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Today's Market

9-year (36 quarters) Housing Equity Gain*

Houston

FHA Loan Limit

38%

*Note: Equity gain reflects price appreciation only

Real estate remains a long-terminvestment: those who have owned fomore than 3 years have seen the equit

in their home grow

-16.0%

$2,267

U.S.

Price Activity

$169,267$159,500Current Median Home Price (2011 Q3)

Houston-Baytown-Sugar Land Area

Local Market Report, Third Quarter 2011

Home Sales

State Existing Home Sales

(2011 Q3 vs 2010 Q3)

Conforming Loan Limit**

Local Trend

**Note: the 2009 loan limits for FHA and the GSEs were extended through 2010.

-$700

7-year (28 quarters) Housing Equity Gain*

$25,200

1-year (4-quarter) Appreciation (2011 Q3) 0.4%

Texas

Prices are up from a year ago, but pricgrowth is slowing

18.4% 17.0%

$729,250

-0.4%3-year (12-quarter) Appreciation (2011 Q3)

-4.3%

3-year (12-quarter) Housing Equity Gain*

The sales level is much higher than a

year ago and growing.

U.S.

$417,000

Local Median to Conforming Limit Ratio

$417,000

not comparable

-$29,733

-$32,233

$22,000

Most buyers in this market have accesto government-backed financing$271,050

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000$180,000

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%10%

2011Q3

Q12010Q3

Q12009Q3

Q12008Q3

Q12007Q3

Q12006Q3

Q12005Q3

Q12004Q3

Q12003Q3

Q12002Q3

Median Price (Red Line) and One-year Price Growth

0

100

200

300400

500

600

700

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2011Q3

Q12010Q3

Q12009Q3

Q12008Q3

Q12007Q3

Q12006Q3

Q12005Q3

Q12004Q3

Q12003Q3

Q12002Q3

State Home Sales (Red Line) and Sales Growth1,000s

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#N/A #N/A #N/A #N/A

Natural Resou 3.5% 91.7 Natural 0.6%

Construction 7.0% 182.7 Constru 0.6%

Manufacturing 8.8% 228.6 Manufa 8.9%

Trade/Transpo 20.1% 524.4 Trade/T 18.9%

Information 1.1% 29.6 Inform 2.0%

Financial Act 5.2% 135.4 Financi5.7%

Prof. & Busin 14.7% 383.5 Profes 13.2%

Educ. & Heal 12.4% 321.9 Educat 15.3%

Leisure & Ho 9.1% 238.3 Leisur 10.0%

Other Servic 3.7% 97 Other 4.1%

Government 14.3% 372.7 89.5% Gover 16.9% #N/A

#N/A #N/A #N/A #N/A#N/A #N/A #N/A #N/A

Information

Financial ActivitiesProf. & Business Services

Educ. & Health Services

Leisure & Hospitality

Service Providing Excluding Government Other Services

Government

Local Economic Outlook Houston

10,800

NA

NA

12-month Job Change (Aug)

13,800

66,300Employment has held up and is on an

upward trend

NotComparable

12-month Job Change (Sep)

U.S.

NotComparable

Unemployment has risen since thesame period last year, but Houston'slabor market has been more resilient

than the national average

Not

Comparable

Drivers of Local Supply and Demand

63,300

36-month Job Change (Sep)

The economy of Texas has outpacedthe rest of the nation and improvedmodestly from last month's 2.96%

change

U.S.

-4,400

12-month Employment Change by Industry in the Houston-Baytown-Sugar Land Area (Sep - 2011)

Year-ago Unemployment Rate

9.1%

9.6%

2.6%

8.6%

8.3%

Share of Total Employment by IndustryU.S.

