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EXHIBIT 1

FILED: NEW YORK COUNTY CLERK 09/20/2012
INDEX NO. 602825/2008
NYSCEF DOC. NO. 1974 RECEIVED NYSCEF: 09/20/2012
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK CITY
MBIA Insurance Corporation,
Plaintiff,
Index No. Ogi Gt:i:2.. l.s-
COMPLAINT
-against-
Countrywide Home Loans, Inc., Countrywide
Securities Corp., and Countrywide Financial
Corp.
Defendants.
-
NEWYO.'l'
COUNTY ctEfh.,
ISfP 30 2U06
"'01 COiv:f-'ARED
• WITH COpy FiLED
. .. -...
• > '" """. ••
Plaintiff MBIA lm;urance Corporation ("MBIA"), by its attorneys, Quinn
Emanuel Urquhart Oliver & Hedges LLP, faT its Complaint herein against Countrywide Home
Loans, Inc. ("Countrywide Home"), Countrywide Securities Corporation ("Countrywide
Securities") and Countrywide Financial Corporation ("Countrywide Financial") (collectively,
"Countrywide"), alleges as follows:
NATURE OF ACTION
1. This action arises Qut of the fraudulent acts and breaches of contract of
Countrywide in connection with the securitizations of pools of home equity loans (the "Mortgage
Loans")_ Countrywide, the largest residential mortgage originator and servicer in the country,
originated and sold (or otherwise conveyed) Mortgage Loans to trusts that in tum issued and sold
residential securities ("RMBS") to investors. To make these securitizations
more marketable, Countrywide induced MBIA to provide billions of dollars of credit
enhancements in the form of guarantees of the trust obligations on particular classes of RMBS.
In order to do so, Countrywide falsely represented to both MBIA and the trust investors that
, ,.
Countrywide had originated the Mortgage LOtH1S in strict compliance with its umkrwritill!!
standards, and guidelines, which were dcvciop •.xi over lime 10 sen .. 'CIl the creditworthincss or
borrowers and the likelihood that mortgage loans would h .... · rl']Xlid.
2. In reality, as it fought aggressively to expand its already enormous market share
in the mortgage lending boom of the past few years, COlllltrywid .... "-,-undcr tho diro.)ctioll or !tlrll1l,,!f
Chief Executive OHiccr Angelo Mozilo and former President and Chief Operating omccr David
a systematic pattern and practice of abandoning its own guidelines for loan
origination: knowingly lending to borrowers who could not afford to repay the loans, Or who
committed fraud in loan applications, or who otherwise did not satisfy the basic risk criteria for
prudent and responsible lending that Countrywide claimed to usc.
3. From at least 2005 through 2007, in securitization after securitiz.ation, these
practices fundamentally changed the risk profile of the Mortgage Loans from that represented by
Countrywide. As a direct result of Countrywide's deliberate misconduct as a loan originator, and
its fraudulent representations as to the characteristks of the loan pools in the securitizations for
which MBIA provided guar.mtees, thousands of Mortgage Loans are in default and/or
foreclosure, while MBIA has already paid out over $459 million on its guarantees and is exposed
to claims in excess of several hundred m.illion dollars more.
4. Further, compounding the harms of its original fraud, Countrywide has refused to
repurchase or replace non-compliant. Mortgage Loans with eligible loans that do meet
Countrywide)s ovvn guidelines
j
thereby breaching express representations and warranties in its
contracts with MBIA. If Countrywide had truthfully represented its deliberate deviation from
guidelines and past practice in loan origination, MBIA never would have issued guarantees on
2
!
the RMBS notes, and MBIA would not have surk'n:d the related dl!clines in ilS market <lnd
other losses.
5. As alleged by the Attorney General J()f the State of Calilorniu: "Countrywide: 's
deceptive scheme had one primary goal-to supply the secondary rnarket with ,IS many loans as
possible, ideally loans that would earn the highest premiums. Over a period of years,
Defendants constantly expanded Countrywide's share of the consumer market lor mortgage
loans through a ",ide variety of deceptive practices, undertaken with the direction, authorization;
and ratification of Sambo] and Mozilo. in order to maximize its profits from the sale of those
loans to the secondary market."
