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    Page 7, Fn. 13

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    ‘Sparks, Daniel L Thursday, March 08, 2007 12:50 AM ‘Winkelried, Jon (EO 85630); Montag, Tom; Viniar, Davi Cohn, Gary (EO 8883 ‘Sherwood, Michael §; McMahon, Bill; Broderick, Graig ce: Ruzika, Richard Subject: ‘Mortgage risk Gust spent tonight negotiating with Acevedited - they plan to send us $21mm in the morning, we have new information on loans in the warehouse line that allows us to reel comfortable raining the Loan mark by $10mm, and we will buy $50mm of A-1 rated ABCE (accredited vehicle} from accounts (we feel that the collateral is pretty good) that rolls Thursday which will prevent ASCP extension. Then all of cur EPD claims in subprime would be resolved = we may have a small Alt A claims (probably under $imm). If this happens, the outcome is good. New Century remains a problem on EPD. Aside (rom the counterparty risks, the large risks I worry about are listed below: (2) po and Residential Loan securitization stoppage - either via buyer strike or dramatic rating agency change. on the CbO front, we have been locking people at various parts of the capital structure (uith @ primary Focus on the super-seniors ~ top 508 of the deal), and rushing to get deals rated. We have liquidated a few deals and could liquidate a couple more, and we are hot adding risk (we had slowed down cur business dramatically in the past 4 months}, Our deals break down into 2 $188 Coos of A-cdos (most risky, but good progress), 2 $1BB AA diversified deals (less downside, less progress), and A other various smaller deals. We have various risk sharing arrangements, but deal unwinds are very painful For residential loans, we have not bought mach lately and our Largest pool to eecuritze is ALt A ($4,355). There is also $1,388 subprime loans and $70dmm seasoned seconds. This mazket is also very difficult to execute in. (2) Dramatic credit environment downturn. Serateh @ dent loans ($90¢mm}, residuals ($756mn), and less 1iguid bond positions - if the credit environnent significantly worsens, these positions will be hurt by losses, further lack of Liquidity and lower prices. (3) Covering our shorts. We have longs against them, but we are still net short. $48 single name subprime split evenly between A, 888, BBE- and $1.3BB of A-rated Coos. ABK index ~ overall the department has significant shorts against loan books and the CoO warehouse. The bulk of these shorts ($985) are on the AAA index, so the downside is Limited a the index trades at 98 Our shorts in (3) above have provided significant protection so far, and should be helpful for {1) and (2) in very bad times. However, there is real visk that in medium moves we get huct in all 3 areas. Therefore, we are trying to close everything down, but stay on the short side. But ie takes tims as liquidity is tough. And we will Likely do some other things like buying puts 0 companies with exposures te mortgages. original Message: Prom: Winkelried, Jon (0 85530} Confidential Treatment Requested by Goldman Sachs GS MBS-£-009718900 Sent: Wednesday, Warch 07, 2007 1:15 eM To: Sparks, Daniel L; Montag, Tom; Vindar, Davids Cohn, Gary (BO €3830); Sherwood, Michael 5; MeWahon, Bill Ga: Ruaika, Richard Subject: Re: Originator exposures Thanks for that summary. Not bed Sent from my BlackBerry Wireless Handheld ~ Original Neseage -=--~ From: Sparks, Daniel b To: Mentag, Tom; Viniar, David; Winkelried, Jons Cohn, Gary; Sherwood, Michael S} McMahon, Bild ce: Ruzika, Richard Sent: Kad Mar 07 12:09:03 2907 Subject: Originater exposures Rich and I were catching up. I will send this group another message of our potential large risk areas a5 further stress happens, and our mitigation plans. As for the big 3 originators ~ Accredited, New Century and Fremont, cur real exposure is An the form of put-back claims. gasically, if we get nothing back we would lose around 360mm vs liz loans on our books (we have A reserve of §30nm) and the loans in che trusts Gould lose around $60nm (we probably suffer about 1/3 of this in ongoing exposures}. The reason it is not clear is that the loans are not worth 0, there is some value, so there are estimates as co wnat happens on those loans. Rumor today is that the FEI is in Accredited. Other big risk areas I will discuss later relate to CDO and loan execution [rating agency or mazket shutdown), covering eingle name and index shorts (liquidity), and recained residuals and loan fesitions (

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