State Economic Activity Index

Construction

NA10,100

9,700

7,900

20017,600

1,500

5,200

Current Unemployment Rate (Sep)

36-month change (2011 - Sep)

-1,900

Natural Resources and Mining

Local employment growth is strong

compared to other markets0.8%

Natural Resources/Mining/Construction

12-month change (2011 - Sep)

1-year (12 month) Job Growth Rate

Houston-Baytown-Sugar Land Area

Texas

-2.6%-4.3%

3.2% 2.8%

Goods Producing

9,600Manufacturing

Trade/Transportation/Utilities

NaturalResourcesand Mining

3.5%

Construction

7.0% Manufacturing

8.8%

Trade/Transportation/U

tilities20.1%

Information1.1%

FinancialActivities

5.2%

Prof. &BusinessServices14.7%

Educ. &Health

Services12.4%

Leisure &Hospitality

9.1%

OtherServices

3.7%

Government

14.3%

NaturalResourcesand Mining

0.6%

Construction

0.6% Manufacturing

8.9%

Trade/Transportation/

Utilities18.9%

Informatio2.0%Financial

Activities5.7%

Professional &

BusinessServices13.2%

Educational& HealthServices15.3%

Leisure &Hospitality

10.0%

OtherServices

4.1%

Government

16.9%

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Construction is down from last year,but appears to have bottomed.

While new construction is the traditional driver of supply in real estate, foreclosures now have a strong impact oninventories, particularly at the local level. Rising inventories, through construction or foreclosure, place downwardpressure on the median home prices.

The current level of construction is

41.4% below the long-term averagenot comparable21,578

New Housing Construction

Single-Family Housing Permits (Sep 2011)12-month sum vs. a year ago

U.S.

8-year average for 12-month Sum of 1-UnitBuilding Permits

Local Fundamentals

12-month Sum of 1-unit Building Permits through

Sep 2011

Houston

Reduced construction will limit newsupply to the market, allowing demand

to catch up with the inventory more

quickly

not comparable36,829

-7.4% -10.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

State Total Foreclosure Rate vs. U.S Average(U.S. Average in Blue Dashed Line)

Source: Mortgage Bankers' Association

0

10,000

20,000

30,000

40,000

50,000

60,000

Construction: 12-month Sum of Local Housing Permits(Historical Average Shown in Red Dashed Line)

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89.2% 3.1% 7.6% 90.9% 4.9% 4.1%

1.4% 3.2%

1.5% 3.4%

10.5% 18.9%

9.3% 18.2%

5.1% 15.2%

5.2% 15.2%

Source: First American CoreLogic, LoanPerformance data

10.7% 11.7% 11.5% 26.6% 27.8% 27.5%

3.4% 3.8% 3.8% 5.8% 6.2% 6.3%

1.4% 1.5% 1.5% 3.2% 3.4% 3.2%

Source: First American CoreLogic, LoanPerformance data

Locally, today's foreclosure rate is lowrelative to the national average

The subprime foreclosure rate jumpedcompared to March of last year

The "foreclosure + REO rate" is the number of mortgages, by metro area, that are either in the foreclosure process or have complet

the foreclosure process and are owned by banks divided by the total number of mortgages for that area.

ALT-A:Foreclosure + REO

Rate

The local alt-A rate eased slightlyrelative to March of last year

The decline of both the 60 and 90-day

delinquency rates over the most recen6-month period suggests a decline inthe local foreclosure rate in the near

future.

The Houston market has been able tocontain both subprime and prime

lending issues

The local prime rate fell modestly from

March of last year

SUBPRIME:

Foreclosure + REORate

Houston

The August rate for Houston is low

compared to the national average

Prime:

Foreclosure +

REO Rate

Prime Foreclosures and Delinquencies in ProcessMonthly Market Data -

August 2011

Prime: 90-day

Delinquent

Foreclosures by TypeMonthly Market Data -

August 2011

PRIME:Foreclosure + REO

Rate Compared to the national average,today's local prime rate is low

Market Share:

Prime (blue), Alt-A(green), and Subprime

(red)

U.S.Houston

Prime: 60-day

Delinquent

U.S.

