Bear Stearns Releases New Mortgage Performance Index.

NEW YORK -- Bear Stearns' top-ranked research group is now producing a unique monthly mortgage performance index to enable investors to assess risk when making investments in mortgage-backed securities, Bear, Stearns & Co. Inc. announced today.

The index goes beyond traditional metrics such as prepayment speeds, delinquency and default rates by providing the cash-flow status of delinquent loans. It also records actual borrower defaults that are missed by other measures because of home price increases.

"Borrower defaults have been understated in recent years because record home price increases have resulted in far fewer recorded losses - the traditional measure of default. We developed the new index eliminating this bias," said Gyan Sinha, senior managing director and head of Bear Stearns' asset-backed research. "Our deal-level reports also give investors the ability to better estimate the number of borrowers who are going to default from delinquency as opposed to those who are on a successful repayment plan."

The Bear Stearns Performance Index covers more than 3,000 transactions in the private-label mortgage market, using the monthly payment histories on $1.735 trillion of originations obtained from a combination of internal databases and third-party sources. Detailed pool-level reports are aggregated into separate sectors - prime, near-prime, sub-prime, seconds, scratch-and-dent and re-performing - and reported separately for fixed and adjustable-rate loans. The reports also track the flow of loans as they go through delinquency, where some improve while others steadily worsen until resulting in default.

"The development of the Bear Stearns Performance Index further underscores our commitment to the mortgage market and our customers," said Tom Marano, senior managing director and head of mortgage backed and asset backed securities at Bear Stearns. "The index goes well beyond the usual industry default metrics to provide a new level of analysis to our clients."

Rising home prices over the past few years have led to subdued default rates and loan losses because only those loans that recorded a loss are treated as having defaulted. The Bear Stearns Performance Index attempts to correct for this by using the typical signature of a bad loan to calculate an "implied" default rate. As home price growth rates begin to normalize from their frenetic pace over the past few years, these implied default rate statistics will prove to be much more relevant in determining future loss expectations on mortgage pools, Sinha said.

"An important goal of the index is to provide investors with a true apples-to-apples comparison of performance across issuers and sectors," he said. "Implied default rate statistics allow us to compare performance across loan pools, adjusted for the effects of delinquent loan buyouts and any regional differences in housing price appreciation rates."

The index will be published in print form once every quarter and electronically as monthly updates become available.

Founded in 1923, Bear, Stearns & Co. Inc. is a leading investment banking and securities trading and brokerage firm, and the major subsidiary of The Bear Stearns Companies Inc. (NYSE:BSC). With approximately $46.1 billion in total capital, Bear Stearns serves governments, corporations, institutions and individuals worldwide. The company's business includes corporate finance and mergers and acquisitions, institutional equities and fixed income sales and trading, securities research, private client services, derivatives, foreign exchange and futures sales and trading, asset management and custody services. Through Bear, Stearns Securities Corp., it offers financing, securities lending, clearing and technology solutions to hedge funds, broker-dealers and investment advisors. Headquartered in New York City, the company has approximately 11,000 employees worldwide. For additional information about Bear Stearns, please visit the firm's website at http://www.bearstearns.com.