MBIA Inc (MBI) 2008 Q1 法說會逐字稿

Good afternoon, and welcome to the MBIA first quarter 2008 financial results conference call. (OPERATOR INSTRUCTIONS) I would like to turn the call over the Greg Diamond, Director of Investor Relations at MBIA. Please go ahead.

Thank you, Melissa. Welcome to MBIA's conference call our first quarter 2008 financial results. The presentation for this event has been posted on MBIA's website and on the webcast site earlier today. The information for the recorded replay of this event is also available on MBIA's website. The MBIA team that is assembled today consists of Jay Brown, Chairman and CEO; Chuck Chaplin, Vice Chairman and CFO; Cliff Corso, Chief Investment Officer; Mitch Sonkin, Head of Insured Portfolio Management. The same team will be responding to questions later in the broadcast. One note on the presentation before we begin, our prepared remarks will cover the first 43 pages of the presentation. The balance of the slide deck includes a wealth of additional information organized in to various appendices.

Let's begin. First, I will read the safe harbor disclosure statement which appears on page 2. This presentation and our remarks may contain forward-looking statements. Important factors such as general market conditions and the competitive environment could cause actual results to differ materially from those projected in the forward-looking statements. Risk factors detailed in our 10-K, which is available on our website, www.mbia.com. The company undertakes no obligation to revise or update any forward-looking statements to reflect changes in events or expectations. In addition, the definitions of the non-GAAP terms that are included in this presentation may be found on our website at www.mbia.com. Jay?

Thanks, Greg. This is my first call since returning to the company. I'm certainly glad to be back, although I will say that the communication challenges to putting MBIA results in context are certainly immense. I have used letters to owners to communicate important development in a timely fashion and will continue to do so in the future. Many of you have asked for enhanced disclosure and we are committed to providing it. In fact, later today you will find a complete listing of our entire structured financial portfolio and some additional detailed information on our multi-sector CDOs will be available on our website. Our objective is very simple, we want to provide you sufficient information so you can form your own view about the value of your company. We believe that our lost estimates are realistic against our view of how the credit market will play out, but fully recognize that others will have different views. Our objective here is to give you a better appreciation for the difference between our view of expected losses, rating industry stress case losses, mark-to-market loss estimates and super stress losses which are offered up by a wide variety of sources, including those with certain self-interests.

As you will have noted, we made a major change in the format of our press release to focus on our balance sheet. From our perspective, this is the year of the balance sheet. We sell a promise and fixed income investors are rightly focused on making sure we can deliver on that promise. When confidence in our financial strength is fully restored, we will be positioned to write more new business in a more material volume than we are currently. This is clearly the most challenging credit environment we have experienced in our history. Things will clearly get worse in the United States real estate market before they get better but we have tried to factor this in to the portfolio analysis. It should be clear that we are not assuming a dooms day scenario. We are also not assuming that real estate doesn't get worse from here. We think it will. That said, we have clearly made some mistakes and our financial results are suffering. However, we also believe we are in a strong position which is reflected in the information we've made available today. Importantly, we are taking steps to restore confidence in our capabilities among our clients, customers, rating agencies and our investors.

There are a number of key issues we are going to address today. Probably first and foremost is starting with capital and liquidity. Solvency at MBIA has never been an issue despite misperceptions to the contrary. The only legitimate question was sufficiency of capital support the Triple-A rating for both our current portfolio and to do new business. The latest (inaudible) offering proceeds at the holding company, which were intended to support insurance hubs but were not needed immediately because of our liquidity at our insurance sub mirroration -- excuse me, our insurance subsidiaries, were held at the holding company for the past two months. Over the past few weeks we've seen a very concerted effort to raise questions about why was the cash sitting at the holding company if it was dedicated to the insurance operations. After discussing this with rating agencies and the insurance departments, many of which received many calls from a variety of sources, mainly the shorts who have tried to focus on this issue, we made the decision to move $900 million down. This will be accomplished in the next 10 to 30 days. Chuck and Cliff will provide detail on the liquidity profiles of the holding company, the insurance companies, and asset management. The key take away, we have been always been keenly aware that we are not a bank and have finite liquidity resources and have always managed the business with that in mind. We have sufficient liquidity at all levels of the company, even under severely stressful scenarios.

Second major area will be loss reserves and credit impairments. Chuck and Mitch will provide the detail here. Question. Why was there new activity this quarter? The major reason is the erupt increase we saw in delinquencies beginning late in August moving through the third and fourth quarter made it extremely difficult to determine the ultimate trajectory of our loss curves. With the passage of time, four more data points, some intensive modeling, use of outside resources and reading what was available from other sources, we have been able to significantly enhance our estimates. Those are the estimates that you saw in our 10-Q and in our press release today. We have established reserves to be consistent with a further housing market deterioration until mid to late 2009. We challenged all of our internal teams to dig in to each and every transaction and come up with their best estimates which matched against these expectations about continuous deterioration over this time period. Our objective here was simple. We want to have minimal changes until we have a better idea of how 2009 and beyond play out. We do assume that the liquidity that we have started to see return to the market will return in full status the rest of this year proceeds and then Mitch will talk a bit about why we chose additional housing flattening out in 2009 at roughly 10 to 15% below where we are today. We do see some signs that the deterioration is beginning to slow, but it's far too early to count on that.

Another area that we will talk about is credit impairments in our asset management portfolio. They are extremely manageable. They are expected in a portfolio of $27 billion, and we maintain capital at the asset management level for precisely that reason to manage these impairments.

Looking at our new business environment, it was an extremely challenging first quarter. This was clearly reflected in the uncertainty about our ratings. It was very difficult for us to do business in the early part of the year given the uncertainty about our ratings. Once we did get affirmation with a negative outlook for both S&P and Moody's, we have seen beginnings of the new business coming back in the public finance area. We are being very selective in identifying those public credits which are most likely to not be affected by the current economic environment -- economic environment. The volume is slow, but it is building. It is clear that we will remain well below our historical levels until stable outlooks are eventually regained. Cliff will provide more detail on asset management, but we are writing significant business in that area of our operations and we are able to access funding at very attractive rates. Importantly, we will also go through a few slides describing why we don't see any forced liquidity events impairing that operation.

Chuck will comment on fair value accounting impacts which have and will continue to dominate press coverage. He will also review at the end of his presentation how we think about intrinsic value of our balance sheet in contrast to how the market has priced expected or forecasted or market sentiment losses into our stock price. As a reminder, in all cases when we are speaking about losses, both in our presentation and in our press release, we are using net present value to match the numbers that are in our financial statements. Due to the fact that a substantial portion of losses we will pay out will not occur for 30, 40 years in the future, the actual gross losses, those losses when they are actually paid, will be much higher than reflected in our income statements or in our balance sheet. With that, I would like to turn it over to Chuck.

Thanks, Jay. As Jay mentioned in his latest letter to our shareholders last week, this year is going to be the year of the balance sheet for MBIA. It should have been quite evident from the new format of our financial results press release this morning. We're not, therefore, going to spend very much time or focus on earnings but I will take two minutes to comment on a few selected items of our operating income if you will turn to slide five. Here is a stylized summary of our income statement where all realized and unrealized gains and losses are pulled out of the segments. The insurance segment shows a $46 million pretax loss driven primarily by $265 million increase to reserves. I will talk more specifically about that in a few minutes.

Our scheduled earned premium was 8% higher than in first quarter 2007, but refundings were much lower so total premiums were down, but they were only down about 8% compared to last year. This demonstrates the resilience of our business model in the face of sharply reduced new business production. Investment income was higher than 2007 but operating expenses were also higher than last year primarily because production is down so much that we dramatically reduced the percentage of gross insurance expenses that we defer. The new business that we did write, however, was far more profitable than which we booked in Q1 '07. I will touch on the pace of new business writings in a few more minutes. Given the difficulties in the capital markets, the performance of our asset management business is more impressive.

The asset management business earned $40 million in the quarter versus $25 million last year. The increase is driven by $14 million of expense offsets from buy backs of MTNs. There are some ways in which the current market dislocations benefit us. We can take advantage of our wide [CDS] spreads by repurchasing MTNs at gains that run through our investment income. The business also issued $700 million of new glicks at attractive spreads boosting its liquidity position. Finally, it added $1 billion to advisory assets under management reflecting its strong total return performance. The biggest numbers on the income statement, however, are the $3.6 billion net unrealized loss on insured credit derivatives and its related tax impact about which more later. In addition, we had $224 million of impairments of asset liability business assets and about $100 million of miscellaneous gains to get you to the nearly $3.7 billion loss shown here.

The nonoperating adjustments that are summarized here removed the mark to market in excess of impairments on insured credit derivatives, another timing related gains and losses. We believe we have a pretty good handle on the losses related to the housing crisis today, and you will be hearing more about that shortly. We're expecting operating income to become positive shortly. On the other hand, we have no idea what to tell you about the future direction of the mark to market and, therefore, of net income. We can forecast a credit performance much more clearly than we can market sentiment.

If you will turn to page 6. Given that it is the year of the balance sheet, we will leave the income statement now. There has been a huge focus on our holding company's liquidity which somewhat mystifies us. Our asset liability business, which is conducted from a legal entity perspective at the [holdco] level, is managed to be self-supporting from a liquidity perspective and ultimately, of course, the insurance company backstops those liabilities not the holding company, and the rating agencies explicitly take that into consideration in determining the capital adequacy and liquidity position of our insurance company. Aside from that, the holding company started the quarter with over $430 million in cash. Together with normal dividends and the earnings of the businesses over time this provides bulletproof coverage of the roughly $115 million of annual cash operating expenses. At the moment, we also have the proceeds of the equity offering at the holding company but as Jay just referenced, we have decided to contribute $900 million to our insurance subsidiaries and will do so within 10 to 30 days. Consistent with our capital strengthening plan, which was put in place in November, this capital supports our Triple-A ratings and existing and future policy holders. After this contribution, the holding company's cash position covers its ongoing annual needs 4.5 times without dividends from its operating subsidiaries or the earnings from the asset management business.

On slide 7, you will see that in addition we have a $500 million bank line. As has been much discussed, this line has covenants that can be tripped due to volatility in the unrealized mark to market. Here in lies the ultimate in unintended consequences. When the market begins to recognize the true capital and liquidity strength of our insurance company, our mark to market may become more negative and cause us to trip this covenant. This makes no sense and we are working with our bank group to modify the covenant. That said, we are in compliance with the covenants at this time and the line remains available to all MBIA entities. Neither we nor the rating agencies consider the bank line in our liquidity analysis.

On slide 8, we show a picture of the asset liability business and its liquidity which is also pretty simple. We issue liabilities and buy assets throughout the curve maintaining a tight duration match to protect earnings and capital, but this does leave us with some cash flows that don't match up perfectly. As a result, we make sure that the liabilities are well laddered, maintain a cash balance that increases when we believe we are facing market illiquidity and maintain a highly liquid portfolio so that if we did need to liquidate assets to meet maturing liabilities, the hair cuts would be small. The ratio shown here is one of the simplest of the many that we track. It's total assets versus maturing liabilities where the 2009 figure, for example, excludes assets that would have theoretically been used to retire 2008 liabilities and so on rolling forward. As you can see, the segment holds far more than sufficient invested assets and cash to meet all maturing obligations, even without funding. And, of course, in the first quarter we issued $700 million in funding and a further $120 million so far in the second quarter. The proceeds of these issuances have been invested in cash and short-term assets to build our liquidity position even further.

On page 8 we address the insurance companies liquidity position. Now, in the insurance company, we are today facing more significant cash outflows than in the past as a result of cash payments expected on our housing-related exposures. This slide shows the next 12 months of estimated cash inflows, assuming that we write no new business in 2008, versus outflows including expected loss payments. Approximately $500 million of the $685 million in payments that you see here are related to housing related cases. Even in this no new business scenario, we do not need the cash for maturing assets to pay claims and we would expect to maintain positive operating cash flow.

On slide ten, we provide more information about the timing payment obligations. The claims that we expect to pay on our housing related exposures are somewhat front end loaded. Both our second mortgage exposures, the first two bars shown here, and our CDO square deals will have payments that go out over the next two to four years with 2009 and 2010 having the heaviest payments on these transactions, but these are expected to be very manageable in the context of operating cash flows in the portfolio. The balance of our multi-sector CDO policies cover timely interest and ultimate principal and no payments on these obligations are expected for ten years or more.

Slide eleven goes in to our capital position. You can see that our position has been strengthened in the quarter due to the natural deleveraging of our insured portfolio and the business that we did write during the quarter was either neutral or accretive to our capital position. We estimate reductions in capital requirements and related improvements in our capital position relative to Triple-A benchmarks in a range of $400 to $500 million depending on which rating agency capital model you're looking at. On an S&P basis, we estimate excess capital to their Triple-A requirement of approximately $900 million on the quarter with a current year end 2008 forecast of $1.8 billion. We believe our shortfall to the Moody's target capitalization level declined during the quarter due to amortization and the upgrades of a handful of credits. We believe that we will meet the Moody's target requirement within the next two quarters. Looking toward year end and beyond, we expect that will see relief under all models as the volatility in the housing market subsides. To the extent the market plays out according to our expected case, the substantial rating agency capital charges based on stressed case modeling should moderate.

Slide 12 makes several points about loss estimates. First, you can see that on the right we are holding capital, holding a lot more capital against housing related risks than our expected case losses shown on the left would suggest. And, again, as the volatility around expectations subsides, we expect a substantial release of excess capital. The economic losses that MBIA has recognized are based on a probable and estimatable basis while, of course, the rating agency stresses are for capital requirements on a very remote basis. Also, I would note that the market expectation bar here, the mark to market only covers our multi-sector CDOs. I would note for those who believe that market forecasts are more reliable than those of fundamental analysts note that the mark for our market multi-sector CDOs in the fourth quarter was 1.8 billion and is now 5.1 billion, we do not believe that in the past quarter that housing market expectations have gotten more than 2.5 times worse. In fact, we think that there has been actually little apparent change in fundamental expectations about the market. As mentioned, the expected losses on MBIA's portfolio are well inside of the worse case assessments embodied in the rating agency capital charges and we believe consistent with their expectations as well.

Over on to slide 13, this data shows the cumulative impact of housing related losses on MBIA's balance sheet. As Mitch will cover in greater detail, we have devoted substantial resources, both our own and third parties, to undertake a robust and careful review of our housing related exposures. As housing market trends have developed over the last two quarters we have refined expectations for future performance and we are confident that our reserving activity addresses our expectation of continued stressful performance. The adequacy of our loss reserves will ultimately depend upon of course our actual performance tracks within our expectations but we believe we have captured a lot of the pain in this market in these loss assessments. I would note that we show the asset management impairments here which are driven by the same market characteristics as have caused losses on the insurance side. The impairments on the asset liability portfolio that are shown are on a fair value basis. And as with our insurance liabilities, we expect actual cash losses to be lower than the fair value impact.

The purpose of slide 14 is to put in to context our loss reserve movements. Normally, we build up an unallocated reserve when credit conditions are benign via a formulaic addition, and then when we do assess case reserves, those reserves are deducted from the unallocated balance. So in this quarter we had $510 million of case activity related to our RMBS policies which eliminated the unallocated reserve. We then made a special addition to the unallocated reserve of $265 million. The 22.6 million that you see here is our normal formulaic reserve addition and, together, they produced a GAAP income statement item. The unallocated reserve balance at $213 million is about the same level as we had in Q3 2007 before the case activity related to RMBS began. We believe this amount is satisfactory to cover all other potential losses in the portfolio.

Slide 15 is the same table that was included in the press release we issued earlier today relative to mark to market. Not surprisingly, given the level of spread widening that occurred in the quarter, our mark to market losses increased meaningfully. In most cases the table is similar to our fourth quarter 2007 table with spreads dominating the mark-to-market losses. However, unlike the fourth quarter table, we also had reduction in our recovery rate assumption and some erosion of subordination in our transactions reflecting the worsening credit environment. We devoted a fair amount of ink to our mark to market both in our press release and in our 10-Q filing, so I'm not going to belabor my comments here. As we noted, we don't believe fair value accounting provinces the proper perspective of the real credit risks and the FAS157 adjustment introduces even more difficulty in interpretation, we believe investors would be better served to rely upon our loss reserving and credit impairment estimates to gain a more accurate perspective on our expected losses and, of course, in this quarter we are now providing some sensitivity analysis around our expectations. We would argue that our mark-to-market losses are not only unrealized but they are unreal since our products do not guarantee market values.

