasing from 25% in the early 1990s to around 4% today. Those developments led to a credit boom in recent years, with the amount of outstanding mortgage loans climbing from around EUR2.5bn in 1992 to more than EUR60bn in 2007, representing almost 25% year­on­year growth. Despite the recent credit boom, the Greek market as a whole remains largely “underbanked”. The low 31% of Greek GDP made up by mortgage lending compares with an EU average well in excess of 40%, and more than 50% for countries such as the UK, Ireland, the Netherlands, Sweden and Denmark. Moreover, the heavy concentration of credit supply in metropolitan areas, together with a lack of credit supply in the Greek islands, indicates that there is considerable growth potential for the Greek market.
Market Characteristics

Second home ownership is also very high in Greece. Fitch believes the second home market in particular presents strong growth potential as demand from north Europeans is expected to accelerate, following the trend in other Mediterranean countries. Notably, holiday property price levels in Greece are substantially lower compared with countries such as Spain, France, Italy or Portugal. Overall, it is estimated that there are around 3.5 million primary residences in Greece, with a further 1.8 million second or holiday homes. These figures represent the largest proportion of second homes in the European Union. The reasons behind this are both cultural and climatic. In order to remain close to the family and/or as a holiday home, many Greeks often choose to hold on to a second home even if they live and work in the city. Traditionally, real estate has comprised a large share of many Greek households’ wealth. According to the dowry system, parents should provide a home for each daughter and this encouraged the purchase of multiple properties. While this is undoubtedly becoming less commonplace, the tradition still persists for some families. Moreover, the strong family ties in Greece make a virtue of young people living in their parents’ house until they get married. When they do leave home, this demographic of couples in their early thirties seeking to purchase a home represents a key target for Greek mortgage lenders. The comparatively low turnover of the property market is in part attributed to the practice of prolonged living with parents. Similarly, a typical Greek home owner tends to be more emotionally attached to their house and therefore less prone to trade it in the market. As a result, the average individual is expected to execute fewer real estate transactions over the course of their

In line with the international credit market environment, mortgage volumes in Greece have grown strongly over the last decade, owing mainly to decreasing interest rates and mounting competition among lenders. Nevertheless, the domestic market bears some distinct characteristics that differentiate it from its European counterparts. The most important of these are examined below from a cultural as well as a structural perspective.
Cultural Considerations

A strong home ownership culture means that Greece features one of the highest ownership ratios in Europe. Home ownership is higher in the outer regions and lower in Athens. This distinction is natural, given the heavy migration of Greek residents moving from rural towards metropolitan areas in search of employment over previous decades.

Home Ownership Ratio
Census‐based (October 2005) (%) 90 80 70 60 50 40 30 20 10 0 Spain Ireland Portugal Greece Italy UK Finland France Netherlands Germany Switzerland Source: Eurostat, Fitch Owner‐occupied Rent

Greek RMBS Performance Bulletin 2008: April 2008 6

Structured Finance lifetime than what may be seen in other European countries. Greek residents appear to be quite debt­averse, placing significant emphasis on the social ‘stigma’ associated with overwhelming liabilities and default status. On top of that, strong family ties mean that the entire family often contributes to the repayment of a loan obligation for a burdened family member.
Structural Considerations

can be substantially lower than actual income. Normally, Greek lenders take this element into account as part of their standard loan underwriting process. Furthermore, complex tax and regulatory provisions, along with bureaucratic issues and inefficiencies in the public sector, have discouraged real estate investment both from individuals and companies in Greece.
Market Developments

Economic immigrants comprise more than 10% of the total Greek population constituting an important characteristic of the domestic economy. In the ongoing process of socio­economic integration, immigrants are an active part of the country’s labour force providing more flexibility and increased productivity to the economy, at a low cost. Considering the current trend of existing home owners moving towards improved housing and leaving behind them properties in the affordable end of the market, Fitch expects economic immigrants to gradually form a major component of housing demand in Greece. On the supply side, residential investment represents an increasing proportion of total investment in Greece.
Residential Investment
Residential Investment/GDP (as % of GDP) 8.00 7.75 7.50 7.25 7.00 6.75 6.50 2000 2001 2002 2003 2004 2005 2006 2007 Long­Term Trend