6. In short, Countrywide deliberately abandoned its own guidelines to drive up
revenues from increased origination fees, securitization fees, and servicing fees-no matter the
cost to borrowers, investors. or guarantors like MBLA.
7. Accordingly, MBIA now brings this action against Countrywide for fraud,
negligent misrepresentation and breach of contract.
PARTIES
8. PlaintiffMBIA Insurance Corporation is a New York corporation with its
principal place of business at 113 King Street, Armonk, New York. MBIA is one of the nation's
oldest and largest monoline insurers, and provides financial guarantee insurance and other forms
of credit protection, generally on financial obligations which are sold in the new issue and
secondary markets.
9. Defendanl Countrywide Financial Corporation is it Delaware corporation with its
principal executive offices in Calabasas, California. Countrywide Financial, itself or through its
3
subsidiaries, is engaged in mortgage lending und other rcal
including mortgage banking, securities OL"lling, and inslIr..incc undcnvriting.
10. Defendant Countrywide Home Loans, Inc., a wholly-owned subsidiary of
Countrywide Financial, is a New York corporation with its principal executiw ol1iccs in
Calabasas, California. Countrywide Home originates and services residential home mortgage
loans.
11. Defendant Countrywide Securities Corporation, a wholly-owned subsidiary of
Countrywide Financial, is a Delaware corporation with executive offices in Calabasas, California
and in New York, New York. Countrywide Securities is a registered broker-dealer and
underwrites offerings of mortgage-backed securities.
JURISDICTION AND VENUE
12, This Court has jw'isdiction over this proceeding pursuant to CPLR § 30 I,
COWltrywide Home is a New York corporation, and has appointed an agent for service of process
and has consented to the jurisdiction of Courts within the State, In addition, each of Defendants
Countrywide Financial
1
COWltrywide Home and Countrywide Securities expressly consented to
the jurisdiction of this Court over contractual and all other claims arising out of the transactions
that give rise to the claims in the Complaint. Each is registered and/or licensed to do business
within the State and has agreed to the jurisdiction of the Courts v.rithin the State over matters
arising out of its activities vvithin the State. Each has offices and regularly transacts business
within the State. Each participated in negotiations and other activities within the State which led
to the transactions that give rise to the claims in the Complaint, and the transactions themselves
occurred within the State.
4
,
13. Venue is proper in this Courl pursuant to CPLI{ 503(1.'). Each or f)dendants
Countrywide- Financial, Countrywide I lome. and Countrywide Sl'cliril ics expn ... 'sl-lly <Igrccd that
the Courts within the County and State or New York arc an appropriate vcnuc lor all actions
arising Qut of the transactions that give risc to the claims in the Complaint. In addition,
negotiations and other substantial activities rdating to the transactions that give fist..: to the claims
in the Complaint occurred within the State.
FACTUAL ALLEGATIONS
I. Countrywide Promotes Itself As a Reputable and Conservative Loan Originator.
14. Co-founded in 1969 by Angelo Mozilo, Countrywide is an industry leader of the
residential mortgage lending industry. As of Manoh 31,2008, Countrywide was the largest
originator of residential mortgage loans in the country, and also the largest servicer of mortgage
loans in the country. In the first quarter of2008 alone, despite a sharp decline in residential
home sales, Countrywide originated $73 billion in mortgage loans. During that same quarter,
Countrywide serviced and administered approximately $1.5 trillion of residentjalloans
originated by itself and other lenders, generating $1.4 billion in revenues.
15. In addition to origination and servicing of residential mortgage loans.
Countrywide, itself or through affiliates, purchases and sells mortgage loans, provides loan
closing services, provides residential real estate and home appraisal services in connection with
loan origination and servicing, manages a captive mortgage reinsurance company, packages and
arranges securitizations of mortgage loan pools, and undel""Nrites public offerings of
backed securities in the secondary market.