Lastly, given the size of our mark-to-market in the quarter and the magnitude of the cumulative mark-to-market loss of a little more than $7 billion, we had another sizable addition to our deferred tax asset. There has been a little media coverage of the DTA over the past few weeks. Let me just say MBIA has more than enough expected pretax profits over the next several years to satisfy the theoretical tax benefit of our current deferred tax asset. I say theoretical because in order for the full balance of DTA to offset our cash tax payments, the cumulative mark-to-market loss would need to become a realized loss and we don't believe that that is at all likely.

If you will turn to slide 16, our perspective on the mark-to-market also plays in to this slide. Here, we start with our reported book value per share and presents the composition of our tangible or intrinsic value. Most of the adjusting items will be familiar to those of you who are familiar with looking at our adjusted book value calculations. The notable exceptions are the second and third bars here. The balance sheet mark-to-market loss netted against our assessment of credit impairments for our insured credit derivatives portfolio. As you can see, our $42 intrinsic value is a far cry from either our current reported book value or adjusted book value. We hope as investors gain greater comfort with the loss expectations for our business that our stock price will approximate the company's intrinsic value.

Similarly on page 17, we have a ways to go to regain and restore confidence in our insurance contracts in the market. But we have seen measurable improvements since our Triple-A ratings were affirmed by Moody's and S&P in late February, although our insurance activity does remain well below our historic levels, and we appreciate that it will take time to regain that position. Even still, the fact that we are still issuing policies and at an increasing pace as you see here, given the massive disruptions in the capital markets and the lack of consensus now surrounding credit ratings is evidence of the strength of the benefits provided by the products and services that we sell. With that, I will turn the agenda to over to Cliff Corso.

Thanks, Chuck. Today I'm going to cover the first quarter highlights of the investment management segment and then cover more specifically the topics of liquidity, collateral provisions as they relate to MBIA's credit rating. Let's turn to page 19 where there are five highlights for the asset management business for the quarter. First, we produced solid operating earnings. Second, we continue to write profitable new business across our mix of asset liability products referred to as ALM and our advisory segment. Third, our assets under management at 63 billion remains stable. Fourth, while we did have some impairments, they were well within the capital assessed for this business. Fifth, our liquidity is ample to handle all of our liability requirements. No doubt it's a challenging market, but we built our businesses with a careful eye towards the potential for severely stressed markets. What we are seeing is the benefit of a balanced business model with the flexibility to handle stress and, indeed, as Chuck pointed out, capitalize on it in many segments as well.

I would like to spend a couple of minutes expanding upon some of these highlights. First, we are pleased to report increasing pretax operating earnings of 40 million for the quarter. Chuck covered this so I would just add that this is a product of a solid operating results across the mix as well as the 14 million of profits from the purchase of MTNs and the ALM segment. Second, we had a solid new business production in the quarter. We were able to add significant new liabilities in the ALM business. As chuck mentioned, 700 million for the quarter at very attractive spreads. In our advisory segment, we capitalized on market volatility by adding nearly 1 billion of external funds and five new clients. Key driver here was our strong track record where we outperformed our benchmarks and achieved top performance last year versus our peers. Our cash pool management business, in particular, has benefited from market volatility and our strong performance. In this business we have realized record balances of 11 billion and launched our latest pool, Trust Indiana, we now operate 17 pools in 12 different states.

Third, our assets under management. They remain stable at 63 billion. Although there were some change in the mix between our products as the growth and advisory offset slight declines in conduits and the ALM business. Fourth, the asset quality of our investment portfolios remain strong and Double-A or higher for the insurance and ALM investment portfolios. Not much has changed in the insurance investment portfolio. It remains solid and conservatively managed. We recorded no impairments nor do we expect any. In the ALM investment portfolio, as noted earlier, we have had some manageable credit impairment activity representing less than 1% of the ALM investment portfolio. This occurred primarily in the area that I mentioned on our last call the unwrapped ABS CDO basket, which in itself is less than 2% of the overall portfolio. When I say that we built the model with preparation for stress markets, one way we do this is to assess capital for potential credit risk. That capital is held at the asset management level. This activity is well within the capital allocated for the business.

In terms of the investment accounting rules, they mandate that impairments be taken down to the current market price. A very challenging standard considering the lack of liquidity and observable market prices in the ABS sector in general. I would also note that we continue to collect coupons and principal on the majority of these assets so the yield impact is not significant, in fact, it represents about 3 basis points on the overall portfolio. So, because there is minimal impact on investment yield, given our expectation that actual losses will be lower than the impairment figure, that they will be stretched out over many years, and because for capital to handle credit risk, this is neither a liquidity or capital issue for the ALM business. As Chuck mentioned earlier, our liquidity remains ample and we are going to get to liquidity in a little bit more detail in the next slide. So, in sum, on the whole, despite one of the toughest market in the generation, we are encouraged that we add new business, solid operating income, and maintain a strong balance sheet.

Slide 20, let's talk a little bit about liquidity as it relates to the ALM business. It's a business where simply stated we issue glicks, medium term notes, term repo, use those proceeds to buy high quality fixed income assets, duration match the assets and liabilities along the yield curve and earn the spread between the assets and liabilities. In that regard, it's not unlike other large insurance company ALM programs. As a reminder, this is a funded business, meaning the liabilities that we issue are backed by a high quality asset portfolio. In a minute we will talk about the significant flexibilities of the liability side of the business creates. In terms of prudent management, further ensured our liabilities were diverse, staggered and placed throughout the yield curve out to 30 years. I would also re-emphasize this is a long dated business by design with the weighted average life of both assets and liabilities in excess of five years. We hold a reservoir of cash and short-term investments of approximately 3.7 billion on the balance sheet dedicated to this business. Just to be clear, these investments are dedicated to the ALM business and are separate from the cash generated from the capital raising activities.

On the net business production side, there was a net 1.6 billion of liability roll off in Q1. All of the roll off is covered by available cash, asset amortization, and asset maturities. The net decrease is a really a function of extreme market volatility which, in essence, provided fewer opportunities that met our criteria. So the volatility made it a little bit slower, but frankly we can afford to be patient and prudent around selecting the right opportunities. If we're right, that liquidity continues to improve towards the end of 2008, we expect our new business production to pick up as well.

Finally, I would re-emphasize liquidity coverage chart Chuck showed earlier where it shows that we have significant resources that meet any and all of our liabilities for the next three years and beyond at a multiple of requirements. I think it's fair to say that the liquidity position of the ALM business is strong. An additional reason we are comfortable with our liquidity is the diversity and cash flow certainty of our liability portfolio. This is a real strength of the business, as you can see on the next slide.

What this table shows is that we utilize a funding platform which allows us to access many different investor bases. This mix of liabilities creates a highly certain cash flow profile. In fact, 53% of the liabilities have fixed cash flow profiles with no variability whatsoever, and this is reflected on the top portion of the table. Remaining liabilities that contain flexible withdraw futures, the flexibility is only with regard to specific construction or debt service payment schedules when needed and does not allow for discretionary withdraws. We also seek diversity to mitigate risk, the liability portfolio is granular and uncorrelated which leads to actuarial based cash flows at a portfolio level. We manage approximately 950 separate investment agreements with an average size of $17 million. I think it's worth noting that we have immaterial exposure to the areas of market focus such as ABS CDO glicks which comprise only 1.4% of our overall financing. Therefore, we maintain a solid liability portfolio that has minimal cash flow uncertainty and doesn't introduce material liquidity risk to our business.

A third aspect of liquidity is contractual triggers that would introduce further collateralization or liquidation parameters upon the downgrade of MBIA insurance Corp. This is a slide we showed last time, slide 22. As we built the business, the ALM business, we were careful to consider the impact of downgrade traders and flexible reliability withdrawals that are present in the investor agreements area. As you look at the table, you can think about our liabilities as being in one of three states. They are either collateralized, uncollateralized, or subject to termination. The key driver here is the rating of MBIA Insurance Corp. Let me walk you through an example.

As you look at the table, you can see on the Triple-A row our liabilities outstanding of 25.1 billion. Reading across, you can see that 8.3 billion of the 25.1 billion are currently collateralized as about half of the glick market is a collateralized market. The remainder 16.8 billion are uncollateralized. Going down to the Double-A row, you can see that in essence there are no major changes to our business. No real terminations and little additional collateral required, so we are significantly out of the money to multiple notch downgrades of MBIA. Because there are no material triggers for multiple notches all the way through to Double-A by design, we can jump to the Single-A level where we see collateral requirements increase from 8.8 billion to a manageable 12.7 billion and some terminations totaling 3.1 billion, but in the far right hand column you can see we are still left with over 9 billion of uncollateralized liabilities and over 87% of all liabilities remain outstanding. We stay north of 9 billion, even at the Triple-B level as many of the previously collateralized IAs terminate. There are no material additional termination provisions below the Triple-B level. The key take away here is that we recognize early on the value of a diversified liability mix which mitigates the liquidity risk inherent in its client of ratings. Before I turn it over the Mitch I would like to bring it back to some of the key take aways for the investment management services segment. Carefully considered and constructed the asset management business with an eye on the down side of stressed markets. That's why in one of the toughest markets in a generation we are encouraged that we continue to add new business, produce solid operating income, and maintain a strong balance sheet. Now I'd like to turn it over to Mitch.

Thank you, Cliff. Good afternoon. I'm Mitch Sonkin, Head of MBIA's Insured Portfolio Management Division. I'm going to spend the bulk of our time today on the two sectors that experienced significant stress the last several quarters. U.S. residential mortgage backed securities, specifically our prime second lien book, and multi-sector CDO book. I will address the performance issues on those books, provide detail on the loss reserve and impairment numbers Chuck mentioned earlier, and discuss our outlook for those sectors. Before I get in to those areas, however, a few general comments.

First, MBIA's overall $668 billion insured portfolio is positioned satisfactorily apart from the two sectors we are going to discuss. Second, despite the current economy and market conditions, areas that would be considered potential [contingent] sectors, such as consumer auto, credit card, student loans and CMBS are holding up well. You will note in the appendix of this presentation we summarized a performance in those sectors and generally we are seeing acceptable performance. While we are certainly seeing some increases in delinquencies, as you would expect in this environment, we see no material causes for concern. Third, overall we maintain a strong and diverse portfolio. 83% is rated A or better. We have a highly diversified portfolio based on asset class, issuer and servicer, geography and vintage. Last, we achieved successful completion of several high profile remediations in 2007, among them (inaudible) and (inaudible) and legacy airline bankruptcies of Northwest and Delta. We believe our surveillance and work teams have proven to be the best in the business with the skill, expertise and experience that gives us not only great confidence in our estimates but in our ability to create remediation opportunities anywhere they exist. So as we begin our discussion, our focus is on the fact that our primary portfolio stress is limited to U.S. RMBS related sectors both directly and indirectly through the CDO exposures.

With that, we will turn to slide 24. I would like to frame our discussion on the RMBS and multi sector CDO portfolios by highlighting the reserves and impairments we took this quarter. First, in the multi sector CDOs we took 595 million in permanent impairments to 5 high grade and one mezzanine cash flow CDO related primarily to performance trends and projections of inner ABS CDO collateral and stressed RMBS collateral. We increased impairments on our three currently impaired CDO squared multi-sector deals by 232 million which now totals 432 million of impairments reflecting projected credit events that will impact the majority of the 2006 and 2007 vintage inner ABS CDO collateral. We feel comfortable with the rest of the multi-sector CDO squared book. We now have a total of 1 billion of permanent impairments related to the multi sector CDO book which I will get in to more detail on shortly.

On the RMBS second lien exposure we took 495 million in new net case loss reserves related primarily to closed end second performance deterioration. We now have a total of about 1.1 billion of net case loss reserves related to our second lien portfolio. It is important to note why we took these reserves and impairments this quarter and there are two main reasons. One, MBIA has attempted to identify and set impairments and reserves on all multi-sector CDOs and second lien deals where losses are probable and estimatable related to the current housing crisis. We wanted to take those losses and impairments now even on CDO deals where we may not pay any claims for at least 10 years because we felt it was important to do our best to identify all of our material issues now as we feel quite strongly about our views. Second, when you consider the losses we took for the quarter, we have taken a view on the housing market that there will be stress at current levels through mid to end 2009, and that ABS CDO collateral will default at high rates over the next few years. Therefore, we feel we have a handle on the outflows related to the second lien portfolio and multi sector CDO squares over that period and so future material increases to reserves and impairments would require events significantly challenging our core assumptions being provided today. Now with that as a foundation for our discussion, let's start by reviewing our direct RMBS portfolio and them we will address the multi-sector CDOs. Please join me on page 25.

I would like to start our review of MBIA's back book sector analysis with our 38.4 billion direct RMBS portfolio. These are individual investment grade mortgage backed securitizations and do not include any RMBS collateral within our CDO book of business which I will address later. The decrease in exposure from year end is due to a combination of amortization and we also reclassified one German multi-family housing deal with a net (inaudible) outstanding of 1.6 billion that was classified as a HELOC into a commercial real estate category which is why the HELOC declined, was a little more dramatic than it is. If you look at the slide, you will see that we separate our RMBS exposure in four areas. First, prime which includes international covered bond deals and capital relief trades and first lien Alt-A, second, direct sub prime, third prime HELOC and fourth closed end seconds. The prime HELOC and closed in seconds together comprise our second lien portfolio which we will be spending time discussing today. On MBIA's prime business, which is comprised of first and second lien mortgages to high quality borrowers with unblemished credit records, we concentrate on two areas. One, those international capital relief and covered bond transactions which are supported by prime underlying collateral and a conservatively structured and are solid performers and, second, the prime home equity lines of credit and closed end seconds. Both are what we refer to generally as the second lien portfolio.

To distinguish, HELOCs are floating rate loans which generally require interest only repayment for a period of time before amortizing and closed end seconds are fixed rate second rate mortgages which generally amortize principal and interest from the outset. The reserves we have announced in the fourth quarter and the reserves we have taken this quarter directly pertain to the second lien portfolio and accordingly are the focus of our discussion today. Note in the sub prime business, MBIA has exclusively wrapped only Triple-A underlying securities in the secondary market since 2004, our exposures per deal are focused on the first lien product and are granular, usually under 100 million. This book is not showing any material signs of stress at this time. When dialing in on the performance of the $38.4 billion RMBS book, about 20 billion of the net par outstanding represented by the prime and sub prime book is not of material concern to us at this time, although we are watching it closely due to deal structures, performance and attachment points to protect MBIA's position.

On our prime exposure, the total net par at March 31 of 15.4 billion includes international and Alt A, most of this exposure is international capital relief and covered bond deals as I have mentioned insured at A and above levels with ample loss protection, and these exposures are totaling 11.8 billion are performing adequately. And our Alt A exposure of 3.6 billion is one which we watch closely as there are market concerns over potential losses and severities, but it is important to note is that we wrap the majority of the portfolio at Triple-A attachment levels and we did not play in pay option ARMS which may be considered the most volatile loan type in the space. We remain cautiously optimistic on this portfolio. We have a slide in the appendix showing current performance trends, enhancement, and cumulative losses to date. I'm going to skip the prime HELOC and closed in second categories and return to them in a moment after a brief look at our sub prime direct exposure.

