Background on HELOCs and Closed-

End Second Mortgages

Home Equity Lines of Credit (HELOC) and Closed-end Second Mortgages (CES)
securitizations are junior to even the most subordinated tranches of a typical Mezzanine
CDO. Bond insurers typically insure HELOCs and CES to the underlying BBB level.
HELOCs and CES are in a first-loss position and are leveraged to a decline in housing values.
First Lien AAA
RMBS
High grade
CDO
First AA
Decline in Home Value

House
Mortgage A
A
BBB Mezzanine
BB
BB
Equity CDO
Second
Mortgage
Second AAA
Equity Lien RMBS
HELOCs /
AA CES
A
A
BBB
BB
Equity
Source: “How to Save the Bond Insurers”, Pershing Square presentation, 11/28/07.
18 -18-
T2 Partners LLC
 Impairment Summary as of 3/31/08
($mm) CES HELOC MID PRIME SUB PRIME
Total Net Par $5,018 $11,379 $6,455 $8,077
Outstanding
% of Total 41% 19% 24% 5%
rated BIG
US GAAP $636 $432 $200 $16
Reserves 1
% of Total RMBS 48% 33% 15% 1%
Reserve
1 These four sectors represent 98% of total RMBS Reserve of $1.3bn
14
 HELOC Performance Summary
Prime Non-Prime 2005-07 Originated <2005
Net Par Outstanding $4,757 $4,527 $2,095
as of 3/31/08
% of Impaired 0% 19% 0%
Weighted Average 0.16% 3% 1.4%
Cumulative Collateral
Loss
Weighted Average Loan 22 28 44
Age (months)
Typically 720-745 FICO formed within existing customer relationship
Typically 695-710 FICO, less propensity to be formed within existing customer relationship
15
 Closed-End Second Lien Performance Update
Aggregate CES portfolio $5.0 billion
Certain Closed-End Second (“CES”) transactions have shown significant
deterioration in the last few months, although the CES portfolio remains BBB+
on average
ABK Portfolio Update
– 7 (representing $2.1bn) of 33 transactions are now BIG and represent 41% by net
par of the CES portfolio. All 7 transactions have reserves posted against them
– The 7 transactions are represented by 3 issuers and were originated in 2005-07
– No claims paid to date
The charts following illustrate delinquency and loss trends focusing on select
underperforming transactions
– 60+ delinquency as a % of current balance
– Net Cumulative Loss as a % of original balance
16
 Closed-End Second 2005-07 Vintage
60+ Delinquencies for Select Underperforming Deals
2005-07 Vintage – 60+ DELINQ(%)
20
18 INDS0603,'BBB'
16
Ow nit06O1,'BIG'
Terw in06006, 'BIG'
14
12 FFM07FFC,'BIG' Bear2nd07001,'BIG' Terw in064SL,'BIG'
10 SACO0602,'BIG'
8
6 SACO0510, 'BIG'
4
2
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
SACO0510 SACO0602,IA SACO0602,IIA CWH06S01,A1-A5 Terw in064SL,A1-A2-G
IndyMac06H2 Terw in06006 CWH06S04,A1-A6 CW06S06,A1-A6 INDS0603
Ow nit06O1,A1&A2 CWH07S03 Bear2nd07001,IIA&IIIA IRHE0701,IIA1-4 FFM07FFC,A1,A2A-B
17
 CES 2005-07 Vintage
Cumulative Loss for Select Underperforming Deals
2005-07 Vintage – NET CUMULATIVE LOSS(%)
16 Terw in06006, 'BIG'
14
FFM07FFC,'BIG' Terw in064SL,'BIG'
12
Ow nit06O1,'BIG'
10 SACO0602,'BIG'
8
Bear2nd07001,'BIG' SACO0510, 'BIG'
6
4
2
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
SACO0510 SACO0602,IA SACO0602,IIA CWH06S01,A1-A5 Terw in064SL,A1
IndyMac06H2 Terw in06006 CWH06S04,A1-A6 CW06S06,A1-A6 INDS0603
Ow nit06O1,A1&A2 CWH07S03 Bear2nd07001,IIA&IIIA IRHE0701,IIA1-4 FFM07FFC,A1,A
Rapid escalation of losses, particular in the Bear & First Franklin transactions
Terwin and Ownit transactions pay principal at legal final 18
 HELOC Performance Update
Aggregate HELOC Portfolio $11.4 billion
Certain HELOC transactions have shown significant deterioration in the last
few months although the HELOC portfolio remains BBB+ on average
ABK portfolio update
– 7 ($2.2 bn) of 46 transactions are now BIG, representing 20% of net par of the