Over the last couple of years, the Greek mortgage market has seen increasing competition among the major banks. Lenders have attempted to protect their market share by introducing new products with appealing terms. The most important of these have been the Swiss Franc­denominated loans and, more recently, ‘teaser’ rate loans, although subsidised products have consistently been part of Greek RMBS collateral.
Preferential (‘Teaser’) Rate Loans

Preferential or ‘teaser’ rate loans were introduced around mid­2007 to the Greek market. They are structured with an initial discounted fixed interest rate which converts to a floating rate after a period of one to three years. ‘Teaser’ rate loans formed part of the collateral of the latest Greek RMBS transaction, Themeleion V, which closed in February 2008. When analysing those loans, Fitch applies an adjustment to the default probability of the relevant borrowers to capture the payment shock they may undergo at the point of conversion from a low fixed to a higher floating interest rate index. In addition, on the recovery side, the cost of carry is calculated on the basis of the stabilised margin. Given the magnitude of ‘teaser’ rate products in terms of new origination volume, Fitch expects to see increasing portions of such loans into future Greek securitisation portfolios. Although reliable performance information is not yet available from lenders, the agency will closely monitor the performance of the corresponding RMBS portfolios, focusing on the impact of interest rate re­set timing on the underlying transactions.
CHF-Denominated Loans

Source: Alpha, Fitch

Construction activity lies around 10% of GDP, primarily driven by small family firms rather than larger construction companies. There seems little sign of this growth abating, with profitability high and many opportunities for expansion, primarily in the non­urban regions. The most common type of property available is the apartment, with houses and maisonettes being restricted to the more affluent city suburbs. On the downside, Fitch cautiously observes the existence of a ‘black economy’ in Greece, whereby extensive tax evasion means that declared income
Greek RMBS Performance Bulletin 2008: April 2008 7

In respect of Swiss Franc (CHF) loans, borrowers pay a discounted rate of interest compared with a standard euro­denominated product, while bearing the respective foreign exchange risk at the same time. Foreign exchange protection for an initial period is available against a premium, up to the borrowers’ discretion.

Structured Finance
CHF loans have not yet been included in a Greek securitisation pool, even though they were initially originated back in 2006. Most lenders currently offer ‘teaser’ rate products in either currency of denomination.
Subsidised Loans

Mortgage Market Shares
Greek banks (December 2007)
Other institutions 22% National Bank of Greece 27%

As mentioned earlier in the report, an established product type in Greece is subsidised mortgage loans. These products are commonly found within Greek RMBS portfolios and, indicatively, the first Greek RMBS transaction, Byzantium, comprised a majority of such loans. Interest subsidies are available to borrowers of residential mortgage loans from both the Greek state and OEK. The availability and amount of the subsidy is determined by the financial and social circumstances of the borrower. Although the Greek government (rated ‘A’ with Positive Outlook) and OEK are required to make the interest subsidy payments, the relevant borrowers remain liable to pay the full amount of interest due under their loans. Borrowers undertaking subsidies tend to have lower incomes than those who are not eligible to receive them. Consequently, Fitch has not given credit to subsidised mortgage loans within Greek RMBS portfolios.
Lending Institutions

Piraeus 9% Alpha Bank 16% EFG Eurobank 15% Source: Piraeus, Fitch

Emporiki 11%

The unprecedented growth of the Greek financial sector has resulted in a respective increase in the funding requirements of domestic banks. With the regional economies of south­eastern Europe growing quickly, Greek financial institutions are increasingly looking to the capital markets ­ mainly by means of securitising their Greek loan portfolios ­ to finance their international credit expansion.
House Prices

The deregulation of the mortgage lending market in the early 1990s saw a corresponding growth among lending institutions in Greece. This was followed by a sustained period of consolidation, whereby many of the specialist lenders were absorbed by larger institutions. Following Greece’s entry into the euro zone in 2001, major Greek banks underwent profound changes. While benefiting from continued domestic credit expansion on the back of relatively low real interest rates and strong GDP growth, they re­invested part of their improved earnings into foreign operations: in south­eastern Europe (Albania, Bulgaria, FYROM, Romania and Serbia) and Cyprus, and subsequently in Egypt, Poland, Turkey and the Ukraine. This expansion enabled the banks to benefit from strong regional credit growth and wider net interest margins, as well as to diversify revenue sources and counter an anticipated slowdown in the domestic lending market. As a result of this international expansion, Greek banks now operate well over two thousand branches across the region, with more than one in five loans in south­eastern Europe originated by a Greek bank.