As I mentioned before, our total sub prime book totals 4.2 billion. We provided you with slides in the appendix at pages 62 and 63 that takes a look at the asset quality metrics of the sub prime book. You can see that subordination levels remain strong in these deals at this point. MBIA remains cautiously optimistic that industry projected loss rates will not materially impact our wrap traunches. We provided insurance on first lien product only at the Triple-A class of sub prime deal structures since the beginning of 2004 and have almost zero 2007 exposure. We have focused on the top tier players, and we have minimal indirect exposure to monoline sub prime issuers, a number of which have experienced solvency issues in the market place. So when you look at the performance measures in the chart and consider home price declines and default propensity, we utilize a role to loss methodology, meaning the percentages of each delinquency bucket rolling to defaults, and stress recoveries to the tune of 50 to 70% loss severities. Based on our current analysis, MBIA would still maintain adequate credit enhancement all around on this portfolio in our stress cases.

Due to substantial subordination and ideal loss protection on these transactions and the selective strategy we took towards direct sub prime exposure, we consider risk of material loss on this book low, although we certainly expect some downgrade activity. Now, returning to our HELOC and closed in second deals, this is the area we are experiencing significant stress in our RMBS portfolio. Now, as you will recall, MBIA announced in December 2007, net case loss reserves of 614 million directly related to two closed in second and 12 HELOC transactions with a net par as of December 31 of 7.5 billion deals which were issued from 2005 to 2007. In addition, we took a 200 million unallocated reserve related to future allocation to closed in second deals. We have now added a total of 295 million to total second lien reserves which now aggregate 1.1 billion.

Please turn to the next slide on page 26. This slide shows the vintage breakdown of the MBIA's RMBS exposure. You can clearly see that sub prime has not played the major part in our origination strategy and the international has been a solid flow area. However, when you look at 2005, '06 and '07, you will note that MBIA focused origination efforts primarily on prime HELOCs and closed end second deals. We did this because we felt it was a prime product, historical losses were minimal, we felt we were dealing with the best and most prudent originators. In short, the mix seemed to make sense. Obviously, we have learned lessons from the amount of (inaudible) we insured and in the end found out that the type of borrower we thought we were ultimately insuring, that being a 700 plus FICO, or prime quality borrower, was not actually who we thought they were due to laid risk which we will get into shortly.

Let's go to the next slide which gives a breakdown on the second lien portfolio. On this slide on page 27 you can see, as we pointed out in the last quarter, MBIA continues to focus its attention on prime HELOC and closed end second portfolios because of the stress we are experiencing and projecting to experience in these portfolios over the next two quarters. As shown on this slide, our net par outstanding for HELOC and closed in seconds was 18.8 billion at the end of the first quarter. The breakdown is 10.1 of closed end seconds and 8.7 of HELOC securitization. The majority of these deals have been originated over the last two years. MBIA wrapped these deals on a primary basis. We attach it to Triple-B, Triple-B minus level and the corresponding rating on these transactions is and still remains Triple-A. MBIA only wrapped prime quality HELOC and closed end second deals. As I mentioned, the weighted average FICO scores for HELOC and closed in seconds in 2006 was 706 and 719 respectively, and the weighted average FICO scores in 2007 was 702 and 710 respectively. Historical loss levels were generally under 5%. In general, credit enhancement considered of over collateralization and excess spread.

MBIA's top exposures for the closed end second and HELOC represented our strategy of maintaining relationships with the top tier issuers and our numbers reflect this as seen on this chart. When you look at the net par outstanding, Countrywide is 55% of the book, [Rescap] 28% of the book and IndyMac at near 6% of the book which, in the aggregate, totals about 89% of the second lien book. Let's go to the next slide and examine the performance trends that led to the reserves we have taken on the second lien book.

Please join me on slide 28. As we discussed last quarter, during last summer we began to notice elevated delinquency levels on several 2005, 2006 vintage HELOC transactions following the virtual shut down of the U.S. mortgage refinancing market as well as the decline in housing prices, our analysis indicated that certain 2005 and 2006 and 2007 HELOC deals were experiencing performance characteristic, including a rapid increase in delinquencies, the inability of excess spread which is interest from loans minus fees and interest owed on the notes to outpace loan charge offs and the failure of certain deals to either build or maintain the required over collateralization or deal protection cushion targets. By quarter end, we had enough data in house and enough correlation among deals to take 614 million in net case loss reserves on 14 deals primarily HELOCs. As you may also remember, we took a 200 million unallocated reserve to earmark for closed end second deals which at the time did not have enough data points to justify individual reserves but were showing performance [drift]. This quarter we were able to make the same assessment and model our expected losses on our closed end second portfolio as we were able to do last quarter with the HELOCs.

Why now? A combination of items. First, simply because of the younger vintage of the closed end second portfolio, generally 68% was insured in 2007 versus the 2005, 2006 dominating vintage for the HELOCs, we needed to see how delinquencies were rolling to defaults and gain a better understanding of default drivers. Second, a combination of low level performance data and issuer specific information helped us to determine our view. If you look on this slide you can see the weighted average conditional default rate trends of the second lien book. Clearly, performance trends have been negative reflecting higher levels of delinquencies and defaults. In December, when we took the lost reserves on the portfolio, not only were the HELOC CDRs trending significantly higher than the closed in second deals, but there was far more consistency, be that negative consistency, on overall performance on a deal by deal basis. Closed in second portfolio has shown starting in December further signs of deterioration that have now made it clear that we should take reserves. One question we are always asked is to provide our assumptions when we take loss reserves, which we will do on the next slide where I will show you how we calculated our loss reserves on these deals.

Turn to page 29. So how did we come to our quarter one loss reserve numbers? In order to determine reserves for the targeted transactions, we have employed a multi-step process using various collateral performance scenarios to project losses. We feel that the HPA does not directly impact our loss severities because we apply a 100% loss severity. We do feel, however, that a prolonged period of housing price declines will manifest itself in increased defaults. We believe that our modeling methodology addresses this issue. So assumptions were made to determine the length of the housing market downturn and recoveries, and we did not give any credit for recent interest rate cuts, increased Freddie Fannie limits, proposed stimulus legislation or any recoveries.

Loss limits were calculated as follows: Step one, was to analyze the existing performance trends. To account for loans that were at least 30 days delinquent we used issuer specific data to develop roll to loss rates. These roll to loss rates are essentially forcing losses out of the current delinquency pipeline essentially creating a conditional default rate. We then assumed a 100% loss severity which would eliminate any recovery because of housing price depreciation as well as address declines in housing prices. This essentially covered the first six months of the deals as existing delinquencies were rolled to defaults and flushed through the transactions.

If you now go to the right side of the box, step two is where we analyze future performance. For losses on loans that are current on a go-forward basis, we calculated losses as follows: We took the current three-month average conditional default rate to project defaults on a go-forward basis for month seven to the end of the deal. 2007 vintage transactions were subject to the greater of the CDR calculated in step one I mentioned or the three month CDR, the greater of methodology was used so as not to let averages mask current performance trends. This CDR was then held constant for a 12-month period. To consider how we treated home price stress and macroeconomic stress, note that we applied a 100% loss severity to all defaults. To account for the elimination of lower quality borrowers in the pool and return to stability, we applied a (inaudible) factor over a 12-month period. So in total we increased CDRs for a period of 18 months and then over a succeeding 12-month period we reduced the CDR's. We then applied the burn out factor which would range from 50 to 100% with a floor in order to reflect a return to normalcy.

Let's turn to slide 30 for the results of these exercises. Let's spend some time here. The result is that we allocated 152 million of the 200 million reserve we took last quarter and took additional case reserves of 343 million for a total of 495 million in new case lost reserves primarily slated for four closed end second deal asks one hybrid deal which consists of both closed end seconds and HELOCs. When you take the 614 million in case loss reserves we took last quarter and 495 million this quarter, our total reserves against the second lien book are approximately 1.1 billion. We provided for you a list of all of the second lien deals that we are taking loss reserves on and the claims we have paid through March 31 on all those transactions in the appendix on page 65. From October to March we paid about $152 million in claims on second lien deals.

Slide 66 in the appendix shows the monthly claims payment trends we made through the end of the first quarter. Based upon our modeling, we have actually paid out less in claims than we projected at this point. Whether this is timing or we had estimated conservatively, only time will tell. But it is important take away for you that we do feel confident that we have modeled the expected outflows over the next 18 months to two years so that we would not need to take any material additional reserves unless the housing crisis extends basically another year or so beyond our current assumptions. We provided for you in the appendix starting on page 67 a brief case study of our Countrywide HELOC portfolio and what is driving the losses. It is very clear what patterns have emerged, low documentation, and high CLTBs are driving losses. When you look at the level of losses being driven by reduced documentation, it is clear to us that a combination of underwriting and the actual borrowers who receive these loans clearly were not necessarily who they pretended to be. The macroeconomic environment has exacerbated the situation for borrowers who were stretched to begin with feeling that with their property values potentially under water, walking away has become an option.

Based on these trends, however, we have hope there will be a burn out of elevated losses once the proverbial pig goes through the snake and we are left with a more stable group of borrowers. So where does that leave us? We feel confident that have we circled all of the deals that have potential material issues, that is about 57% of the entire 18.8 billion second lien book that has a loss reserve posted to it. The majority of the remaining portfolio is either pre 2005 deals that are performing adequately with a few '06 and '07 deals that we have our eyes on, but are performing adequately to date. When you look at the reserves we have taken to the insured par of our impaired transactions and consider the deal structure, loss timing, and excess spread, the reserves total to about 10% deal loss severity to the net 11.5 billion net par exposure of the deals we have reserved against. Cumulative loss rates on second lien collateral pools that support those exposures range in general from 15 to 35% with some outliers experiencing cumulative collateral pool losses of 40 to 60%.

Let me address why we are comfortable with the results. We believe we assumed a reasonably long elevated stress period. From a housing price and recovery standpoint we are looking at a multi-year down market with elevated default throughout this period. We performed extremely detailed analysis on each deal and we utilized third parties for verification of certain key assumptions as well as loss projections. Given the nature of our claims on these deals, our parity payments, we expect to be paying the vast majority of these claims over the next two to three years before we start seeing material recoveries. An obvious question would be what if the downturn extends beyond our estimates? Let's assume we are off. That the market downturn extends longer. If we extended our elevated CDR stress period by six months and extended the burn out period to 18 to 24 months instead of 12, what would happen? The answer is the 1.1 billion in estimated losses we project could increase by 54% to 1.7 billion. In any event while no one can be certain of the outcome of the current housing crisis, we do believe that our stress losses will be inside the rating agency stress loss assumptions against which we hold collateral.

Let's turn to our outlook on slide 31. You can see from our modeling methodology and loss reserves we feel that the downturn in the housing market will be with us for 2008 and 2009, the second lien portfolio provides an additional wrinkle of issues for us because of the junior lien status of the loans, the uncertainty surrounding ultimately how layered risk will play out in the long run, and the lack of historical perspective for these trends and what we thought were prime quality second liens. To sum up our RMBS reserves, of the 38.4 billion RMBS book, 18.8 billion is second lien, that's the HELOC and the closed end seconds, of which we have 19 deals to totaling 11.5 billion against which we have taken a total of 1.1 billion in reserves, 495 million in this quarter, 614 million in the fourth quarter. The breakdown of these deals we reserved against is once again in the appendix on page 67. That said, we have attempted to surround all the deals in the book where we expect material deterioration and to set reserves now rather than bleed out reserves over time based upon a consistent methodology applied across the book. We believe we have a solid handle on potential outflows and would expect no material increases to reserves on this portfolio for at least the rest of the year, probably into the first or second quarter of next year, assuming things do not get substantially worse.

Let's turn to slide 32 for my final thoughts on this part of the presentation. I want to end this section with a very important point, one which we have not talked about in detail before in this space, and that's remediation. The loss reserve numbers we have taken assume zero recovery from any type of remediations or reinforcement of our remedies. I do not believe that will be the result, however. For those of you aware of our remediation history, we intend to remediate these deals as vigorously as our past successes and to use every right and remedy and tool at our exposure. We have had teams of forensic experts at work for several months reviewing many loans, examining whether they should have qualified to have been included in our insured exposures in the first place. We have a case for material financial compensation based upon the diligence we have performed so far. To summarize, we believe we have a case for material financial compensation based upon the diligence we and our advisors have performed so far. We also feel strongly that the nature of our belief is based on strong and incurable facts. We are pursuing this effort. We expect substantial recoveries, although I will not estimate those now.

If you now will join me on slide 33, we will review and discuss our other sector of concern, multi-sector CDOs. Let's start by reviewing MBIA's overall portfolio. MBIA's 129.6 billion CDO exposure is primarily classified in to five collateral types, only one of which is experiencing stress related to the U.S. sub prime mortgage crisis, the multi sector CDO portfolio of $30.7 billion. Let me first describe the four collateral types we have in our 129.6 billion CDO book in order to put all this in context. First, we have investment grade portfolio, corporate portfolio 43 billion which has performed as expected. Nearly all of this exposure is currently rated Triple-A and the vast majority is at super senior level. In other words, MBIA's risk attaches at some multiple of the Triple-A subordination level and we do not currently expect any material credit deterioration to the book. The high yield portfolio of 13.4 billion is largely comprised of low leverage middle market, special opportunity CLOs, broadly syndicated bank CLOs and older vintage corporate high yield bonds. Deals in this category are diversified by both vintage and geography with European and U.S. collateral. Approximately 71% is rated Triple-A and 98% is rated Double-A or better. Likewise, we do not currently expect any material credit deterioration to this book.

The commercial real estate CDO, or CMBS portfolio of 42.3 billion is a diversified global portfolio of high quality and highly rated structured deals in the global commercial real estate sector. 32.5 billion of our net exposure in this sector is structured CMBS pools that are not truly CDO's. Almost all this exposure is currently rated Triple-A. We do not currently expect any material credit deterioration to this book and we have some slides on performance in the appendix showing the composition of the book and the low delinquencies that the book is experiencing. Last, the $30.7 billion multi-sector CDO book, which includes multi-sector CDO squareds, is where we are experiencing stress related to the U.S. sub prime mortgage crisis.

Let's go to the next slide where we can break out the multi-sector CDO book and outline the impairments we have taken this quarter. Turning to slide 34, we provided break out of the $30.7 billion multi-sector CDO portfolio along with total credit impairments on that portfolio as of the end of the first quarter and associated mark to market. As a reminder, the collateral and MBIA's multi-sector CDOs includes asset backed securities, for example securitizations of auto receivables and credit cards, commercial mortgage backed securities, other CDOs, and various types of residential mortgage backed securities including prime and sub prime RMBS. This range of asset classes is found throughout the entire 30.7 billion multi-sector CDO portfolio which is comprised of deals that rely on underlying collateral originally rated single A or above high-grade CDOs and in deals that rely on collateral primarily originated Triple-D mezzanine CDOs.

Now, let's walk through the impairments we have taken on the 30.7 multi-sector CDO book. At December 31, MBIA recorded 200 million in impairment charges related to three diversified CDOs of high-grade CDOs or what refer to as CDO squared deals that possess the largest buckets of inner CDOs of ABS collateral, vintage being of the 2006 and 2007 years. We have increased that impairment to $432 million reflecting our views of the projected performance of the CDO of ABS collateral within the deals. We believe we had a solid handle on the potential losses on these deals now which I will discuss further in a minute. This quarter we also took permanent impairments to five high grade and one mezzanine cash flow CDO totaling 595 million. Despite the fact that we won't be paying interest claims on these deals for many years and principal isn't due until legal final maturity, which is typically 45 years out, we have decided to take these impairments now due to our views on the future performance on the inner ABS CDO collateral in the high grade deals and the RMBS performance in the mezzanine deal. Again, I want to emphasize an important take away. While we have created impairments of 595 million on these five high grade and one mezzanine multi-sector deals, we do not expect to pay any interest on these claims on these deals for ten years or more based on your current analysis. So, in total, we now have a little more than 1 billion in impairments against the $30.6 billion multi-sector CDO book. We believe that these impairments reflect the potential future losses we could experience and certainly reflect the position on ABS CDOs vis-a-vis defaults that have not manifested itself yet but we expect will come over the coming few years. We do not expect to take future material impairments on this book for the foreseeable future.