The 90-day delinquency rate in Houstofell over the 6-month period ending in

August

The local 60-day delinquency rate fellover the 6-month period ending in

August suggesting that 90-daydelinquencies will decline in the near

future

1.39%

1.50%

Aug-11Mar-11

3.15%

3.43%

Aug-11Mar-11

10.53%9.33

%

Aug-11Mar-11

5.13%

5.20%

Aug-11Mar-11

18.88%18.1

5%

Aug-11Mar-11

15.18%

15.21%

Aug-11Mar-11

89.2

%

3.1% 7.6%

90.9

%

4.9

%

4.1

%

10.66%

11.71%

11.45%

Aug-11Mar-11Aug-10

26.60%

27.80%

27.52%

Aug-11Mar-11Aug-10

5.82%

6.24%

6.25%

Aug-11Mar-11Aug-10

1.39%

1.50%

1.52%

Aug-11Mar-11Aug-10

3.15%

3.43%3.17

%

Aug-11Mar-11Aug-10

3.40%

3.75%

3.82%

Aug-11Mar-11Aug-10

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Monthly Mortgage Payment to Income

Historical Average 1.3

2.4

Houston

Houston

Ratio for 2010 15.1%

U.S.

Ratio for 2011 Q3

Median Home Price to Income

Historically strong and an improvemenover the second quarter of 2011

Affordability

7.5%

7.8%

13.9%

Historical Average

U.S.

1.3

1.3

2.7

2.3

More affordable than most markets22.0%10.3%

The price-to-income ratio has fallen anis below the historical average

Affordable compared to most markets

Ratio for 2011 Q3

Ratio for 2010

0%

5%

10%

15%

20%

25%

30%

2010200820062004200220001998199619941992

Long-Term Trend: Ratio of Local Mortgage Servicing Cost to Income(Local Historical Average Shown in Red, U.S. Average in Green)

0%

2%

4%

6%

8%

10%

12%

2011 Q32011 Q22011 Q12010 Q42010 Q32010 Q22010 Q12009 Q4

Recent Trend - Local Mortgage Servicing Cost to Income(Historical Average Shown in Red Dashed Line)

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After a soft second quarter, the economy was shocked by three events that came together nearly within the same weak; deadlock in Congress and near miss on the budget extension, renewed concerns about the Greek debt crisis impacting

the US, and a sharp, downward revision to 1st and 2nd quarter GDP estimates. The result was a 15% or more correctionin the equity indexes, which sent investors into US Treasuries seeking a risk free asset. The yield on the 10-yearTreasury reached near record lows and the 30-year FRM followed suit, slipping under 4% multiple times. However, thegap between the 10-year Treasury and the 30-year fixed opened up as the risk to MBS investors of increased refinancingrose, creating resistance for falling mortgage rates. Fuel prices eased in the 3rd quarter and are likely to do so through

the fall. At the same time there is little core inflation pressure, which combined with the Federal Reserves operationtwist that is intended to flatten the yield curve putting downward pressure on long-term rates, should sustain a near-record low mortgage rate environment through the fall.

The Mortgage Market

0

40

80

120

160

200

240

280

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2011 Q3Q12010 Q3Q12009 Q3Q12008 Q3Q12007 Q3Q12006 Q3

30-year Fixed Mortgage Rate and Treasury Bond Yield

Spread (left axis) 30-Year FRM (Right axis) 10-Year Treasury Bond (Right Axis)

0.0

0.5

1.0

1.5

2.0

2.5

3.03.5

4.0

2010200820062004200220001998199619941992

Ratio of Local Median Home Price to Local Average Income(Local Historical Average Shown in Red, U.S. Average in Green )

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A Closer LookLocal Rental

Vacancy Rates

8.6%

More information on the OMB's geographic definitions can be found at http://www.whitehouse.gov/omb/inforeg_statpolicy/

Austin County, Brazoria County, Chambers County, Fort Bend County, Galveston County, Harris County, Liberty CountyMontgomery County, San Jacinto County, and Waller County

The Houston area referred to in this report covers the geographic area of the Houston-Baytown-Sugar Land metro area aofficially defined by the Office of Management and Budget of the U.S. Government. The official coverage area includes

the following counties:

Geographic Coverage for this Report

Rental Vacancy Rate Texas U.S.Ratio for 2010 16.2% 10.2%

Data for Texas Not AvailableRatio for 2011 Q3 17.1% 9.8%

Historical Average 16.2%

#N/A

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

201020082006200420022000199819961994199219901988

U.S. (blue) and Local (red) Rental Vacancy Rates