16. On infonnation and belief, prior to 2004, the substantial majority of mortgage
loans that Countrywide originated each year were traditional long term, fixed-rate, first lien
5
mortgage loans to prime horrowcrs whJch mCllhc guiuL'linl..'s Ii.lr sale In 11ll' Federal National
Mortgage Association ("l,'annie M ae'l) Of the Federal 110m..: I ,tKI',} M C orporat'loll
("Freddie Mac"). Fannie Mac and Freddie Mac arc authorizt:d to purchase only mortgage luans
that conform to speciJic regulatory guidelines (known in th",' induslfY uS "conforming loans')
Conforming loans, if properly undcnvritten and serviced, historically wert: the most conservative
loans) with the lowest rales of delinquency and default, in the residential mortgage industry.
Mortgage loans which fail to meet the regulatory guidelines arc known in the industry as "non-
conforming loans."
17. Countrywide extolled its conservative Credit Policy, which it proclaimed was
"designed to produce high quality loans through a rigorous pre-loan screening procedure and
post-loan aUditing and appraisal and l.U1derwriting reviews." In its 2004 annual report,
Countrywide summarized the comprehensive standards and procedures of its Credit Policy:
Our Credit Policy establishes standards for the determination of acceptable credit
risks. Those standards encompass borrower and collateral quality, underwriting
guidelines and loan origination standards and procedures. Borrower quality
includes consideration of the borrower's credit and capacity to pay. We assess
credit and capacity to pay through ... manual or automated underwriting of
additional credit characteristics. Our loan origination standards and procedures
are designed to produce high quality loans. These standards and procedures
encompass underwriter qualifications and authority levels, appraisal review
requirements> fraud prevention, funds disbursement controls, training of our
employees and ongoing review of their work ... In addition, we employ
proprietary underwriting systems in our loan origination process that improve the
consistency of underwriting assess collateral adequacy and help to
prevent fraud, while at the same time increasing produc'tivity.
In addition, CountIYWide described the extensive Credit Policy procedures that
had been implemented to ensure consistency. accuracy and fraud detection:
In addition to OUf controls and procedures, we employ an extensive
post-funding quality control process. Our Quality Control Department, under the
direction of the Chief Credit Oflicer, is responsible for completing comprehensive
loan audits that consist of a of loan documentation, an in-depth
underwriting and appraisal review, and if necessary, a fraud investigation.
6
}
18. Countrywide claimed that its disciplined underwriting standards not only
distinguished it from other lenders in the industry. but best-in-class 10 be
emulated. For example, in an investor forum hosted by in Scptcmb..:r 2006, Mozi 10
explained that Countrywide not only led the industry in developing effidencit.'::>, hut also in
responsible lending:
Not only did we drive efficiency in the marketplace, but as an industry leader we
served as a role model to others in tenus of responsible lending. We take
seriously the role of a responsible lender for all of our constituencies .... To help
protect our bond holder customers, we engage in prudent underwriting
guidelines. (Emphasis added.)
19. At the Same forum, Sambol added that:
We're extremely competitive in terms of OUr desire to win, and we have a
particular focus on offense, which at the same time is supplemented by a strong
defense as well. meaning that we have an intense and ongoing focus on share
growth while at the same time maintaining a very strong internal control
environment and what we believe is best-of-class governance, , , ,[OJur culture is
also characterized by a very high degree of ethics and integrity in everything that
we do, (Emphasis added,)
II. Countrywide Seeks More Market Share But Pledges Continued Rigorous
Underwriting.
20. In or around 2003, there was rising demand on Wall Street for "private label"
securitizations loans. Private label securitizations are arranged and
underwritten by ptivate firms (i.e., not government-sponsored entities) and are comprised of non-
conforming loans that cannot be purchased by Fannie Mae and Freddie Mac. Because they may
be comprised of riskier loans than those meeting Fannie Mae and Freddie MaC'S criteria, private
label securitizations generate higher returns for investors, as well as greater revenues for
originators.