Please turn to slide 35 and let's take a closer look at what was behind some of the impairments that we took. Her we list the deals we took impairments on and you will notice several facts. First, there has been an erosion in subordination. Second, the high-grade deals generally represent the deals with the largest inner ABS CDO buckets versus original subordination. We expect material defaults to those collateral buckets which is the primary driver of the impairments we are taking. Third, regarding the mezzanine deal, that exposure is a principal and interest cap payable in 2053 and on an MPV basis we have essentially written that exposure off. The slide shows the projected inner CDO defaults which we believe will occur over a five-year period, although quite front loaded.

In examining the RMBS collateral, we run various scenarios based on roll for loss methodology with a timing default curve that is punitive for 12 to 18 months before burning out to a normalized level. Prepayment speeds range from 10 to 15%. In our modeling that we use to assist us in setting current impairments, cumulative loss ranges are from 16 to 20% to the 2006 and 2007 sub prime collateral resulting from our modeling. Of course, the question results what if sub prime losses are worse than our current expectations, then what could that do to potential impairments. We believe we stressed the inner CDO collateral adequately. If we were to increase our roll to loss assumptions, resulting in losses to sub prime in the 18 to 23% range and we mute the benefits of excess spread later in the curve, our impairments to the high-grade deals of 595 million could essentially double. As far as claims payments timing, this is a longer term payout product. We generally don't project interest claims for ten years and principal payment would not be required until legal final maturity, which is generally 45 years out.

Now let's look at the multi-sector CD o squareds in the same manner on the same slide. On slide 36, we will discuss our multi-sector CDO squared deals of 8.6 billion where we have taken $432 million of impairment against three transactions. MBIA's CDOs of high-grade CDOs are diversified transactions generally anchored by CLOs which are collateralized loan obligations consisting of investment grade corporate debt and containing buckets of other collateral which may include highly rated traunches of CDOs of ABS collateral. No one transaction contains more than 40% of CDOs of ABS collateral as a percentage of the total collateral base. An important point to note on this slide is that the deals have diversified by collateral and vintage with 42% originated from 2005 and prior, 32% from 2006, and 26% from 2007. The underlying collateral ratings as of the end of the quarter remains strong with approximately 64% of the underlying collateral rated Triple-A, 13% Double-A, 7% A, 4% Triple-D, and 12% below investment grade.

Unlike the rest of the multi-sector book where we generally pay timely interest and ultimate principal at maturity, for the multi-sector CDO squared deals when the deductible erodes we would start paying claims thereafter on individual pieces of collateral, not on the deal, but the individual pieces of collateral after a contractual settlement period. We project starting to pay claims next year through the subsequent five years. When people look at the multi-sector CDO squared book we often read about outrageous loss ranges in the $4 to $5 billion range or higher associated with the portfolio where they assume that the whole portfolio is comprised of ABS CDO collateral. It is not. As you can see by the collateral breakdown on the chart. We got the collateral breakdown in the appendix for you. If the corporate market were to materially deteriorate, clearly we could face additional impairments on both the currently impaired transactions and potentially other transactions besides the ones we are mentioning today. However, the corporate collateral in these deals, which is predominately highly rated CLO traunches, continues to perform solidly and we expect no material issues on the collateral at this time. This is important to note when you consider true loss potential to MBIA.

Now let's turn to page 37 to discuss impairments on the portfolio. Last quarter we discussed our impairment analysis and we determined that three deals within this segment would eventually be impaired which we initially quantified to be $200 million. As I have already mentioned, we have increased the impairments on these three deals by $230 million to a total of $432 million or as our analysis on the inner ABS CDO collateral has been refined based on our views of material impairments of that collateral within the three deals. You can see in the slide that we projected defaults on large percentages of the inner ABS CDO buckets in these deals with the balance being generally older vintage CDOs which we believe will perform. In these three deals, which total 3.1 billion, as with the majority of our multi-sector CDO squared book, asset performance is guaranteed versus the normal MBIA guarantee of liabilities. In other words, these are deductible deals. MBIA's obligation to pay net losses is only after the deductible is fully eroded and each subsequent asset experienced a credit event is valued. So when you look at the lost payment time line, which we outlined and as I mentioned before, we start to expect paying claims next year and for the subsequent five years or so.

If you wanted to further stress to the multi-sector CDO squareds we impaired, by increasing the loss of the remaining ABS CDO collateral and the smaller RMBS buckets in those deals, we have estimated a stress range of 100 to 300 million. Therefore, when you combine the doubling of the impairments related to the high-grade deals mentioned previously and take the high range of additional stress for the multi-sector CDO squareds, you would increase our $1 billion in multi-sector impairments to 1.6, 1.9 billion. To sum up on the CDOs, the total book is 130.6 billion. Of that, multi-sectors are 30.7 billion, including the multi-sector CDO squareds of 8.6 billion. Against that book we have taken total impairments of 1 billion, 27 million. 200 million in the fourth quarter, 827 million in the first quarter. Of the total impairments, 432 million are on three multi-sector CDO squareds and the balance of 595 million are on five high grade and one mezzanine multi-sector deal.

Turn to slide 38. I want to emphasize again the position that MBI has in our insured deals because the remains misconception about potential impact to our liquidity based upon some misunderstandings about deal liquidation potential in the CDO book. In all cases, MBIA cannot be accelerated against and we maintain the right as controlling party within our deals to accelerate at our soul discretion. Acceleration is an additional cash diversion remedy which redirects cash away from subordinate traunches and funnels it to accelerate amortization of our senior exposure. Acceleration is distinct from liquidation of the collateral pool which we also direct upon certain events of default as sole controlling party within our deals. To emphasize this point, the only way a deal liquidates is if we decide to do it. Otherwise, we pay according to the policy which will be many years in the future for the bulk of the multi-sector book and after deductible erosion for the multi-sector CDO squared.

Please turn to page 39. Briefly, the slide summarizes our outlook. We certainly believe the rating agencies will continue to down grade collateral and that the ABS CDO mezzanine traunches with 2006 and 2007 sub prime RMBS collateral will under perform. We are actively monitoring these deals and ensuring all rights and remedies are being properly administered. As we have attempted to take impairments on the deals we have identified at the highest potential issues in an effort to provide clarity to our views within this book, now let me finish by briefly turning to slide 40.

Talk about what we are trying to do on the remediation side for these deals and some activity that happened after quarter ended. We terminated two multi-sector deals in April with net par outstanding of 825 million contractually and without dispute which we view as a positive vis--vis enforcement of our CDS contracts. We moved management to five deals during the quarter to a new manager who we believe as we refine and embark on future remediation strategies will be the best positioned to assist us in taking advantage of market opportunities. For deals that have the payment blocker language, which means upon an event of default all cash gets diverted into the senior traunch, we have a very high success rate of enforcing that remedy, demonstrating the quality of our deal documentation and structural provisions. We haven't had the issues others may have had enforcing our rights here. Finally, we continue dialogue with the various counter parties about other potential remediation and market opportunities which are ongoing.

This concludes my portion of our presentation. We designed this presentation to try to answer as many questions as we have received on our RMBS and CDO book. We provided slides in the appendix as a supplement to the general data we are releasing in this quarter which provides core performance data on our sub prime and Alt-A books as well as summarizes our comfort with our commercial real estate and consumer books. We have also attempted to provide you insight into our views and analytical processes on the two stress segments of solid performing book and, importantly, try to take reserves and impairments with the hopes of illuminating future losses today in order to provide more certainty to future quarter's results and demonstrate our identification of problematic credits. We believe we understand the scope of the losses we will face, and we will undertake remediate efforts to ultimately reduce those losses. Thank you.

Thank you, Mitch. If you want to pull up slide 42. Chuck used this slide earlier to explain the adjustments that he would apply in looking at the difference between our reported book value and what he would characterize as our analytic adjusted book value. As an owner of MBIA since 1986, I have stared at this chart for the better part of two decades. This to me has consistently represented the best way to think about the long-term value of your company. The important thing to understand when we look at this chart is the introduction as a result of FAS133 and our decision to enter the derivative market approximately a decade ago, the uncertainty associated with unrealized mark-to-market losses. The real question that you should always think about with MBIA is do we have an adequate provision for losses? Most of the other issues that you see arise, detailed questions about accounting, individual questions about transactions are ignoring the basic fact that the major issue in terms of valuation and the major issue in terms of you understanding what you might want to evaluate with the company comes simply down to the question of what do you expect our ultimate losses to be. If you look at where we are today in terms of pricing of the stock as noted in our press release, essentially the market is estimating that we are going to see about ten billion more in net present value pretax losses than what we recognized to date. We don't believe that. Can I go to the wrap up slide?

In conclusion of where we are, I think it's very clear that our belief is that bond insurance remains extremely viable. As we look at our product and think about demands in the U.S. and throughout the globe in terms of additional infrastructure, those needs are large and they are growing. Equally important, bond insurance provides a money back guarantee. Recipients of the more than 2 billion in claims we will pay will be good testimony to the value of our product. We think we are well positioned today. We don't believe we have any issues whatsoever in the area of liquidity, either our holding company, at our asset management company, or at our insurance company. As such, and based on where our prices today, we have no current plans to raise any additional equity for our company. Importantly, because of where we are in the credit environment, and particularly where we are in terms of the security that we have to measure on a mark to market basis, our contingent liabilities, you can expect there will be volatility in the quarters ahead. We do believe that the underlying results will become clearer and more stable as this year unfolds as we noted earlier this year, and we do believe as we end the year some of the volatility that we experienced over the last 18 months will be significantly diminished from where we are today. I think with that I will turn it over to Greg to start through the question and answer period.

Thanks, Jay. We're going to dedicate one hour for our question and answer session today. We will finish up at 4:30, 4:33 to be exact. Here's the format that we will use for selecting questions. First, we will respond to those questions that were submitted in writing prior to 12:30 p.m. today. We received 40 questions in total up through this point in time, 10 of which were Mr. [Akman's] questions that came in after 12:30. That said, we will take several of his questions and respond to them nonetheless even though on TV last week he had indicated that we would do otherwise. The rest of the questions that we do not get to that were submitted in writing, we will respond to in writing. After handling the written questions, we will open up the phone lines and give first priority to investors of MBIA shares. Second will be [South Side] equity analysts that follow the company, then we will take questions from fixed income, investor community and, lastly, we will take questions from anyone else. After the operator announces you, we ask that you state your name, your company affiliation and also your investment relationship with MBIA.

With that, we will begin. Melissa.

Thank you. (OPERATOR INSTRUCTIONS)

Thank you, Melissa. We are going to start with the written questions first.

Please go ahead.

First question is from [Manish Kumar] from Golden Associates. In its business plan when does MBIA expect to obtain a stable Triple-A rating? Jay.

That is the one thing that is not in our control, when the rating agencies alter their current outlook on MBIA but, as I said, when I joined the company approximately ten weeks ago my expectation is that that event when we achieve a stable rating will probably not occur until the end of this year or early next year. The reason for that is because of our significant exposure to the housing market and the belief that there is not going to be enough clarity for the rating agencies to stabilize their long-term estimates for losses. It's our expectation that that will probably occur towards the end of this year or early next year.

[Andrew Oliver] of Transatlantic Capital submitted the next set of questions. How many people at MBIA are involved each quarter in surveillance and estimating losses and valuing investments? How much levels of supervision are there? Are there outside advisors used? And how often are MBIA's estimates discussed with the rating agencies? Mitch.

IPM is staffed with 52 analysts that are anchored by subject matter experts, and we're divided into three areas, global structure finance, global public finance, international. We also have a special situation's group specifically charged with remediation and workout functions. Ultimately, when we consider loss reserves and impairments we have a loss committee process that entails quarterly analysis of every credit on our watch list, detailed projections and stress case lost estimates as well as remediation strategy and the loss reserve committee which is comprised of MBIA senior management reviews all the loss reserve recommendations . As to how many levels of supervision are there, we have subject matter experts managing the analytical teams that are segmented by asset classes and sectors. Each team leader reports to a division head who, in turn, reports to me. On the question of outside advisors, we do use outside advisors regularly to assist us in remediations, be it for legal or strategic reasons, and we have also employed the use of outside advisors to help us triangulate our modeling calculations and to test the assumptions that we use in those modelings. How often are MBIA's estimates discussed with the rating agencies? We discuss the portfolio matters with the rating agencies on a regular basis and they receive our quarterly loss of reserve reports. We are in constant dialogue on our portfolio exposure with them and the assumptions we use to get there as well as understanding their methodology when calculating stress losses on

Okay. The next question comes to us anonymously.

Thank you, Cliff. Good afternoon. I'm Mitch Sonkin, Head of MBIA's Insured Portfolio Management Division. I'm going to spend the bulk of our time today on the two sectors that have experienced significant stress the last several quarters, U.S. Residential mortgage backed securities, specifically our prime second lien book, and our Multi-Sector CDO book. I will address the performance issues in those books, provide detail on the loss reserve and impairment numbers, Chuck mentioned earlier and discuss their outlook for those sectors.

Before I get into those areas; however, a few general comments. First, MBIA's overall $668 billion insured portfolio is positioned satisfactorily apart from the two sectors we're going to discuss. Second, despite the current economy and market conditions, areas that would be considered potential contingent sectors, such as consumer auto, credit card, student loans and CMBS are holding up well. You'll note in the appendix of this presentation we summarized the performance in those sectors and generally we are seeing acceptable performance, while we are certainly seeing some increases in delinquency as you would expect in this environment, we see no material causes for concern.

Third, overall we maintain a strong and diverse portfolio, 83% is rated A or better. We have a highly diversified portfolio based on asset class, issuer, and servicer, geography and vintage and last, we achieved successful completion of several high profile remediation in 2007, among them Euro Tunnel and a double ETC's in the legacy airline bankruptcies of Northwest and Delta. We believe our surveillance and work out teams have proven to be the best in the business, with the skill, expertise and experience that gives us not only great confidence in our estimates, but in our ability to create remediation opportunities anywhere they exist.

So as we begin our discussion, our focus is on the fact that our primary portfolio stress is limited to U.S. RMBS related sectors, both directly and indirectly through the CDO exposures.

With that, we'll turn to Slide 24. I would like to frame our discussion on the RMBS and Multi-Sector CDO portfolios by highlighting the reserves and impairments we took this quarter. First, in Multi-Sector CDOs, we took 595 million in permanent impairments to five High Grade and one Mezzanine Cash Flow CDO related primarily to performance trends and projections of inner ABS CDO collateral and stressed RMBS collateral. We increased impairments on our three currently impaired CDO squared Multi-Sector deals by 232 million, which now totals 432 million of impairments reflecting projected credit events that will impact the majority of the 2006 and 2007 vintage inner ABS CDO collateral. We feel comfortable with the rest of the Multi-Sector CDO squared book. We now have a total of 1 billion of permanent impairments related to the Multi-Sector CDO book, which I will get into more detail on shortly.

On the RMBS Second Lien exposure, we took 495 million in new net case loss reserves related primarily to Closed End Second performance deterioration. We now have a total of about 1.1 billion of net case loss reserves related to our Second Lien portfolio. It is important to note why we took these reserves and impairments this quarter and there are two main reasons. One, MBIA has attempted to identify and set impairments and reserves on all Multi-Sector CDOs and Second Lien deals where losses are probable and estimable, related to the current housing crisis. We wanted to take those losses and impairments now, even on CDO deals where we may not pay any claims for at least ten years, because we felt it was important to do our best to identify all of our material issues now, as we feel quite strongly about our views; second, when you consider the losses we took for the quarter, we have taken a view on the housing market that there will be stress at current levels through mid to end 2009 and that ABS CDO collateral will default at high rates over the next few years; therefore, we feel we have a handle on the out flows related to the Second Lien portfolio and the Multi-Sector CDO squared over that period and so future material increases to reserves and impairments would require events significantly challenging our core assumptions being provided today. Now with that as a foundation for our discussion, let's start by reviewing our direct RMBS portfolio and then we'll address the Multi-Sector CDOs so please join me on Page 25.