HELOC portfolio
– The 7 transactions are represented by 5 issuers and were originated in 2005-07
The charts following illustrate delinquency and loss trends focusing on
select underperforming transactions
– 60+ delinquency as a % of current balance
– Net Cumulative Loss as a % of original balance
19
 HELOC 2006-2007 Vintage
60+ Delinquencies for Select Underperforming Deals
60+ DELINQ(%)
14
SACO0608,'BIG' CW HE06B,'BIG'
12
CW HE06C,'BIG'
10
HEMT 0701,'BIG'
8
IndyMac06H 2,'BIG'
6
4
Irwin0601,'A-'
2
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
IRHE0701,IA1 HEMT0701,A1 MSHL0701,NOTE CWHE06C,1A CWHE06C,2A
CWHE06B,1A Irwin0603,IIA2 Irwin0603,IIA4 SACO0608,A Irwin06P1,IIA2
IndyMac06H2,A Citigroup06NC1,2A2 Irwin0601,IIA2
20
 HELOC 2006-2007 Vintage
Cumulative Loss for Select Underperforming Deals
NET CUMULATIVE LOSS(%)
10
SACO0608,'BIG'
9
8
HEMT0701,'BIG'
7
6
5 IndyMac06H2,'BIG'
Irwin0603,'BBB+' CWHE06B,'BIG'
4
3 CWHE06C,'BIG'
2
1
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
IRHE0701,IA1 HEMT0701,A1 MSHL0701,NOTE CWHE06C,2A
CWHE06B,1A Irwin0603,IIA2 Irwin0603,IIA4 SACO0608,A
Irwin06P1,IIA2 IndyMac06H2,A Citigroup06NC1,2A2 Irwin0601,IIA2
Rising default rates have resulted in cumulative net claims payments of $41.2M as of
3/31/08 across 4 transactions
21
 Mid-Prime (Alt A) Portfolio Performance Update
Aggregate Mid Prime Portfolio $6.5 billion
Certain Mid-Prime (Alt A) transactions have shown deterioration in the last
few months
This deterioration is predominantly apparent in transactions originated in
2005 and, particularly, 2006 /07
A limited number of these transactions are now below investment grade
given collateral loss expectations of 20-25%
The charts following illustrate foreclosure and loss trends for
underperforming transactions in the 2005-07 vintage
– Net Cumulative Loss as a % of original balance
– Foreclosure plus REO as a % of current balance
22
 Mid-Prime (Alt A) 2006-2007 Vintage
Cumulative Loss for Select Underperforming Deals
Selected ABK Mid-Prime: Net Cumulative Loss
(% of Original Balance)
1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
I SC 0 7 0 0 3 , I SC 0 7 0 0 2 , I M HE 0505, I M HE 0407, DAB06AB2, I SC 0 4 0 0 3 , IM HE 0409, L X S0 5 0 7 N , I SC 0 6 0 0 3 , L X S0 7 1 4 H , NAA07003, L X S0 7 1 0 H , NAA07001, I M HE 0507, I SC 0 5 0 0 2 , IM HE 0506,
Gr oup A l l Gr oup 1 Gr oup A l l Gr oup 2 Gr oup A l l Gr oup 2 Gr oup 2 Gr oup 2 Gr oup A l l Gr oup A l l Gr oup A l l Gr oup 1 Gr oup 2 Gr oup A l l Gr oup A l l Gr oup 1
Relatively low cumulative losses give superficial comfort although there is a build of loans
in foreclosure and REO, which may give rise to a rapid increase in cumulative losses (see
next page)
23
 Mid-Prime 2006-2007 Vintage
Foreclosure & REO for Select Deals
Selected ABK Mid-Prime: Foreclosures & REO
(% of BC)
30%
FC REO
25%
20%
15%
10%
5%
0%
I SC 0 7 0 0 3 , I SC 0 7 0 0 2 , I M HE 0505, I M HE 0407, DAB06AB2, I SC 0 4 0 0 3 , I M HE 0409, L X S0 5 0 7 N , I SC 0 6 0 0 3 , L X S0 7 1 4 H , NAA07003, L X S0 7 1 0 H , NAA07001, I M HE 0507, I SC 0 5 0 0 2 , I M HE 0506,
Gr oup A l l Gr oup 1 Gr oup A l l Gr oup 2 Gr oup A l l Gr oup 2 Gr oup 2 Gr oup 2 Gr oup A l l Gr oup A l l Gr oup A l l Gr oup 1 Gr oup 2 Gr oup A l l Gr oup A l l Gr oup 1
Early and rapid build up of Foreclosure and REO buckets likely to produce rapid escalation
of cumulative losses
Although severities may be relatively modest (e.g., 35%), relatively low credit enhancement
means some transactions will likely be below investment grade given projected cumulative
losses of 20-25% 24
 Sub-Prime Performance Update