21. Increased securitizations required increased loan origination to generate the
underlying pools of loans. Countrywide pledged, however, that the growth in originations would
7
.'
not compromise its strict underwriting standards. In a 2004 call ... vill) Mo/jlo
announced that already thl.: intiu:::{ry 10adcr with nl'i.lrly u J 5% Illan origination
market share) planned to double its market shan.! within four years: "()or goal is market
dominance, and we are talking 30% origination market share by 2008," Mozilu pledged,
however, that Countrywide would target the safest borrowers in this market in order to maintain
its commitment to quality. "'Going/or 30% mortgage share here is fOMlly unrelated to quality of
loans we go after.". There will be no compromise in that as we grow market share. Nor is there a
necessity to do that." (Emphasis added.)
22. Starting in 2004 and accelerating in 2005, Countrywide expanded its origination
and securitization ofriskier lines including subprime mortgages, interest-only loans,
Pay Option ARMs (an adjustable rate mortgage loan that allows a borrower to make initial
minimum monthly payments less than monthly ac·ctued interest), closed-end second liens
("CES"), and home equity lines of credit ("HELOCs"), with a much broader base of potential
borrowers. A HELOC is a second lien on residential property. The borrower's equity in the
property (i.e .• the value of the property that is not used as collateral for the first lien)
collateralizes a specified line of credit that may be drawn down by the borrower. A CES is also
collateralized by the borrower's equity, but the loan is of a fixed amount Because they are both
second liens, HELOCs and CESs are junior in priority to the first lien. As a consequence, if the
property is foreclosed, the proceeds must be used to fully satisfy the first Hen before the sc-cond
lien is paid.
23 _ At the same time, Countrywide reassured investors and credit enhancers, such as
MBIA, that its underwriting procedures and credit risk management remained highly rigorous.
8
For example, in its 2005 and thereafter, and incorporated ill thl' Prosp!:elus lil!' each
securitization for which MBIA provided a gU31"'.mtCC, CoulllrywiJl' rcprl'scntl.'cJ th<.ll:
(Countrywide] ensurels1." ongoing access to the mortgage murkct by
consistently producing quality mortgages and servicing those mortgages ill levels that
meet or exceed secondary mortgage market standards .... 1 W Ie have a mujor t)J1
ensuring the quality of our mortgage loan production and we make significant
investments in personnel and technology in this regard.
24. In particular. Countrywide touted its underwriting guidelines, claiming to
ascertain facts about '''borrower and collateral quality" including applicant assets and liabilities.
income, employment history, and other demographics and personal information, as well as a full
property appraisal. Countrywide claimed that it obtained alJ applicable income, liability, asset,
employment, credit, and property infonnation, on the basis of which it ascertained debt-to-
income ratios (the ratio ofa borrower's total monthly debt obligations to gross monthly income)
and combined loan-to-value ratios (the ratio of the total outstanding value of the senior and
subordinate loans on a property to the value of such property). Because the guidelines are
ostensibly designed to ensure that loans perform over time) Countrywide knew that the quality of
its guidelines-and its adherence to them-woulQ materially affect the risks of investing in or
guaranteeing its securitizations,
25. Throughout Countrywide's expansion, Mozilo consistently represented that
Countrywide would not sacrifice the strict and disciplined underwriting standards that had made
it an industry leader in responsible lending. During a March 15,2005 conference with analysts,
Mozilo responded to a question aboul CountryWide's strategy for increasing market share, and
again assured Countrywide's constituents:
Your question is 30 percent; is that realistic, the 30 percent goal that we set for
ourselves 2008? ... Is it achievable? Absolutely ... But I will say this to you,
that under no circumstances will Countrywide ever sacrifice sound lending and
9
margins/i)r the sake o/getting fa thaI 30 pan'f1tmarkel sliurI:. (Emphasis
added.)
26. Other Countrywide senior oOi<.::(;rs J.:chocd Ihut Countrywide had not, <lnd \V(luld
not, loosen its underwriting standards. For exampk, in an April 2005 conference c;:lll with
analysts, Eric Sicmcki. Countrywide'S: Chief' Financial Officer, responding to a question asking
whether Countrywide had changed its underwriting protocols, said: ") think they 11;leO scores,
combined loan-to-value and debt-to-income ratiosl will remain ... consistent with t.he !irst
quarter and most of what we did in 2004. We don', see any change in our protocol relative /(J
the volume [ofl/oans that we're originating." Sieracki added that, as to the Countrywide-
originated HELOCs: "The credit quality of our home equities should be emphasized here as
well. We are 730 FICO on these home equities. and that's eXTraordinary throughout the
industry" (emphases added).