I would like to start our review of MBIA's back book sector analysis with our 38.4 billion Direct RMBS portfolio. These are individual investment grade mortgage back securitizations and do not include any RMBS collateral within our CDO book of business which I will address later. The decrease in our exposure from year-end is due to a combination of amortization and we also reclassified one German Multi-family housing deal with a net prior outstanding of 1.6 billion, that was classified as a HELOC into a Commercial Real Estate category, which is why the HELOC declined, which looks a little more dramatic than it is. If you look at the slide, you will see that we separate our RMBS exposure in four areas. First, Prime, which includes International Covered Bond deals and Capital Relief Trades and First Lien Alt-A, second, Direct Subprime, third, Prime HELOC and fourth, Closed End Seconds, and the Prime HELOC and Closed End Seconds together comprise our Second Lien portfolio, which we'll be spending time discussing today.

On MBIA's Prime business, which is comprised of First and Second Lien mortgages to high quality borrowers with unblemished credit records, we concentrate on two areas. One, those International Capital Relief and Covered Bond transactions, which are supported by Prime underlying collateral and are conservatively structured and are solid performers and second, the Prime Home Equity Lines of Credit and Closed End Seconds, both are what we refer to generally as the Second Lien portfolio. To distinguish, HELOC's are floating rate loans, which generally require interest only repayment for a period of time before amortizing and Closed End Seconds are fixed rate second rate mortgages, which generally amortize principal and interest from the outset. The reserves we have announced in the fourth quarter, and the reserves we've taken this quarter, directly pertain to the Second Lien portfolio and accordingly are the focus of our discussion today.

Note, in the Subprime business, MBIA has exclusively wrapped only Triple-A, underlying securities in the secondary market since 2004. Our exposures per deal are focused on the First Lien product and our granular, usually under 100 million. This book is not showing any material signs of stress at this time. When dialing in on the performance of our $38.4 billion RMBS book, about 20 billion of the total net par outstanding represented by the Prime and Subprime book, is not of material concern to us at this time, although we are watching it closely due to deal structures, performance, and attachment points to protect MBIA's position. On our Prime exposure, the total net par at March 31, of 15.4 billion includes the International and Alt-A. Most of this exposure is International Capital Relief and Covered Bond deals, as I've mentioned, in shorten A and above levels with ample loss protection and these exposures, totaling 11.8 billion are performing adequately and our Alt-A exposure of 3.6 billion is one which we watch closely as there are market concerns over potential losses and severities, but it is important to note, is that we wrap the majority of the portfolio at Triple-A attached levels and we did not play in Pay Option ARMs, which may be considered the most volatile loan type in this space, so we remain cautiously optimistic on this portfolio. We have a slide in the appendix showing current performance trends, enhancement and cumulative losses to date. I'm going to skip the Prime HELOC and Closed End Second categories and return to them in a moment, after a brief look at our Subprime Direct exposure.

As I mentioned before, our total Subprime book totals 4.2 billion. We provided you with slides in the appendix at Pages 62 and 63, that takes a look at the Asset Quality Metrics of the Subprime book. You can see that subordination levels remain strong in these deals, at this point, and MBIA remains cautiously optimistic that industry projected loss rates will not materially impact our [wrap] tranches. We've provided insurance on First Lien product only at the Triple-A class of Subprime deal structures since the beginning of 2004, and we have almost zero 2007 exposure. We have focused on the top tier players and we have minimal indirect exposure to monoline Subprime issuers, a number of which, have experienced solvency issues in the current marketplace. So when you look at the performance measures in the chart and consider home price declines and default propensity, we utilize a roll to loss methodology, meaning the percentages of each delinquency bucket, rolling to defaults and stress recoveries to the tune of 50 to 70% loss severity. Based on our current analysis, MBIA would still maintain adequate credit enhancement all around on this portfolio in our stress cases.

So, due to substantial subordination and ideal loss protection, and deal loss protection on these transactions and the selective strategy we took towards Direct Subprime exposure, we consider risk of material loss on this book, low, although we certainly expect some down grade activity. Now, returning to our HELOC and Closed End Second deals, this is the area which we are experiencing significant stress in our RMBS portfolio. As you will recall, MBIA announced in December 2007, net case loss reserves of 614 million, directly related to two Closed End Second and 12 HELOC transactions with a net par as of December 31 of 7.5 billion on deals which were issued from 2005 to 2007. In addition, we took a 200 million unallocated reserve related to future allocation to Closed End Second deals. We have now added a total of 295 million to total Second Lien reserves, which now aggregate 1.1 billion.

Please turn to the next slide on Page 26. This slide shows the Vintage break down of MBIA's RMBS exposure. You can clearly see that Subprime has not played the major part in our origination strategy, and the International has been a solid flow area. However, when you look at 2005, '6 and '7, you will note that MBIA focused origination efforts, primarily on Prime HELOC's and Closed End Second deals. We did this because we felt it was a Prime product, historical losses were minimal, we felt we were dealing with the best and most prudent originators, in short, the mix seemed to make sense. Obviously, we have learned lessons for the amount of par we insured and in the end, found out that the type of borrower, we thought we were ultimately insuring that being a 700 plus FICO or Prime quality borrower was not actually who we thought they were due to layered risk, which we'll get into shortly. Let's go to the next slide, which gives a break down on the Second Lien portfolio.

On this slide on Page 27, you can see as we pointed out in the last quarter, MBIA continues to focus its attention on Prime HELOC and Closed End Second portfolios because of the stress we are experiencing and projecting to experience in these portfolios over the next two quarters. As shown on this slide, our net par outstanding for HELOC and Closed End Seconds was 18.8 billion at the end of the first quarter, the break down is 10.1 of Closed End Seconds and 8.7 of HELOC securitization, and the majority of these deals have been originated over the last two years. MBIA wrapped these deals on a primary basis, we attach the Triple-B, Triple-B minus level and the corresponding rating on these transactions is, and still remains Triple-A. MBIA only wrapped Prime Quality HELOC and Closed End Second deals. As I mentioned, the weighted average FICO scores for HELOC and Closed End Seconds in 2006, was 706 and 719 respectively and the weighted average FICO scores in 2007, was 702 and 710 respectively. Historical loss levels were generally under 5%. In general, credit enhancement considered of over collateralized in excess spread.

MBIA's top exposures for the Closed End Second and HELOC book represented our strategy of maintaining relationships with the top tier issuers and our numbers reflect this as seen on this chart. When you look at the net par outstanding, Countrywide is 55% of the book, Rescap 28% of the book and IndyMac at near 6% of the book, which in the aggregate totals about 89% of the Second Lien book. Now let's go to the next slide and examine the performance trends that lead to the reserves we've taken on the Second Lien book. Please join me on Slide 28.

As we discussed last quarter, during last Summer we began to notice elevated delinquency levels on several 2005, 2006 Vintage HELOC transactions. Following the virtual shut down of the U.S. Mortgage Refinancing market as well as the decline in housing prices, our analysis indicated that certain 2005 and 2006, and 2007 HELOC deals, were experiencing performance characteristics, including a rapid increase in delinquencies, the inability of excess spread, which is interest from loans, minus fees and interest owed on the notes, to out pace loan charge-offs and the failure of certain deals to either build or maintain the required over collateralizing or deal protection cushion targets. By quarter-end, we had enough data in house and enough correlation among deals to take 614 million in net case loss reserves on 14 deals, primarily HELOC's.

As you may also remember, we took a 200 million unallocated reserve to earmark for Closed End Second deals, which at the time did not have enough data points to justify individual reserves but were showing performance drift. This quarter, we were able to make the same assessment and model our expected losses on our Closed End Second portfolio as we were able to do last quarter with the HELOC. Why now? A combination of items. First, simply because of the younger Vintage of the Closed End Second portfolio, generally 68% was insured in 2007, versus the 2005, 2006 dominating Vintage for the HELOC, we needed to see how delinquency were rolling to default and gain a better understanding of default drivers. Second, a combination of loan level performance data and issuer specific information helped us to determine our view.

If you look on this slide you can see the weighted average conditional default rate trends of the Second Lien book. Clearly, performance trends have been negative, reflecting higher levels of delinquencies and defaults. In December, when we took the first loss reserves on the portfolio, not only were the HELOC CDR's trending significantly higher than the Closed End Second deals, but there was far more consistency, be that negative consistency, on overall performance on a deal-by-deal basis. The Closed End Second portfolio has shown, starting in December, further signs of deterioration that have now made it clear that we should take reserves. One question we're always asked is to provide our assumptions when we take loss reserves, which we will do on the next slide, where I will show you how we calculated our loss reserves on these deals. So please turn to Page 29.

So how did we come to our quarter one, Loss Reserve numbers? In order to determine reserves for the targeted transactions, we have employed a multi-step process using various collateral performance scenarios to project losses. We feel that the HPA does not directly in impact our Loss Severities, because we apply a 100% Loss Severity. We do feel; however, that a prolonged period of housing price declines will manifest itself in increased defaults. We believe that our modeling methodology addresses this issue, so assumptions were made to determine the length of the housing market, downturn, and recoveries, and we did not give any credit for recent Interest Rate cuts, increased Freddy/Fannie limits, proposed Stimulus Legislation or any recoveries. Loss limits were calculated as follows - - step one, was to analyze the existing performance trends; to account for loans that were at least 30-days delinquent, we used issuer specific data to develop roll-to-loss rates. These roll-to-loss rates are essentially forcing losses out of the current delinquency pipeline, essentially creating a conditional default rate. We then assumed a 100% loss severity, which would eliminate any recovery because of housing price appreciation as well as address declines in housing prices. This essentially covered the first six months of the deals as existing delinquencies were rolled to defaults and flushed through the transaction.

If you now go to the right side of the box, Step Two, is where we analyze future performance. For losses on loans that are current on a go forward basis, we calculated losses as follows - - we took the current three-month average, conditional default rate, to project defaults on a go forward basis for months seven to the end of the deal, 2007 Vintage transactions were subject to the greater of the CDR calculated in Step One I mentioned, or the three-month CDR, the greater of methodology was used so as not to let averages mask current performing trends. This CDR was then held constant for a 12-month period. To consider how we treated home price stress, and macroeconomic stress, note that we applied a 100% Loss Severity to all defaults, to account for the elimination of lower quality borrowers in the pool and a return to stability, we applied a burnout factor over a 12-month period. So in total, we increased CDR's for a period of 18-months and then, over a succeeding 12-month period, we've reduced the CDR's. We then applied the burnout factor, which would range from 50 to 100%, with a floor in order to reflect a return to normalcy.

New let's turn to Slide 30 for the results of these exercises. Let's spend some time here. The result is that we allocated 152 million of the 200 million reserve we took last quarter and took additional case reserves of 343 million for a total, of 495 million in new case loss reserves, primarily slated for four Closed End Second deals and one hybrid deal, which consists of both Closed End Seconds and HELOCs. When you take the 614 million in case loss reserves we took last quarter, and 495 million this quarter, our total reserves against the Second Lien book are approximately 1.1 billion. We have provided for you a list of all of the Second Lien deals that we are taking loss reserves on and the claims we have paid through March 31, on all those transactions in the Appendix on Page 65.

From October to March, we paid about $152 million in claims on Second Lien deals. Slide 66 in the Appendix shows the monthly claims payment trends we've made through the end of the first quarter. Based upon our modeling, we have actually paid out less in claims than we have projected at this point, whether this is timing, or we have estimated conservatively, only time will tell, but it is important take away for you, that we do feel confident that we have modeled the expected outflows over the next 18-months to 2-years, so we would not need to take any material additional reserves unless the housing crisis extends basically another year or so beyond our current assumptions. We have also provided for you in the appendix starting on Page 67, a brief case study of our Countrywide HELOC portfolio and what's driving the losses. It is very clear what patterns have emerged, low documentation and high CLTV's are driving losses. When you look at the level of losses being driven by reduced documentation, it is clear to us that a combination of underwriting and the actual borrowers who received these loans, clearly were not necessarily who they portended to be,and the macroeconomic environment has exacerbated the situation for borrowers, who were stretched to begin with, feeling that with their property values potentially underwater, walking away has become an option.

Based on these trends; however, we do have hope there will be a burnout of elevated losses once the proverbial pig goes through the snake and we are left with a more stable group of borrowers. So where does that leave us? We feel confident that we have circled all of the deals that have potential material issues. That is about 57% of the entire 18.8 billion Second Lien book that has a loss reserve posted to it. The majority of the remaining portfolio is either pre-2005 deals that are performing adequately, with a few '06 and '07 deals that we have our eyes on, but are performing adequately to date. When you look at the reserves we've taken, to the insured par of our impaired transactions, and consider the deal structure, lost timing, and excess spread, the reserves total to about 10% deal loss severity to the net 11.5 billion net par exposure of the deals we have reserved against. Cumulative loss rates on Second Lien collateral pools that support those exposures range in general from 15 to 35%, with some outliers experiencing cumulative collateral pool losses of 40 to 60%.

Let me address why we are comfortable with the results. We believe we've assumed a reasonably long elevated stress period. From a housing price and recovery standpoint, we are looking at a multi-year down market with elevated defaults throughout this period. We performed extremely detailed analysis on each deal and we utilized third-parties for verification of certain key assumptions as well as loss projection. Given the nature of our claims, on these deals, our parity payments, we expect to be paying the vast majority of these claims, over the next two to three years, before we start seeing material recoveries. An obvious question would be - - What if the market downturn extends beyond our estimates? Well, let's assume that we are off and that the market downturn extends longer. If we extended our elevated CDR stress period by six months, and extended the burnout period to 18 to 24 months instead of 12, what would happen? The answer is the 1.1 billion in estimated losses we project, could increase by 54% to 1.7 billion. In any event, while no one can be certain of the outcome of the current housing crisis, we do believe that our stress losses will be inside the rating agency stress loss assumptions, against, which, we hold collateral. So let's turn to our outlook on Slide 31.

You can see from our modeling methodology and loss reserves, we feel that the downturn in the housing market will be with us for 2008 and 2009, but the Second Lien portfolio provides an additional wrinkle of issues for us, because of the Junior Lien status of the loans, the uncertainty surrounding ultimately, how layered risk will play out in the long run and the lack of historical perspective for these trends on what we thought were Prime quality Second Liens. To sum up our RMBS reserves, of the 38.4 billion RMBS book, 18.8 billion is Second Lien, that's the HELOC and Closed End Second, of which we had 19 deals totaling 11.5 billion, against, which, we have taken a total of 1.1 billion in reserves, 495 million in this quarter, 614 million in the fourth quarter. The break down of these deals we've reserved against, is once again, in the Appendix on Page 67. That said, we've attempted to surround all the deals in the book, where we expect material deterioration and to set reserves now rather than bleed out reserves over time, based upon a consistent methodology applied across the book. We believe we have a solid handle on potential out flows and would expect no material increases to reserves on this portfolio for at least the rest of the year, probably into the first or second quarter of next year, assuming things do not the get substantially worse. Now, let's turn to Slide 32 for my final thoughts on this part of the presentation.

I want to end this section with a very important point, one which we have not talked about in detail before in this space and that's remediation. The loss reserve of numbers we have taken assume zero recovery, from any type of remediation or enforcement of our remedies. I do not believe that will be the result, however. For those of you aware of our remediation history, we intend to remediate these deals as vigorously as our past successes and to use every right and remedy and tool at our exposure. We have had teams of forensic experts at the work for several months, reviewing many loans, examining whether they should have qualified to have been included in our Insured exposures in the first place. To summarize, we believe we have a case for material financial compensation, based upon the diligence we and our advisors have performed so far. We also feel strongly that the nature of our belief is based on strong and incurable facts, we are pursuing this effort. We expect substantial recoveries, although I will not estimate those now.

If you now will join me on Slide 33, we will review and discuss our other sector of concern, Multi-Sector CDO. Let's start by reviewing MBIA's overall CDO portfolio. MBIA's 129.6 billion CDO exposure, is primarily classified into five collateral types, only one of which, is experiencing stress related to the U.S. Subprime mortgage crisis, the Multi-Sector CDO portfolio of $30.7 billion.

