55% of all Subprime loans were made in California and Florida.(Z

Excerpted from Investor Letter, by J. Kyle Bass - Managing Partner at Hayman Capital, Dallas Dtd: 7/30/07

”Lastweek, I spent some time in the “Inland Empire” of California on adiligence trip to survey the actual damage. As many of you alreadyknow, 55% of all Subprime loans were made in California and Florida.

Letme start by saying it is MUCH WORSE than even I thought it could be. Imet with various mortgage lenders, originators, economists, and capitalmarkets professionals. The overriding theme that I got from them wasthat “Everyone committed fraud and everyone is responsible for theproblem”. They told me that they believe that 90% of all Subprime loansthat were made contained some kind of fraud. Either borrowers liedabout their incomes or mortgage brokers fudged numbers on theapplications to make them pass muster with the needed ratios in orderto get loans approved. They also said that of the borrower frauds, 50%of applicants overstated their income by MORE THAN 50%!!!”