III. Nature of the SecuritizatioDs at Issue.
27. This case concerns ten RMBS securitizations ofHEWCs and CESs reflecting
over $14 billion ofMortgnge Loans: CWHEQ 2005·E, CWHEQ 2005·1, CWHEQ 2005·M,
CWHEQ 2006-E, CWHEQ 2006-G, CWHEQ 2006·S8, CWHEQ 2007-E, CWHEQ 2007·SI,
CWHEQ 2007·S2, CWHEQ 2007·S3 (together, the "Securitizations").
28. An RMBS is an entity (typically a trust) that issues notes securitized by a pool of
residential mortgage loans. The cashflows from these loans (in the form of payments of interest
and principal) are used to pay obligations on the RMBS notes. A purchase of an RMBS is thus
the purchase of a right to participate in the cashfIows generated by the pool of mortgages.
Because the mortgages are the only collateral supporting the RMBS, their credit quality is of
critical importance to an RMBS noteholder.
10
29. Countrywide acted in several I.:apndtics on (he Sccliriliz<ltions, Ill1,'Uch or whil.:h it
stood to profit First, Countrywide Home originatr..:d or :Jxquired all the M()ftg,agl.' J .oam J ~ ~ I " each
Securiti:r..ation, and sold (or otherwise convcYL'c.l) the Mortgage Loans to the Trust!' that issued the
RMBS. Second. Countrywide Securities arranged and underwrote each Sccuriliztltion.
structuring and marketing the transaction as well as making SEC filings. Third. ('oulltrywidc
Home acted as servicer for the Mortgage Loans in each Securitization, contracting with each of
the Trusts that it caused to be created to issue the RMBS.
30. To increase the marketability of the Notes. Countrywide also engaged MBIA to
provide credit enhancement OD the R.M:BS. The credit enhancement-in the form of a guarantee
of repayment of principal and interest for the RMBS notes in each Securitization--..allowed the
guaranteed, or wrapped, tranches ofRMBS to have higher credit quality (reflected by a "AAA"
or equivalent credit rating) than the underlying collateraL Because the trust obligations are
backed by MBIA, in its capacity as insurer, any shortfalls in trust payments of principal or
interest are covered -by MBIA. That allowed Countryvvide to market the Notes on the basjs of
MBIA's then-AAA credit rating, rather than the lower credit quality implied by the collateral and
the RMBS structure alone.
31. For each Securitization, Cowltrywide generally solicited bids from several
monoline insurers, requiring responses within a short time period. Each securitization generally
comprised one or two pools of mortgage loans of between approximately 8,000 and 48,000
mortgage loans. As part of its solicitation of bids, Countrywide enc.ouraged insurers to rely; and
was aware that insurers in fact relied, on COWltrywide's public commitment to conservative
Wlderwriting and historical record of strong loan perfonnance. including lower rates of
delinquencies and defaults than that of most lenders in the industry.
11
32. To induce MBIA to guarantee these Sccuriti:rlltions. Countrywide went well
beyond its representations in each Prospectus regarding its umJerwriling guiddim:s and proi.:L'ss.
It also made a large number orcontntctuaI representations and W<lIT:.mticl:i to MBiA concerning
the origination and quality of the Mortgage Loans, including that the MortgagL' I,oans had bL"Cn
underwritten pursuant to its extensive set of approved guidelines. Countrywide further
represented that the Mortgage Loans would be selected from among the outstanding home equity
loan agreements in its portfolio that met stated criteria, and that "fo]o selection will be made in a
maimer that adversely affects the interests of the Noteholders or 1MBIA)" in the Securitizations.
33. Countrywide backed up its representations by agreeing that, in the event of a
breach of any representation or warranty related to a Mortgage Loan (a "Defective Loan"),
Countrywide would either cure the breach Or repurchase or substitute eligible MQrtgage Loans
for the Detective Loan. Because identifying Defective Loans is itself costly and time-
conswning, this "put-back" remedy was intended to address situations where only a small
nwnber of loans failed to satisfy eligibility requirements. As set forth in greater detail below.