Let me first describe the four collateral types, we have, in our 129.6 billion CDO book, in order to put all of this in context. First, we have Investment Grade portfolio, Corporate portfolio of 43 billion, which has performed as expected, and nearly all this exposure is currently rated Triple-A and the vast majority is at Super Senior level. In other words, MBI's risk, attaches at some multiple of the Triple-A Subordination level and we do not currently expect any material credit deterioration to the book. The high yield portfolio of 13.4 billion, is largely comprised of low leverage, middle market, special opportunity, CLOs; broadly syndicated bank CLOs and older Vintage Corporate High Yield bonds.

Deals in this category are diversified by both Vintage in geography with European and U.S. collateral and approximately 71% is rated Triple-A and 98% is rated Double-A or better. Likewise, we do not currently expect any material credit deterioration to this book. The Commercial Real Estate CDO or CMBS portfolio of 42.3 billion is a diversified, global portfolio of high quality and highly rated structured deals in the Global Commercial Real Estate sector, 32.5 billion of our net exposure in this sector, is to structured CMBS pools that are not truly CDOs. Almost all this exposure is currently rated Triple-A. We do not currently expect any material credit deterioration to this book and we have some slides on performance in the Appendix, showing the composition of the book and the low delinquencies that the book is experiencing.

Last, the 30.7 billion Multi-Sector CDO book, which includes Multi-Sector CDO squared, is where we are experiencing stress related to the U.S. Subprime mortgage crisis, so let's go to the next slide where we can break out the Multi-Sector CDO book and outline the impairments we've taken this quarter.

Turning to Slide 34, we provided break out of the $30.7 billion Multi-Sector CDO portfolio, along with total credit impairments on that portfolio as of the end of the first quarter and associated mark-to-market. As a reminder, the collateral in MBIA's Multi-Sector CDOs include, Asset Backed Securities, for example, securitizations of auto receivables and credit cards, Commercial Mortgage Backed Securities, other CDOs, and various types of Residential Mortgage Backed Securities, including Prime and Subprime RMBS. This range of asset classes is found throughout the entire 30.7 billion Multi-Sector CDO portfolio, which is comprised of deals that rely on underlying collateral originally rated Single-A or above, High Grade CDOs and deals that rely on collateral, primarily originated Triple-B, Mezzanine CDOs.

Now, let's walk through the impairments we've taken on the 30.7 billion Multi-Sector CDO book. At December 31, MBIA recorded 200 million in impairment charges related to three diversified CDOs of High Grade CDOs or what we referred to as CDO squared deals, that possess the largest buckets of inner CDOs of ABS collateral, the Vintage being of the 2006 and 2007 years. We have increased that impairment to $432 million reflecting our views of the projected performance of the CDO of ABS collateral within the deals. We believe we have a solid handle on the potential losses on these deals now, which I'll discuss further in a minute. This quarter, we also took permanent impairments to five High Grade and one Mezzanine Cash Flow CDO, totaling 595 million. Despite the fact that we won't be paying interest claims on these deals for many years and principal isn't due until legal final maturity, which is typically 45 years out, we have decided to take these impairments now, due to our views on the future performance on the inner ABS CDO collateral in the High Grade deals and the RMBS performance in the Mezzanine deal. Again, I want to emphasize an important take away, while we have created impairments of 595 million on these five High Grade and one Mezzanine Multi-Sector CDO deals, we do not expect to pay any interest on these claims-- on these deals for ten years or more based on our current analysis. So in total, we now have a little more than 1 billion in impairments, against the $30.6 billion Multi-Sector CDO book. We believe that these impairments reflect the potential future losses we could experience and certainly, reflect the position on ABS CDOs vis-a-vis defaults that have not manifested itself yet, but we expect will come over the coming few years. We do not expect to take future material impairments on this book for the foreseeable future.

Please turn to Slide 35 and let's take a closer look at what was behind some of the impairments we took. Here we list the deals we took impairments on and you will notice several facts. First, there has been an erosion in subordination. Second, the High Grade deals generally represent the deals with the largest inner ABS CDO bucket versus original subordination, and we expect material defaults to those collateral buckets, which is the primary driver of the impairments we are taking. Third, regarding the Mezzanine deal, that exposure is a principal-and-interest capped, payable in 2053 and on an MPV basis, we have essentially written that exposure off. The slide shows the projected inner CDO defaults, which we believe will occur over a five year period, although quite front loaded.

In examining the RMBS collateral, we run various scenarios based on a roll-to-loss methodology, with a timing default curve that is punitive for 12 to 18 months before burning out to a normalized level. Pre-payment speeds range from 10 to 15% and in our modeling that we use to assist us in setting current impairments, cumulative loss ranges are from 16 to 20% to the 2006 and 2007 Subprime collateral, resulting from our modeling. Of course, the question results, what if Subprime losses are worse than our current expectations and what could that do to potential impairments? Well we believe we have stressed the inner CDO collateral adequately, but if we were to increase our roll-to-loss assumptions, resulting in losses to Subprime in the 18 to 23% range, and we mute the benefits of excess spread later in the curve, our impairments to the High Grade deals of 595 million could essentially double. As far as claims payments timing, this is a longer-term pay out product. We generally don't project interest claims for ten years and principal payment would not be required until legal final maturity, which as I outlined before is generally 45 years out.

Now let's look at the Multi-Sector CDO squared, in the same manner, on the next slide. On Slide 36, we will discuss our Multi-Sector CDO squared deals of 8.6 billion, where we have taken $432 million of impairments, against three transactions. MBIA's CDOs of High Grade CDOs, are diversified transactions, generally anchored by CLOs, which are collateralized loan obligations consisting of Investment Grade Corporate debt and containing buckets of other collateral, which may include highly rated tranches of CDOs of ABS collateral. No one transaction, contains more than 40% of CDOs of ABS collateral, as a percentage of the total collateral base. An important point to note on this slide, is that the deals of diversified, by Collateral and Vintage, which 42% originated from 2005 and prior, 32% from 2006 and 26% from 2007, the underlying collateral ratings as of the end of the quarter remain strong, with approximately 64% of the underlying collateral rated Triple-A, 13% Double-A, 7% A, 4% Triple-B, and 12% below Investment Grade. Unlike the rest of the Multi-Sector book, where we generally pay timely, interest, and ultimate principal at maturity, for the Multi-Sector CDO squared deals, when the deductible erodes, we would start paying claims thereafter on individual pieces of collateral, not on the deal, but the individual pieces of collateral, after a contractual collateral settlement period, so we project starting to pay claims next year, through the subsequent five years.

When people look at the Multi-Sector CDO squared book, we often read about outrageous loss ranges in the 4 to $5 billion range or higher, associated with the portfolio where they assume that the whole portfolio is comprised of ABS CDO collateral, it is not. As you can see by the collateral break down on the chart. We've got the collateral break down in the Appendix for you. If the Corporate market were to materially deteriorate, clearly we could face additional impairments on both the currently impaired transactions and potentially other transactions besides the ones we are mentioning today. However, the Corporate collateral in these deals, which is predominantly highly rated CLO tranches, continues to perform solidly and we expect no material issues on the collateral at this time. This is important to note, when you consider true loss potential to MBIA.

Now let's turn to Page 37 to discuss impairments on the portfolio. Last quarter, we discussed our impairment analysis and we determined that three deals, within this segment would eventually be impaired, which we initially quantified to be $200 million. As I've already mentioned, we've increased the impairments on these three deals by $230 million, to a total of $432 million, as our analysis on the inner ABS CDO collateral has been refined, based on our views, of material impairments of that collateral within the three deals. You can see in the slide that we projected defaults on large percentages of the inner ABS CDO buckets in these deals, with the balance being generally, older Vintage CDOs, which we believe will perform. In these three deals, which total 3.1 billion, as with a majority of our Multi-Sector CDO squared book, asset performance is guaranteed versus the normal MBIA guarantee in light of liabilities.

In other words, these are deductible deals. MBIA's obligation to pay net losses is only after the deductible is fully eroded and each subsequent asset experienced a credit event is valued. So when you look at the loss payment timeline, which we've outlined, and as I mentioned before, we start to expect paying claims next year and for the subsequent five years or so. If you wanted to take-- to further stress to the Multi-Sector CDO squared we've already impaired, by increasing the loss to the remaining ABS CDO collateral and the smaller RMBS buckets in those deals, we have estimated a stress range of 100 to 300 million. Therefore, when you combine the doubling of the impairments related to the High Grade deals mentioned previously, and, take the high range of additional stress for the Multi-Sector CDO squared, you would increase our $1 billion in Multi-Sector impairments to 1.6 to 1.9 billion.

So to sum up, on the CDOs, the total book is 130.6 billion. Of that, Multi-Sectors are 30.7 billion including the Multi-Sector CDO squared of 8.6 billion. Against that book, we have taken total impairments of 1 billion, 27 million, 200 million in the fourth quarter, 827 million in the first quarter, and of the total impairments, 432 million are on three Multi-Sector CDO squared and the balance of 595 million are in five High Grade and one Mezzanine Multi-Sector deal.

If you turn to Slide 38, I want to emphasize, again, the position that MBI has in our insured deals, because there remains misconceptions about potential impact to our liquidity, based upon some misunderstandings about deal liquidation potential in the CDO book. In all cases, MBIA cannot be accelerated, against, and we maintain the right as controlling party within our deals, to accelerate at the our sole discretion. Acceleration, is an additional cash diversion remedy, which redirects cash away from subordinate tranches and funnels it to accelerate amortization of our senior exposure. Acceleration, is distinct from liquidation of the collateral pool, which we also direct, upon certain events of default, as sole controlling party within our deals. To emphasize this point, the only way a deal liquidates, is if we decide to do it. Otherwise, we pay according to the policy, which will be many years in the future for the bulk of the Multi-Sector book and after deductible erosion for the Multi-Sector CKO squared.

Please turn to Page 39. Briefly, this slide summarizes our outlook. We certainly believe the rating agencies will continue to down grade collateral and that the ABS CDO Mezzanine tranches with 2006 and 2007 Subprime RMBS collateral will under perform. We are actively monitoring these deals and insuring all rights and remedies are being properly administered. As we have attempted to take impairments on the deals we have identified at the highest potential issues, at the highest potential issues in an effort to provide clarity to our views, within this book, now let me finish by briefly turning to Slide 40. And we talked about what we're trying to do on the remediation side for these deals and some activity that happened after quarter-ended.

We terminated two Multi-Sector deals in April, with net par outstanding of 825 million, contractually and without dispute, which we view as a positive vis-a-vis enforcement of our CDS contracts. We move management to five deals during the quarter to a new manager, who we believe, has redefined and embarked on future remediation strategies, will be the best position to assist us in taking advantage of market opportunities. The deals that have the payment blocker language, which means upon event of default, all cash gets diverted into the senior tranch, we have a very high success rate of enforcing that remedy, demonstrating the quality of our deal documentation and structural provisions. We haven't had the issues others may have had in enforcing our rights here and finally we continue dialogue with our various counter-parties about other potential remediation and market opportunities, which are ongoing.

This concludes my portion of our presentation. We've designed this presentation to try to answer as many questions as we've received on our RMBS and CDO book. We've provided slides in the Appendix, as a supplement to the general data we are releasing in this quarter, which provides core performance data on our Subprime and Alt-A books, as well as summarizes our comfort with our Commercial Real Estate and Consumer books. And we have also attempted to provide you insight into our views and analytical processes on the two stress segments of our otherwise solid performing book and importantly, tried to take reserves and impairments with the hopes of illuminating future losses today, in order to provide more certainty to future quarters results and demonstrate our identification of problematic credits. We believe we understand the scope of the losses we will face and we will undertake remedial efforts to ultimately reduce those losses. Thank you.

Thank you, Mitch. If you want to pull up Slide 42, Chuck used this slide earlier to explain the adjustments that he would apply in looking at the difference between our reported book value and what he would characterize as our analytic adjusted book value. As a owner of MBIA, since 1986, I have stared at this chart for the better part of two decades and this, to me, has consistently represented the best way to think about the long-term value of your Company.

The important thing to understand when we look at this chart today, is the introduction, as a result of a FAS 133 and our decision to enter the derivative market, approximately a decade ago, the uncertainty associated with unrealized mark-to-market losses. The real question that you should always think about with MBIA is, do we have an adequate provision for losses? Most of the other issues that you see arise, detailed questions about accounting, individual questions about transactions, etc, are ignoring the basic fact that the major issue in terms of valuation and the major issue in terms of you understanding what you might want for the value with the Company, comes simply down to the question, of what do you expect our ultimate losses to be? If you look at where we are today, in terms of the pricing of the stock, as noted in our press release, essentially the market is estimating that we're going to see about 10 billion more in net present value, pre-tax losses than what we've recognized to date. We don't believe that.

In conclusion of where we are, I think it's very clear that our belief is as a bond insurance remains extremely viable. As we look at our product and think about the demands in the U.S., and throughout the globe in terms of additional infrastructure, those needs are large and they are growing. Equally important, bond insurance provides a money back guarantee. Recipients of the more than 2 billion in claims, we will pay, will be good testimony to the value of our product.

We think we're very well positioned today. We don't believe we have any issues, whatsoever, in the area of liquidity, either our Holding Company, at our Asset Management Company or at our Insurance Company. As such, and based on where our price is today, we have no current plans to raise any additional equity for our Company. Importantly, because of where we are in the credit environment and particularly where we are in terms of the securities that we have to measure on a mark-to-market basis, our contingent liabilities, you can expect that there will be volatility in the quarters ahead. We do believe that the underlying results will become clearer and more stable as this year unfolds, as we noted earlier this year and we do believe as we end the year, some of the volatility that we've experienced over the last 18-months will be significantly diminished from where we are today.

I think with that, I'll turn it over to Greg to start through the question-and-answer period.

Okay, thanks, Jay. We're going to dedicate one hour for our question-and-answer session today, so we'll finish up at 4:30, 4:33 to be exact. Here is the format that we'll use for selecting questions. First, we'll respond to those questions that were submitted in writing prior to 12:30 p.m. today. We received 40 questions in total, up through this point in time, ten of which were Mr. Atkins questions that came in after 12:30, that said, we will take several of his questions and respond to them nonetheless, even though on TV last week, he indicated that we would do otherwise. The rest of the questions that we don't get to, we will, that were submitted in writing, we will respond to in writing. After handling the written questions, we will then open up the phone lines and get first priority to investors of MBIA shares. Second, we'll be sell-side equity analysts that follow the Company, and then we will take questions from fixed income, investor community and lastly, we will take questions from anyone else.

After the operator announces you, we ask that you state your name, your company affiliation, and also your investment relationship with MBIA, and with that, we will begin. Alyssa?

Thank you. (OPERATOR INSTRUCTIONS).

Thank you, Melissa. We'll start with the written questions first.

Okay, please go ahead.

First question is from Amish Kumar from Gold & Associates. In its business plan, when does MBIA expect to obtain a stable Triple-A rating? Jay?

Well that is the one thing that is not in our control when the rating agencies alter their current outlook on MBIA, but as I said, when I joined the Company approximately ten weeks ago, my expectation is that that event when we achieve a stable rating will probably not occur until the end of this year or early next year, and the reason for that is because of our significant exposure to the housing market and the belief that there's not going to be enough clarity for the rating agencies to stabilize their long-term estimates for losses, it's our expectation that that will probably occur towards the end of this year or early next year.

Andrew Oliver of Trans-Atlantic Capital submitted the next set of questions. How many people at MBIA are involved each quarter in surveillance and estimating losses and valuing investments? How many levels of supervision are there? Are there outside advisors used and how often are MBIA's estimates discussed with the rating agencies, Mitch?

Okay. Well, IPM is staffed with 52 analysts that are anchored by is subject matter experts and we're divided into three areas: Global Structured Finance, Global Public Finance, and International. We also have a Special Situations Group specifically charged with remediation and work out functions. Ultimately, when we consider loss reserves and impairments we have a loss reserve committee process that entails quarterly analysis of every credit on our watch list, detailed projections, and stress case loss estimates, as well as remediation strategy, and the loss reserve committee which is comprised of MBIA Senior Management reviews all of the loss reserve recommendations. As to how many levels of supervision are there, we have subject matter experts, managing the analytical teams that are segmented by asset classes and sectors, each team leader reports to a division head who in turn reports to me.

