Real Estate Investment Strategies

Banks are purposefully ceding market share in targeted residential markets Share of origination (%) Sizable universe of potential borrowers remain unable to access mortgage credit Bank vs. non-bank mortgage origination share & total origination market volume $3,500 100% $3,000 Banks retreat from lending due to changes in capital charges, punitive fines and regulatory action 80% $2,500 60% $2,000 Non-banks gain market share; low rates, lack of balance sheet, and investor base limits focus on non-agency lending $1,500 40% $1,000 200-300bn of potential borrowers remain underserved by mortgage market 20% $500 $0 0% '05 '06 '07 '08 '09 '10 '11 Est Total Originations (lhs) '12 '13 '14 Bank (rhs) '15 '16 Non-Bank (rhs) Changing composition of U.S. residential origination market 100% MBS 80% 100% Non-agency RMBS Balance sheet 80% 60% 40% 20% 0% Laal.l. '03 '05 '06 '10 '15 60% 40% 20% FICO Score Distribution at Origination 0% '00 '02 '04 Score 500-579 Score 740-819 '06 '08 Score 580-659 Score 820+ '10 '12 '14 Score 660-739 '16 As of 31 December 2016. SOURCE: Freddie Mac, Inside Mortgage Finance (latest data as of 3Q '16) (top right and bottom left), PIMCO, CoreLogic (bottom right) Refer to Appendix for additional outlook information. PIMCO 9

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