The current outlook for the property market suggests that prices are stabilising across the country, with signs of weakening demand in certain segments. In the context of the global credit crisis, mortgage interest rates have recently increased, while the market has been driven by expectations of regulatory changes affecting the property taxation regime. Such regulatory provisions will be harmonised with EU standards and their impact on the Greek housing market will be monitored by Fitch. Nevertheless, the appetite for real estate transactions is not expected to return, at least until the upcoming changes have been implemented.
House Price Index
Athens vs. other regions
Athens 450 400 350 300 250 200 150 100 50 0 1993 1995 1997 1999 2001 2003 2005 2007 Other regions

1993 = 100 Source: Bank of Greece, Fitch

Greek RMBS Performance Bulletin 2008: April 2008 8

Structured Finance
While centrally produced house price data is difficult to obtain, there are some centrally published indices (however these are typically six to 18 months out of date). Market research on the real estate sector suggests that property prices remained relatively stable during the economic downturn of the early 1990s. However, there is no reliable data available for property prices dating back to the recessionary period. Unlike indices available in other European countries, the Greek house price index figures actually relate to asking prices as opposed to the actual transaction prices reported in the land registry. The chart above covers the latest available data (to June 2006 for Athens and March 2007 for other areas). There was a noticeable slowdown in property price appreciation in Athens in 2003/04. This can in part be attributed to the considerable house price appreciation in anticipation of the 2004 Olympics, which peaked and then began to slow by the time of the Olympics. Since then, the residential property market, along with the whole construction industry, has experienced something of a ‘hangover’. Many temporary jobs associated with the Olympics have been eliminated and it is likely that the cost of new residential construction has escalated ­ with a knock­ on effect on house prices in the run­up to the Olympics. It is likely that ‘slack capacity’ remains in the Greek construction industry and increased competition is likely to reduce the relative costs of new building projects.

Greek RMBS Performance Bulletin 2008: April 2008 9

Structured Finance n Appendix 1: Comparison Charts

Greek RMBS – Arrears
3 months plus
Greek index Estia Mortgage Finance Plc Grifonas Finance No. 1 Plc Themeleion Mortgage Finance Plc Themeleion III Mortgage Finance Plc Byzantium Finance Plc. Estia Mortgage Finance II Plc Kion Mortgage Finance Plc Themeleion II Mortgage Finance Plc Themeleion IV Mortgage Finance Plc

(%) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 0 3 6 9

12

15

18

21

24

27

30

33

36

39

42

45

48

51

Source: Fitch

Months since close

Due to the high arrears levels of Lithos in comparison with the other Greek RMBS transactions, it has been excluded from the index. For a comparison please refer to the graph below.
Greek RMBS – Arrears
3 months plus
(%) 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 Months since close Greek index Lithos Mortgage Financing I Plc

Source: Fitch

Greek RMBS – CPR
Constant prepayments rates
Byzantium Finance Plc. Estia Mortgage Finance II Plc Kion Mortgage Finance Plc Themeleion Mortgage Finance Plc Themeleion III Mortgage Finance Plc Estia Mortgage Finance Plc Grifonas Finance No. 1 Plc Lithos Mortgage Financing I Plc Themeleion II Mortgage Finance Plc Themeleion IV Mortgage Finance Plc

(%) 60 50 40 30 20 10 0 0 Source: Fitch 3

6

9 Quarter since closing

12

15

18

Greek RMBS Performance Bulletin 2008: April 2008 10

Structured Finance n Appendix 2: Credit Cover Methodology

CCM = Credit Enhancement (%) / Stressed Loss (%) Calculation of Credit Enhancement

Credit Enhancement = Aggregate Balance Of Subordinate Notes + Reserve Fund Balance / Total Note Balance
Calculation of Stressed Loss

Stressed Loss = S Stressed Loss (Current Loans), (2­3 month Delinquent Loans), (3­12 month Delinquent Loans), (12 month+ Delinquent Loans) Where Stressed Loss (Current Loans) = Current Loan% * Initial Credit Enhancement * Performance Factor; Stressed Loss (2­3m) = 2­3m% * DF2­3ab * LSab ; Stressed Loss (3­12m) = 3­12m% * DF3­12ab * LSab Stressed Loss (12m+) = 12m+% * DF12m+ab * LSab And Performance factor is the performance factor at f months since deal close; DF

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