On the question of outside advisors we do use outside advisors regularly to assist us in remediation, be it for legal or strategic reasons and we've also employed the use of outside advisors to help us triangulate our modeling calculations and to test the assumptions that we use in those modeling. And how often are MBIA's estimates discussed with the rating agencies? We discuss the portfolio matters with the rating agencies on a regular basis and they receive our quarterly loss reserve reports. We're in constant dialogue on our portfolio exposures with them and the assumptions we use to get there as well as understanding their methodology when calculating stress losses on our books.

Okay. The next question comes to us anonymously. Are you getting current market-rates on the bonds you wrap in the market? There has been talk MBIA has had to buy business and that the Texas Toll Road was done at 8 to 9 basis points which is way under current market-rates. Jay?

By current market-rates it's always a moving target. I will testify with great certainty we are not getting paid as much as Berkshire. Hathaway is getting paid for their wrap as of this morning. Looking at how we actually price the business that we did over the first quarter, the best comparison for us is to look back against the adequacy of that price over the last ten years. Our best time period from pricing was probably in the 2002 time period and the rates that the we're seeing in the first quarter are approximately at those levels. So we're more than meeting our long-term cost of capital achieving those kind of prices today.

Okay. Another anonymous question - - Are there any comments on the Merill SCA lawsuits where MBIA is in a dual wrapped position with alleged conflicting acceleration ability? Silver Martin CDL 1 has been recently downgraded by Fitch Triple-B. Is there any plans to accelerate by MBIA on this CDO and if so how does this play out? Mitch?

Why don't I take this one. We'll have limited comments here. First, we're not a party to the lawsuit. Second, we can say that we have six transactions, in which we have the super senior position and we believe SCA wraps below us, third, MBIA came off risk on two High Grade transactions totaling 1.1 billion of gross par, 835 million of net par, I highlighted this in my presentation, due to a decision on the part of the counter-party we're facing, not to carry out our directions on specified deal matters. The termination was amicable and contractual. All of our other policies remain in effect. In MBIA's CDS contracts we had the right to direct the counter-party to perform certain actions per the construct of the swap documents and our control position within the capital structure. If these directions aren't followed, we can walk away from the swap with no mark-to-market payment or breakage fee and as I mentioned it's important to note that MBIA has exited the two, that I referenced above, on a contractual basis.

Okay. Andrew Oliver of Trans-Atlantic Capital has another question. Chuck this is for you. How do the auditors of MBIA opine upon loss estimates for the Company?

Good question. Our auditors, PricewaterhouseCoopers, audit the process of accepting loss reserves on an annual basis and provide information about that into the market via their disclosures around our 10-K. It's a pretty extensive process. They have subject matter experts that come in and look at our methodology. They have their own modeling teams that go over the analytical models that we are using and there is an actuarial opinion that is rendered on an annual basis. Pricewaterhouse also reviews our quarterly financial statements and as a result, they also participate in the loss reserve setting process each quarter and are privy to the analysis that is done and the decisions made by the loss reserve committee, but there is not a formal audit on the quarter, that is only an annual process.

Okay. Another anonymous question. Could the Company provide an update on its exposure to the debt issued by the City of Vallejo, California. Is the Company likely to need to establish reserves for any exposure that it may have to the city?

Let me answer that. For those who don't know, the City of Vallejo California is a Bay Area City of approximately 117,000 people, which has been experiencing distress for a variety of macroeconomic reasons and high labor costs that has threatened. I don't believe they have yet filed, but they've threatened to file for municipal bankruptcy. The total MBIA exposure to the city is approximately 50 million. It's broken down into two pieces, one, is a lease transaction for 4.1 million gross or 3.8 billion net, on the lease that is secured by annual appropriations of the city's general revenues, and the second, is a water revenue bond which was sold in 2006, for which our current exposure is 45 million. The debt service on the water bond is supported by a First Lien on the net revenues of the water system. We have not established any case reserves for the city and for these exposures. The city has not filed. The city is current on its debt service payments, and we are confident that in the event if the city does go into Chapter 9, that the bulk of the exposure will ultimately be covered on a special revenue or segregated basis; however, I can't rule out the possibility of having to take some small reserves, but we'll have to see as it plays out, there's no basis to do it yet.

Another anonymous question. Tax questions for local municipalities are under pressure. Do you see this as having any impact on any muni municipal business. Jay?

Certainly, in terms of our existing portfolio, we watch all of our credits in public finance area to make sure that any changes in tax revenues that could affect short-term performance are being adequately addressed. I think the bigger issue for us is the long-term fundamental issue in the public finance market, that in many of the exposures that we have under written historically and ones that we are looking at going-forward, the big issue is how are the various public entities in this country going to get their arms around the combination of pension and health care cost. These are the two big long-term issues that affect individual credits to the greatest extent and these are the issues that we constantly have to keep an eye on in terms of determining which credits we under write, but as of right now we don't see any particular short-term issues affecting any of our credits in the near-term.

Jason Neff of SG Investors asks - For collateral underlying CDO exposure you provided the assumption for what percentage of loans that are current...i.e., not delinquent would go into default. Can you provide a similar figure for the Second Lien RMBS exposures? After reading the disclosures about CDR's on Second Lien exposures I'm still not clear on how the default rates with current loans are derived. Mitch?

Okay, we'll try to clear it up. If you go back to the presentation we walked through how we derived our loss rates for the Second Lien book, but to answer your question, specifically, for the first six months, we derived a CDR by a roll-to-loss method on the existing delinquency pipeline. After flushing out the delinquency pipeline per loans that are current, we use the average three-month historical CDR going-forward, so that it is what governs future losses on current loans. And using a 100% severity, means your CDR is in essence your loss percentage. To provide more color we utilize CDR's ranging from around 4% to around 16%, with one outlier transaction that had a 28% CDR. The roll-to-loss methodology addresses the delinquency buckets as of today and to account from current loans that roll-to-loss, you would need to refer to our seven month methodology in the presentation, so to recap, we use the greater of the three-month CDR or the actual derived CDR, and that addresses the current loans that default.

Jason, actually has an additional question. How many of your Second Lien deals are impaired, Mitch?

We have 19 Second Lien deals that we've taken reserves against. We have listed all those deals in either in the deck or in the Appendix to the deck so you'll be able to find all of the details there.

Robert Denasi of SEB Security asks - - Has MBIA approached or considered approaching the Fed to borrow money it might take to restore financial sector confidence in the paper MBIA has under written? Chuck?

Sure, I think that is a question about the Fed's willingness to take on repo assets held by financial institutions and they did recently liberalize the rules around what kind of collateral they would take and from whom they would take it. Three issues - - One, is the expansion did not expand enough to bring in a bond insurer and number two, the financial institutions that can pledge assets at the Fed are those that own assets and with respect to our insured liability, they are contingent liabilities only, so we don't actually have an asset that we could take to the Fed to pledge. Thirdly, and perhaps most importantly, the purpose of this program on the part of the Fed, is to inject liquidity into the market for financial institutions who are subject to liquidity risk, and bond insurers and MBIA, perhaps in particular, are not subject to material liquidity risk and we've talked about this a lot both in this call and in our fourth quarter call, that the risk that we take on is essentially only credit risk. There is essentially no market risk, because we do not guarantee the market values of the instruments that we wrap and our business is set up and managed to minimize or eliminate liquidity risk. In general, to the extent that the Fed's actions do provide liquidity to the market, that is going to benefit us because of the fact that asset values will start to moderate and you'll see smaller or positive mark-to-market changes but the program is not really set up to address credit-only exposure.

Okay. An anonymous question - - Has MBIA insurance guaranteed to swap payments of any municipality? Would this guarantee extend to termination payments? If so, could you please describe any steps that the Company has or could take to remediate this possible exposure? Sounds like you, Mitch.

Okay. Well, we have insured municipalities obligations on interest rate swaps, related to insured floating rate bonds and secured unparty with the bonds. These transactions provide the municipalities with synthetic fixed rates. Many of our insured auction rate securities and variable rate demand notes have been swapped to fixed rates through interest rate swaps. MBIA underwrites these transactions assuming that first, interest rates increase to the max rate allowed by law within the respective states and second, that the swap terminates prior to maturity. If the municipality can withstand the interest rate risk without the benefit of the swap, the transaction will be considered for credit approval. And then the next part, which is, would the guarantee extend termination payments? We have also insured termination on relatively few swaps. These potential termination payments are capped at a level that risk underwriting has approved after considering the munis, liquidity and cash flow resources and very importantly MBIA controls the swap termination, the issuer cannot terminate without our consent and the swap dealers cannot terminate unless both the muni and MBIA have been severely downgraded and last part, there are no examples of muni swaps that required remediation, our public finance group portfolio remains very high, and swaps that are currently being terminated in connection with auction rate conversions to a fixed rate are typically financing termination payments from liquid resources or through new financings.

Thank you. Okay, so that's it. We're going to pick up Bill Akman's questions now and try to get several of them answered. We're not going to read them based upon the full amount that he wrote for each one but we'll try to capture what we think is the essence of his inquiries, so here is the first set. Why does the Company use MBIA CDS spreads to calculate the MTN, if the Company does not believe that MBIA's CDS spreads accurately reflect the Company's credit worthiness? Is MBIA aware of any other financial guarantor that has discounted its CDS liability by discounting the loss using its own CDS spread? Chuck?

Thanks. First, we do use the credit default swap market as an estimate of the market view of MBIA's credit quality for the purposes of determining the fair value of our contingent liabilities. This is a process that we have talked about a lot and the fact that there aren't really observable market prices for our insurance policy linked credit default swaps and so we've developed an analytical model to estimate those fair values. In the first quarter of 2008, we are required under FAS 157 to consider the risk of MBIA's own non-performance in evaluating the fair value of these contingent liabilities and so we look for what is an approach to providing that input that's consistent with the way that we look at the contingent liabilities themselves and for the contingent liabilities we are using market indicated spreads for the collateral in the transactions in order to develop the value that comes out of our model, so we thought that it's totally parallel to take a market view of MBIA's own non-performance risk in doing that evaluation.

To the extent that, Mr. Akman makes a point that MBIA believes its credit default swaps spreads are unreliable, unreliable estimates of the intrinsic credit worthiness of MBIA and that is true, we also believe that the spreads that we observe on many other assets that are collateral in the CDOs that we wrap are unreliable estimates of the underlying credit exposure and that's why we also provide to the market an estimate of the true impairments on those transactions, that is to say, the actual amount of cash that we expect to pay out when those transactions become troubled, and so we believe that the impairment numbers are much more reliable way to estimate the cost of having written those contracts then the mark-to-market is. I've made a few comments about that during the prepared remarks. So while MBIA's credit spreads are wide and we think unreliably wide, they are consistent with the spreads that we observe on some of the other asset classes that are collateral in these transactions and so we're treating MBIA, in effect, the way that we're treating the balance of the collateral.

Now, with respect to other financial guarantors, everyone in the market is adopting FAS 157 in this quarter. There hasn't been, to my knowledge, a whole lot of detailed disclosure about the methodologies that different companies are using to assess their own credit risk, but let me say this about valuing these credit default swaps written by financial guarantors in general. There is significant diversity of practice among companies and it would be inappropriate and I believe unfair to identify any single input to the companies calculations of fair values on their CDS, on their insured CDS, that just suggest that that makes the calculation aggressive or conservative, because there are so many differences in the methodologies and approaches that are being used, so I'm afraid that the answer to that question is one that I don't know the answer to and even if I did, I'm not sure how relevant it would be.

Okay. The next set of questions from Mr. Akman are as follows - - MBIA has changed the reference index used to calculate its mark-to-market losses on CMBS, therefore reducing the loss. What index is MBIA now using to reduce its MTM loss? Why does MBIA abandon credit spread information that is deemed unreliable?

Yes, that's a good just to position with the prior question and there is a difference in our view of the spreads that we are using to mark our CMBS contingent liabilities relative to other collateral in CDO's and MBIA's own credit risk, and the reason is that the spreads that we observe on the CMBS are very wide and they're very wide in the absence of any material deterioration in credit conditions in the market or in our portfolio. When you look at our, the CMBS deals that we've wrapped, not only has there not been, there's no impairment, there hasn't even been a down grade of a transaction below the Triple-A level, based on our own internal analysis, we don't see any potential problems on the horizon there. Credit fundamentals are actually quite strong in the Commercial Mortgage sector and that data is contained in the Appendix to the Appendix to the presentation, so this is a place where we think that the very wide credit spreads that we observed in the market are completely disconnected from underlying credit fundamentals. I can't say that with respect to, for example, the spread that we used to mark the Multi-Sector CDOs or quite frankly MBIA's own credit spreads because both the Multi-Sector transactions and MBIA are experiencing credit loss that is significant for them over history, as opposed to the CMBS market that is experiencing, historically, very low adverse credit performance.

So we view them really as quite different. Now, how did we approach the CMBS? What we did is to create a synthetic index by taking the average of the Street firms fundamental analysts views of the loss potential in Commercial Mortgage backed securities and then add to that component of spread the illiquidity premium that's built into the CMBS index, so in effect, what we're doing is removing a part of the DNA of the CMBS index, that part that reflects underlying propensity to have defaults on losses, replacing that with a fundamental view and then rebuilding the CMBS index with its capital structure and its illiquidity premium to create the index that then feeds our mark-to-market model and it yields the numbers that are shown in the tables that I referred to during the prepared remarks.

Let me just say that the having made the adjustment that we have, we believe that the mark-to-market on our CMBS portfolio still do not reflect the underlying credit performance that we expect on those transactions because we are anticipating no loss.

Okay. Another set of questions from Mr. Akman. What is the estimate for claims that MBIA will pay on Prime an Near Prime Home Equity transactions in Q2, Q3 and the full year 2008 and 2009, and thereafter. Why does the Company believe that the recent acceleration in number and size of losses is not a harbinger of greater losses in the future? Mitch?

Okay. With respect to the first question, which is what is the estimate for claims that we're going to pay? I hope that we've addressed that quite exhaustively in the presentation, nevertheless as of March 31, '08, as I mentioned we paid claims of 152 million of which the vast majority has been for the HELOC's to date. I provided a list of the deals we paid claims on and/or taken reserves on and they're in the Appendix. With respect to the projected claims stream, it's for the majority of claims payments to be made starting six months from the date the transaction was modeled and continuing for approximately two to four years. If you go back, you'll note in the presentation that we believe the vast majority of the claims will be paid over the next couple of years before we expect meaningful recoveries and as I also mentioned this does not factor into account any remediation activity which we also think will provide recoveries on the out flows and in expected in the future.

On the second question, why does the Company believe that recent acceleration in number and size of losses is not a harbinger of greater losses in the future, a fair question and one that I hope I also was able to address during the course of the presentation but let me go back and restate that we placed reserves on over 50% of our Second Lien portfolio. We feel that we have fully and correctly identified the vast majority of the transactions in which we're going to face a permanent impairment and that we've reached the conclusion by applying significant stresses to our transactions. As I tried to layout, exhaustively, we've modeled the elevated CDR's over an 18-month period, which were accompanied by a 12-month burnout. We also provided some sensitivity around the numbers if we extend the stress and the burnout periods, but we do feel we've certainly identified the most problematic credits and also as a reminder, there is no remediation activity factored into our loss reserve numbers. We have remedies in these transactions that we're pursuing strongly. We expect some of those claims we've considered for our loss reserves will actually be decreased by those efforts and we are not giving any credit for that in the numbers, but we hope they will manifest themselves in the quarters ahead.

Okay. And the last question that we'll take in writing from Mr. Akman before we move to the open telephone questions is the following - - Why has MBIA changed its thinking about the location of 1.1 billion of capital from the Holding Company to the Insurance Company? Jay?

