(http://fcic-static.law.stanford.edu /cdn_media/fcic-docs/2006-00-00_CMLTI_2006-NC2_07R_due diligenceaccept.pdf)Results of the review: Reject(http://fcic-static.law.stanford.edu /cdn_media/fcic-docs/2006-00-00_CMLTI_2006-NC2_07R_due diligencerejects.pdf)
As the loan purchase was closing on August 29th, New Century sent afinal list of the 4,521 loans they were selling. Citi personnel sawviolations of the initial agreement: 14 NINA loans (no income, no assets)and too few loans with prepayment penalties. They forced New Centuryto keep the 14 NINA loans and bargained the price down to account forthe other problems.
Emails detailing the problems(http://fcic-static.law.stanford.edu /cdn_media/fcic-docs/2006-08-29_CMLTI_2006-NC2_08R _ final pool issues.pdf)Final trade summary showing4,507 loans (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-08-29_CMLTI_2006-NC2_09R _ trade summary.pdf)
With the loans settled, $978.6 million had to be moved from Citigroup toNew Century. These loans were funded by a series of warehouse lineswith individual loans serving as the collateral. New Century sent Citi thewire instructions; Citi sent the money, and the individual lenders releasedthe loans as they were paid back.
Wire instructions (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-08-29_CMLTI_2006-NC2_10R _ Wire instructions.pdf)Tracking email from Citi to NewCentury (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-08-29_CMLTI_2006-NC2_11R_ Wire confirms.pdf)Release letters (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-08-29_CMLTI_2006-NC2_12R _ Mortgagereleases.pdf)
Citi then began to market the various tranches of this mortgage-backedsecurity
Prospectus (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-09-12_CMLTI_2006-NC2_13R _ Prospectus.pdf)Fannie Mae term sheet (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-09-07_CMLTI_2006-NC2_14R _ Fannie TermSheet.pdf)
To sell the bonds, Citi needed the rating agencies to rate them. OnSeptember 11, S&P ran its model and confirmed the ratings of theindividual tranches. When the deal was priced on September 12, theinterest rates on some of the bonds were slightly different than thoseS&P had originally modeled. The final models were run on September 26as the deal was closing. S&P sent the final ratings letter to Citi. Forrating this deal, S&P earned $135,000. (A second agency, Moody’s,earned $208,000.)
Moody’s invoice (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-10-12_CMLTI_2006-NC2_15R _ Moody's invoice.pdf)S&P Invoice (http://fcic-static.law.stanford.edu/cdn_media /fcic-docs/2006-09-27_CMLTI_2006-NC2_15bR _ S& P invoice.pdf)