Aggregate Sub-Prime Portfolio $8.1 billion
The sub-prime portfolio is performing satisfactorily in market context and
remains A- on average
ABK Portfolio Update
– 7 ($425.0m) of 91 transactions are now BIG primarily due to tail-risk,
representing 5% by net par of the sub prime portfolio
– The 7 transactions are represented by 2 issuers and were originated in 2002 or
earlier
– 2006 – 07 transactions continue to perform satisfactorily and represent $1.6bn or
19% of the sub prime portfolio
The charts following illustrate delinquency and loss trends focusing on
select underperforming transactions
– 60+ delinquency as a % of current balance
– Net Cumulative Loss as a % of original balance
25
 Sub-Prime Portfolio 2005 Vintage, $1.5 billion
60+ Delinquencies for Select Deals
60+ DELINQ(%)
14.0
12.0
10.0
CW HE0517,'BBB+'
CW HE0501,'AAA'
8.0
6.0
4.0
2.0 AHM05002,'AAA'
0.0
1 4 7 10 13 16 19 22 25 28 31 34 37
AHM05002,VA4D CWHE0516,1AF CWHE0517,1AF1 CWHE0503,AF5B CWHE0501,AF5B HLMT0501,A1
Average rating BBB+ performance satisfactory in market context
26
 Sub-Prime Portfolio 2006-2007 Vintage, $1.6 billion
60+ Delinquencies for Select Deals
60+ DELINQ(%)
14.0
12.0
CWHE0613,'BBB+'
10.0
8.0
CWHE0611,'BBB'
6.0
4.0
OOHE07F1,'A-'
HLMT0601,'BBB+'
2.0
0.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
CWHE0611,1AF1 CWHE0613,1AF1 HLMT0601,A1 OOHE07F1,IA1
Average rating BBB+ performance satisfactory in context
27
 Sub-Prime Portfolio Vintage 2005
Cumulative Loss for Select Underperforming Deals
NET CUMULATIVE LOSS(%)
2.0
1.8
MSAB05W3,'AAA'
1.6
1.4
CWHE0503,'AAA'
CWHE0517,'BBB+'
1.2
CWHE0516,'BBB+'
1.0
0.8
CWHE0501,'AAA'
0.6
0.4 AHM05002,’AAA’
0.2
0.0
1 4 7 10 13 16 19 22 25 28 31 34 37
AHM05002,VA4D CWHE0516,1AF CWHE0517,1AF1 CWHE0503,AF5B CWHE0501,AF5B
HLMT0501,A1 MSAB05W3,A2B
Performance is in line/a little below the 2000 vintage, which is tracking to a cumulative loss
of approximately 8%
No claims expected 28
 Sub-Prime Portfolio Vintage 2006-2007
Cumulative Loss for Select Underperforming Deals
NET CUMULATIVE LOSS(%)
2.0
1.8
1.6
1.4
1.2
1.0
0.8
CWHE0613,'BBB+'
0.6
0.4
HLMT0601,A1
CWHE0611,'BBB'
0.2 OOHE07F1,’A-’
0.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
CWHE0611,1AF1 CWHE0613,1AF1 HLMT0601,A1 OOHE07F1,IA1
Performance is in line/a little above the 2000 vintage, which is tracking to a
cumulative loss of approximately 8%
29
No claims expected
 Summary of Loss Estimation Methodology for 2nd Lien Transactions
Ambac predominantly uses a “roll rate” methodology (i.e. an analysis of the
tendency for borrowers to migrate across states of delinquency and
potentially cause collateral loss) to calculate potential future claims in
respect of 2nd Lien product
The methodology looks at current and appropriate historic data
(e.g. 100% LTV sub prime data from the late 1990’s) to estimate likely
patterns of “bucket migration”
Once the roll rates and losses are calculated, the particular transaction
structure (subordination, over-collateralization, excess spread, etc) is
modeled in Intex incorporating a default curve (which governs the timing of
loss) whilst also taking into account the effect of prepayments. This results
in an overall picture of potential transaction cashflows
30
 Summary of Loss Estimation Methodology for 2nd Lien Transactions
Given recent very adverse performance, the above analysis presently
forecasts extremely high collateral losses in respect of a limited number of
specific transactions
Example: Bear Stearns 2007-01, closed in April 2007
– NCL to date 9.9%
– Projected NCL 81.8%
– Projected collateral loss as a % of current collateral 86%
