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Rating Action:

MOODY'S ASSIGNS PROSPECTIVE RATINGS TO THIRD SECURITISATION OF REVERSE MORTGAGES ORIGINATED IN THE UK BY NORWICH UNION EQUITY RELEASE LIMITED

14 May 2003
MOODY'S ASSIGNS PROSPECTIVE RATINGS TO THIRD SECURITISATION OF REVERSE MORTGAGES ORIGINATED IN THE UK BY NORWICH UNION EQUITY RELEASE LIMITED

Approximately GBP440.0 Million of Debt Securities Affected.

London, 14 May 2003 -- Moody's Investors Service has assigned prospective ratings to the following Notes issued by Equity Release Funding (No.3) PLC:

- (P)Aaa to the GBP [60,000,000] Class A1 Mortgage Backed Floating Rate Notes due [2028]; and

- (P)Aaa to the GBP [290,000,000] Class A2 Mortgage Backed Floating Rate Notes due [2033]; and

- (P)Aaa to the GBP [50,000,000] Class A3 Mortgage Backed Floating Rate Notes due [2023]; and

- (P)Aa3 to the GBP [40,000,000] Class B Mortgage Backed Floating Rate Notes due [2038].

This transaction represents the third securitisation of equity release (or "reverse") mortgages originated in the United Kingdom by Norwich Union Equity Release Limited. Reverse mortgage are loans secured by a first legal mortgage on the borrower's property. No interest or principal payments are required during the lifetime of the loan. Instead, interest accrues on the loan until the lender is fully repaid in a single bullet, typically from the sale proceeds of the property. Borrowers may elect to prepay at any time, but the loan is not required to be repaid until the earlier of the death of borrower or the borrower entering into long-term care.

There are several areas of uncertainty which are more relevant to reverse mortgages than to standard RMBS deals rated by Moody's in the United Kingdom: (1) Timing of cashflows: all but the Class A1 Notes follow a scheduled amortisation profile, however the repayment profile of the loan portfolio depends on less predictable factors, including the rates of prepayment, mortality and morbidity exhibited by the borrowers in the pool. (2) Property prices: the value of the properties upon which the mortgages are secured may increase at a low rate, or may even decrease, introducing the risk that the principal and accumulated interest outstanding upon redemption of a loan is greater than the value of the property.

However, Moody's believes that the above risks are consistent with the above prospective ratings assigned to the Notes for the following reasons: (1) The moderate LTV levels in the pool: the average LTV based on balance of loan at launch and valuation of the property at policy inception is 27.2 per cent, with the maximum in the pool currently 53.8 per cent. (2) The insurance policy provided by Norwich Union Life and Pensions Limited (Aa2 insurance financial strength rating), which covers the risk on pre-specified loans comprising 36.7 per cent of the portfolio (by current loan balance) of any shortfall in redemption monies arising from the gross loan balance being greater than the property value less costs of sale. (3) The Liquidity Reserve Fund of GBP 35,000,000 million at launch which will be available to cover all senior expenses in the waterfall and interest payments on the Notes, in particular during the early years of the deal when redemption monies are anticipated to be scarce. (4) In addition, there will be an amortising GBP 185,000,000 Liquidity Facility provided by Barclays Bank PLC (Aa1, Prime-1) and Citibank, N.A. (Aa1, Prime-1), which further reduces the risk of liquidity deficiencies arising from the scheduled amortisation of the Class A2 Notes, the Class A3 Notes and the Class B Notes.

Norwich Union Equity Release Limited, the originator, seller and administrator of the loans, is a wholly owned subsidiary of Norwich Union Life and Pensions Limited, which is itself an indirectly held wholly owned subsidiary of Aviva plc.

Moody's issues prospective ratings in advance of the final sale of securities, and these ratings only represent Moody's preliminary opinion. Upon a conclusive review of all documents and legal information as well as any subsequent changes in information, Moody's will endeavour to assign definitive ratings to the Notes. A definitive rating may differ from a prospective rating.

The prospective rating on the Class A1 Notes addresses the timely payment of interest and the ultimate payment of principal at par on or before the final legal maturity date. The prospective rating on the Class A1 Notes does not address the timely and full payment of the Class A1 Step-Up Amount. The prospective ratings on the Class A2 Notes and the Class A3 Notes address the timely payment of interest and the timely payment of principal according to their respective amortisation schedules. The prospective rating on the Class B Notes addresses the ultimate payment of interest and the ultimate payment of principal at par on or before the final legal maturity date.

To obtain a copy of Moody's Pre-Sale Report regarding this transaction, please contact Moody's London Client Service Desk at +44-20-7772 5454 or visit our website at www.moodys.com (Structured Finance / Residential MBS).

London
Detlef Scholz
Managing Director
Structured Finance Group
Moody's Investors Service Ltd.
44 20 7772 5454

London
George Skelton
Senior Associate
Structured Finance Group
Moody's Investors Service Ltd.
44 20 7772 5454

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