The 1.1 billion that's referenced here was the gross proceeds that we received from the Second Equity offering that was completed back in February. The Company, at that time, indicated that it intended to deploy the bulk of that funds into its Insurance operations. In the intervening, 2.5 months, I've been working with the team here, with the rating agencies and with the insurance department thinking about our ultimate long-term structure, what's the best way, what's the best path to accomplish that? Over the beginning of about two or three weeks ago, we saw a pattern emerge that we've seen in the past, where suddenly five or six reporters instantaneously start asking us, why is the cash at the Holding Company. The rating agencies and the insurance department are suddenly besieged by questions from " Investors" on this subject and suddenly an issue which is largely irrelevant over any kind of near-term picture becomes an issue. Our response to that was to talk to the rating agencies about it and decide that we would go ahead and we talked to the the Insurance department about it and we'll go ahead and put 900 million down over the next 10 to 30 days. Basically to turn this back into a non- issue. We didn't believe it was an issue, but we have to be responsive to the fact that sometimes, these small issues which have nothing to do with the big issue, which is ultimately how many losses will MBIA incur or not incur, can get transformed into serious issues for long-term investors for the Company. And so our response in this case, was just to act on it before it got out of, got to be an issue that was too significant.

Okay. We're about half way through the Q&A period for today. Michelle, could I ask you to remind callers about the instructions?

(OPERATOR INSTRUCTIONS). Your first question comes from Mark Ireli of Elliott.

Hi. My question relates to the 42 billion of CMBS related CDO and they're actually two parts to the question. So in other CDO categories, you provide a break out of the underlying collateral by Vintage and Rating, but particularly for the 32 billion portion which is described as structured CMBS, there's no description of that underlying collateral, so the first part of the question is what is the underlying rating of the collateral that underlies the structured CMBS, along with that, what is the attachment point and detachment point for that collateral?

Okay. A couple of things. First let me describe the CRE CDO, which currently comprises 27 transactions totaling 9.9 billion in net par and that we were careful to perform extensive due diligence on each collateral manager and we continue to have a strong dialogue with each of them today. As a whole, those transactions have the following composition - - They are 46.3% CMBS, 32% CRE loan, 8.8% refunds, 5.5% CRE, CDO and CMBS resecuritizations, 5.5% ABS and RMBS, kind of a mixed bag with respect to the rest. Generally, the second type of the CMBS pool transactions comprise 32.5 billion across 42 transactions and the net par amount also includes a small portfolio, 321 million of secondary CMBS transactions originated prior to 2005, over 95% of the assets in these transactions are CMBS. We attached at the Triple-A level at minimum but more typically at the Super Triple-A.

And I'm sorry that attachment is for kind of the outer structure but for the underlying collateral what is the attachment point?

It is is for the outer and what it is at the inner depends on the transaction.

Is there a range that you could provide? Or rating?

It's pretty wide. I would say it's probably goes from Triple-B all the way up.

I think not to cut off the question too soon but this is one of the areas that has come up in the past month that's since been identified that a large number of investors would like some supplementary disclosure on that, so we'll be providing similar disclosure to what we provide on the Multi-Sector CDOs in the next month or two so rather than try and talk about an entire portfolio and answer individual questions about it, I think we will come back to this later after we do that posting.

Okay, if I could just briefly follow-up, the other half of the question is I think generally probably something that could be approached in a general way. The CRE CDO, it's described in the K that you just released as being kind of a pay as you go and that's the $10 billion portion of this book, but the structured CMBS, as I read it it sounds as though it may be more of a account to bodies type transaction where the claims payments are in parallel to the losses in the underlying collateral. Is that an accurate kind of interpretation?

Well those are deductible deals.

Okay, so not kind of something that you pay out in 40 years but near-term?

Correct.

Okay.

Very good, thanks Mark. I'd like to remind callers to identify who they are, what their Company affiliation is and what their relationship, investment relationship is to MBIA. Melissa, the next caller, please?

Your next question is Al Copersino of Madoff Investment Securities.

Thank you very much. Yes, I'm along MBI calls. I had two quick questions, the first is the book value slide that you showed a couple of times in the presentation of Slide 42, for instance, I think I understand all of this, the one element I have a question on is in the loss provision. Does that represent the current loss reserves on the book or is that some other future looking-- sorry, forward-looking item?

Yes. Al, it is the losses that have been recognized that we just got finished going through, so it reflects about $2 billion total of impairments and loss reserves on our housing related exposures.

Okay. I'm sorry? Oh, my second question was I think it's I guess sort of a follow-up to the previous question you just got on Slide 38, the Multi-Sector CDO squared, could you give us a sense, the payment for these I'm looking at the last couple lines of Slide 38, the payment speed for these, could you give us a sense for how fast those claims may come through?

One thing maybe I could point you to is Slide 10.

Okay.

In the deck that sort of lays out, I mean it's kind of a graphical bar chart fashion, the period over which we think that the claims are actually going to be paid out on each of the classes of deals where we expect to make payments and the CDO squared, you'd see them starting to be paid out about mid year 2009 with the payments extending out over the ensuing 3.5 years. So that's sort of the outcome of the deductible type structure that Mitch described.

Great. Thank you very much.

Your next question comes from Joe Osha, Harvard Management.

Joe Osha, Harvard Management, participant in the wrapped mortgage backed securities market. My first question was in relation to the high grade ABS CDOs that you guys have taken impairments on, you have a lot of disclosure about the underlying assumptions about the defaults on the CDO book, could you talk about what the write down assumptions were on the RMBS bond level, so not the loan level where you got 16 to 20% loans, but what's the percentage of Double-A and Single-A RMBS bonds from those deals that you have assumed get written off?

I don't have the exact percent on the Double-A and other write-offs that you're referring to, but with respect to the Multi-Sector CDOs, to analyze the RMBS collateral and the CDOs, I went through this before, we use a roll-to-loss methodology which considers each securities delinquency buckets and estimates the probability that borrowers in each bucket will ultimately default consistent with how we analyze our Direct Subprime exposure, given the numbers of securities in any CDO we use representative roll rates which we apply to the delinquency in each bond supporting the CDO. We also specify severity upon default and distribute the losses along a front loaded timing curve in line with our market expectations so in general terms, the output depending on the transaction averages accum losses for 2006, 2007 Subprime losses of 16 to 20% for the High Grade ABS CDOs.

But you can't tell us what the losses on how that the translates into the losses on the bond level for those deals roughly?

No. I'm not able to provide you with that detail.

Okay. I just have one other question. There was a Second Lien transaction that is not listed, actually it might be a HELOC transaction, it's the CWL2007 S2 transaction. I think I've noticed that that's an $800 million, $850 million deal where had the OC has gone from 7.1 million in February to 3.5 million in April so it's basically been cut in half in two months and that's, I don't see that listed as one of the impaired second mortgage transactions. I wanted to see if you could talk about why that would be the case?

Well, the best way for me to tell you is to kind of do the opposite and that is we have provided a lot of disclosure and detail on the transactions where we have seen impairments and we have used methodology that we talked to. The transaction that you're talking about is not on the list. It's because as we run it through the models and stress that we do not see or at least do not yet see the need to have to post a reserve based on what we currently see as the OC or excess spread or the amount of cushion that we have in the deal. If we can check on that deal for you specifically and I'll be happy to do that and e-mail back an answer.

Okay, thank you.

Your next question comes from Andrew Wessel of JP Morgan.

Andrew Wessel, JPMorgan, sell-side, research. I had a question, just in terms of a couple statements made about the market, the overall markets views of the U.S. housing market hadn't changed a lot in the first quarter and top tier seller servicers being Countrywide, and Rescap, etc, I don't know if that's, if that would be, if the market would definitely agree with that. I think there's a large lines of debt spreads across the mortgage market through the first quarter and using that as the back drop with the philosophy that you all have in place and I think looking at your assumptions for your Closed End Seconds and your HELOC deals the assumptions in the losses are defiantly conservative but we probably could have said that in the fourth quarter as well, what gives you the confidence now as opposed to three or four months ago that you've pinpointed or properly reserved for losses and to make the statement that you don't expect a further uptick in those losses, it seems like a tough statement to make if you weren't able to live up to that expectation.

I think, Mitch will give you a little color on it about what's different in three or four months but it is clear and we'll repeat the statement many times. There are a lot of estimates out there. There are any number of different views about how the housing market is going to develop in this country over the next two or three years. What we have tried to do here is explain what our assumptions are and how we've put it together. We don't think it's useful to try and reconcile or answer every other different estimate out there. Most informed sources can read those documents, read those publications, see their underlying assumptions and reach their own conclusions. Fundamentally, we believe that within a pretty good range of estimates here, whether you think our assumptions are right or we're off by six or nine months or 12 months, fundamentally is not going to be a substantial change for MBIA. We've tried to identify that for investors so I think let's look at it in that context and Mitch do you want to respond?

Yes.

Basically what's different, beyond the fact we have four or five months of data.

And that is a big difference and to the extent I tried to be rather fulsome in my explanation of that during the presentation but let me just try to pick up on Jay's point. First of all, the reserves we took during the fourth quarter were primarily related to our HELOC exposure, you'll recall that because of the Vintage of those which are more heavily weighted to '05 and '06, it put us in a position to have a sufficient amount of performance data that we felt that when we took it and ran it through the model we were confident about the reserves that we could book on the HELOC portion of the Second Lien book and, in fact, the reserves that we have taken had indicated that our payments in what we were experiencing were actually tracking within those reserves. You may also recall at that time, that because the Closed End Second book was predominantly a younger Vintage, a 2007 Vintage that we simply did not feel that we had enough data to be able to have the same confidence that we could take the data that we needed, model it, and step forward with the same kinds of assumptions and reserves that we do now.

So what we were able to do, is take the additional data from those additional months and now we felt that we had enough data to be able to model the results in a similar fashion that we did to the HELOCs which as I said now for months have been tracking within the model and come up with our estimates and during the course of the call and in the deck, I've tried to explain why we think that we feel pretty good about those numbers, and what the variables could be in terms of how they might be able to move, but basically, we had the additional data that provided us the ability to now have the same level of confidence on the transactions with respect to Closed End Seconds as we did on the HELOCs.

Okay, great thanks. And then my other question kind of reverts back to one of the first questions that you read. In terms of new business, is there, are there some metrics you can put around pricing, generally that you saw, especially as opportunities started to pick up and that graph was very helpful. Thanks for that, at post the stabilized or the reaffirmed outlook from the rating agencies?

I think the pricing that we are seeing on new transactions is pretty consistent with what we see in the marketplace. There's actually a slide, I think it's the very first slide in the Appendix. Page --

Oh, yes, okay.

Page 45 and it just shows the S&P pricing index, now this is not from MBIA it's the market overall, but we're seeing a trend that's very much like this with respect to our pricing. Now, we'll be up front and say that we're not the price leader in this market at this point and our bonds, our wrapped bonds are not trading where FSA's quite frankly are at this point so we're more competitive with the other players of the market than we are with FSA, but we've been able to price deals in such a way as to get over our hurl rates of return and to win our share, the share that's shown in the deck. So the trend there is quite positive but it's not, we're not rolling out the mission accomplished banner just yet.

And I think we traditionally put some pretty good metrics out there on pricing but as we've started this presentation today, from our perspective, the least important issue for us over the near term in terms of what investors have asked us and focused on is the amount of new business. We're not going to do a lot of new business in the first half of this year. We're not going to do that much business until we get towards the end of the year and things are stable, and so we're not going to be doing what our usual focus would be which is the primary driver in normal times, which is how much new business are you getting, how is it being priced, what is the credit quality, etc, That will hopefully return next year to be the issue that will dominate some of the questions that we get on these calls.

Great. Thanks a lot and thank you for the presentation. I think it's extremely helpful with all of the data.

Thank you.

Your next question comes from Chris Rasmussen of [Sit] Investments.

Hi. I just wanted to inquire obviously you have a lot of confidence your insured deals are going to perform strongly over time. Would you ever consider adding to the positions you disclose on Page 50 of 3% of your investment portfolio already invested in MBIA insured deals?

I think at the end of the first quarter we had approximately 3% of the portfolio in the Insurance Company invested in MBIA deals. We have been reducing that over time, not because we lack any confidence in any of those transactions but basically, it's caused confusion for many investors who don't quite understand that while we're wrapping a bond that we also invest in that it doesn't cause any additional risks for the Company, so long-term, we made the decision a few years back to migrate that portfolio down. It's currently down to 3% and over the next few years you'll probably see it go down to virtually nothing. And that's not because we lack confidence in any of those deals. It's just simply from a presentation point of view, it's caused additional noise for investors in our Company and we made the decision to make that change.

So I take it that applies also to [Amback] and [Figic] considered deals? Where there's obviously a lot of value out there but it's just the noise?

I'll let Cliff Corso, who is our Chief Investment Officer, address that question.

We actually, if you been a student of us for a while you'll notice that we have been an active buyer of paper throughout our history, notwithstanding the rationale that Jay gave on our own wrap (inaudible). We do believe in the wrap market and it can provide a lot of value. There's obviously the wrap market is a broad market and you want to take advantage of what's available to us in the marketplace. Particularly in the Insurance Company Investment portfolio where we are a tax payer, large share of those bonds are wrapped and we do buy the wrap paper to finish the yield and all the parameters of that portfolio. The same is true in the Asset Liability investment portfolio where we deal in wrap paper and by the way there's some detail in disclosure here, it's about 20% for each of those portfolios that's decreased over time as well where we absolutely will take advantage of the wrap market away from our own name.

Great. Thanks.

Your next question comes from Jason Spindel.

Hi. This is actually Eleanor Chae from [Orellius] Capital My question has to do with the fact that many originators are deploying HELOC lines and I'm wondering how that affects your modeling assumptions for HELOC? I see on Page 29 of the slide set you are still using a three-month average CRR draw rate on HELOCs and so my question is what makes you think that the draw rate will stay constant and also if the draw rate drops off to zero, wouldn't that eliminate some of the extra subordination that you might otherwise get from the originators funding the draws should the deals enter a rapid amortization phase?

Yes. First of all, no. It's not going to affect the subordination but let me address the issue on the freezing. Absolutely, Countrywide as well as some other HELOC servicers have begun to freeze draw requests based on various factors. Some are requesting BPO valuations on the properties and if the current value is less than the loan amount, then the line is frozen. Some servicers are freezing draw requests based upon FICO drift and all servicers freeze the lines amounts once a borrower becomes 30 days delinquent. Now that said, a majority of our transactions had high, fairly high utilization rates, meaning the majority of the outstanding credit line has already been used and thus the draw rates have been relatively modest. And as such, the elimination of future balances is not likely to have an impact on our transactions because of the relatively small amounts of the lines that remain outstanding.

Okay, thank you. I have an additional question. There still seems to be some internal inconsistency to me in terms of how you apply the market spreads. I see that you have dedicated several pages in your 10-Q, describing your binomial expansion valuation model for evaluating your insured credit derivatives and in fact the 10-Q says that 95.9% of those derivatives are value based on a model type approach and only 0.6% is using specific dealer quotes, so why do you feel comfortable to use dealer quotes for your own MBIA CDS spread and yet, you month, for 96% of your credit derivative portfolio, you're actually using a model and how does management get comfortable with that? This is the right way to do it and that there wouldn't be any internal inconsistency?

As you have said, there is extensive disclosure about this in our 10-Q as well as in our press release. There isn't any way for us to value our positions other than to use an analytical model. We think the model that we're using is one that provides a reasonable and internally consistent view of the fair value of these insured credit derivative positions. We use a variety of spread inputs. We try to identify spread inputs to the model that best exemplify the pricing on the underlying collateral. As it happens, for very little of the underlying collateral, are there actual direct quotes that we can use. There are some but it's relatively small because these are, if you will, the spoke pools of assets that we're trying to value, and as a result we use spread analogs for most of the collateral that feed the BET model. Similarly for MBIA, we're using the data that's available.

Okay, thank you.

Thank you. So that will conclude our call for today, as we said earlier, the questions that were submitted in writing that we have not addressed in the prepared remarks or through the Q&A session, we will provide responses to in the near future. We thank you for your participation and I encourage you to send additional questions and/or to contact me directly. My information is available on the website. We also recommend that you visit our website at www.MBIA.com for additional information. Thank you for your interest in MBIA. Good day and goodbye.

This does conclude today's conference call. You may now disconnect, and have a wonderful day.