A reasonable estimate of projected collateral loss for the above transaction
might have been @10-12%, with the transaction having an A+ rating at
inception and being structured to withstand @28-30% collateral loss
The results of this analysis are shown in the chart following which plots
Monthly Loss Rate (MLR) for the 11 months of the transaction’s life plus the
future projection
31
 Bear Stearns 2007-1 Monthly Loss Rate
Projected Collateral Loss of 81.8%
Bear Stearns 2007-1 MRL (3m average, % of OB)
3.00%
2.50%
NCL: 81.8%
2.00%
1.50%
1.00%
0.50%
0.00%
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59
Months Since Close
Rapid escalation of Monthly Realized Loss plus declining voluntary prepayment rates to 6%
However, given subordinated bonds first claim not expected until September 08 32
 RMBS Remediation
Ambac is aggressively remediating its RMBS portfolio
Currently, 17 transactions are the subject of diagnostic, forensic and legal
scrutiny involving outside assistance. Actions include:
– Model-based screening for unexpectedly poorly performing loans
– Analysis of serious delinquency buckets
– Loan level document review
– A review of legal documents focusing on representations and warranties
Hypotheses are being built which involve fraudulent activity in various guises
33
CDO of ABS Performance Update
®
.
 Portfolio Summary
CDO of ABS (Net Par $mm)
31-Dec-07 % 31-Mar-08 %
High Grade CDOs of ABS $26,152 81% $25,979 81%
Mezzanine CDOs of ABS 503 2% 497 2%
CDO Squared of CDOs of ABS 2,472 8% 2,472 8%
Commitments to issue policy on ABS
CDOs 2,983 9% 2,921 9%
Total $ 32,110 100% $ 31,869 100%
35
 Product Type and Ambac Rating
CDO of ABS Ratings Migration (by ABK Rating)
At Close % 31-Dec-07 % 31-Mar-08 %
AAA $31,939 98% $2,661 8% $1,663 5%
AA 510 2% 11,481 36% 3,982 13%
A - 0% 10,831 34% 7,148 22%
BBB - 0% 4,241 13% 12,105 38%
BIG - 0% 2,896 9% 6,971 22%
Total $32,449 100% $32,110 100% $31,869 100%
36
 CDO Squared Portfolio: $2.472 billion
4 transactions
2 transactions exclusively contain mezzanine formerly single A-rated
tranches of inner CDO’s
Overall credit has deteriorated as underlying RMBS tranches have been
progressively downgraded
– This downgrading gives rise to possible liquidations of inner CDO’s
– Some Super Senior investors have chosen to liquidate despite
distressed valuations following write-downs
– Distressed liquidation values are likely to give 100% severities for
subordinated inner CDO tranches
37
 Pace of RMBS Downgrades has not Slowed
Percent Collateral Downgraded
for ABS CDOs (source UBS)
35%
30%
25%
20%
15%
10%
5%
0%
Jul-07 Oct-07 Jan-08 Apr-08
Collateral downgrades have resulted in approximately $400 billion of CDO downgrades by
S&P (Analysis as of April 16, 2008)
38
 CDO of High Grade
$4.1 billion are rated BIG
– Performance was primarily caused by poor performance in the CDO buckets;
• 30-40% buckets versus subordination of 19-20%;
– Weak performance in a large BBB bucket affected one transaction;
$7.1 billion are rated single A and $9.1 billion rated BBB
– Positions are closely monitored to ensure appropriate cash flow distributions;
– Trigger points for an Event of Default and Ambac’s liquidation and manager
removal rights have been verified to ensure fast response of remediation efforts;
Potential claims payments under Ambac’s CDS are estimated to be several
years out, with principal claims in particular likely being many years away
39
Impairments on the ABS CDO Portfolio
As of 3/31/08 Net Par Impairment % Impaired
CDO Squared $ 2,472 $1,721 70%
HG / Mezz CDO $26,476 $ 326 1%
Commitment to Issue $ 2,921 $ - -%
a Financial Guaranty
on ABS CDOs
Total $ 32,869 $2,047 6
40