MBIA relied upon Countrywide's representations, and warranties in evaluating the
risks presented by the Securitization, and ill agreeing to guarantee the obligations to the Notes.
34. From 2002 through 2007, MBIA provided credit enhancement in a total of 17
second-tier Countrywide securitizations of mortgage loans. This action concerns the
guaranteed Securitizations underwritten by Countrywide for the period from 2005 through 2007,
after Countrywide's adoption of the corrupt practices alleged herein. In an eITort to induce
MBIA to guarantee dIe Countrywide made available to MBIA, in addition to the
representations alleged above, a summary of its underwriting procedures for each Securitization,
and represented that its underwriting of the Mortgage Loans confonned to its stated underwriting
12
procedures as well as industry standards. Countrywitk pruvtd..:d MHIA with specilic d(lhl p o i n t ~
for each loan in what is known as a loan tape. The h)all tapt" reported inl()fJllatioll such m; the
loan-to-value ratio (LTV) for each loan and the debt-hl-incomc (1)'1'1) ratio for each bormv'i0r, a.s
well as each borrower's FICO score> which is a measure of creditworthiness. Countrywide also
represented that it was not aware of any reason why a borrower would not be able to repay a
mortgage loan.
35. Countrywide further provided MBIA with shadow credit ratings on the pmposed
pool of mortgage loans intended tor Securitization. On information and belief: Countrywide
solicited the shadow ratings from credit rating agencies based on information and representations
provided by Countrywide as to the credit quality ofthe mortgage loans and the amount of
overcollatera1izatiQll in the deal. All of the Securitizations had shadow ratings of at least BBB-
or the equivalent. Absent credit quality rtflected by a shadow rating of at least BBB-, MBIA
would not have agreed to provide credit enhancement.
36. Countrywide also provided, or referenced, the December 14,2004 Prospectus
filed with the SEC in connection with each public offering of mortgage-backed securities
(including the Securitizations). In that Prospectus, Countrywide described its business and
operations, its purportedly disciplined underwriting standards, and the quality of the mortgage
loans it originated. Countrywide also provided Supplemental Prospectuses that would be filed
with the SEC shortly before the securities for each deal were issued to the public. The
Supplemental Prospectuses prDvided more specific infonnation about, among other things, the
Mortgage Loans backing the securities in each Securitization.
37. Countrywide also made regular presentations to MBlA at MBIA's offices in New
York, including on June 23, 2004 and in May 2005, and at Countrywide's offices in California in
13
March 2007, During these meetings, Countrywid!.: louh.::d its expertise capahililics in 1n:.111
origination and servicing, and repeatedly represented that its risk management syskms W\.'ff..' stat!.:
of the art-both in its origination of loans and in its servicing of mortgages.
IV. The Contractual Provisions of Each Securitization.
38. Countrywide arranged and securitized each of the ten Sccllriti:l..<ltiol1s through a
similar series of contracts, including: (a) a PUrchase Agreement which provided for the sale of
mortgage loans to a Countrywide affiliate created to effect the securitizations; (b) a Sale and
Servicing Agreement which transferred the mortgage loans to a single purpose Trust, and
confirmed the terms of Countrywide's engagement by the Trust to service the mortgage loans;
(c) a Prospectus and Supplemental Prospectus filed by the Trust, which Countrywide used to sell
the mortgage-backed securities: and (d) a Trust Indenture. which. among other things,
established the rights of holders of securities and the obligations of the Trustee (collectively, the
Documents").
39, Countrywide, the Trust and MBIA then entered into an Insurance Agreement
which provided the terms for the issuance of an MBIA Iinancial guaranty policy (a "Policy") that
would be issued to the Trust. In each the Insurance Agreement incorporated the
representations and warranties and the obligations of the parties in the Transaction Documents.
and gave MBIA the right to rely on representations in the Transaction Documents, to enforce
their tenns, and to exercise remedies for any breach.
40, The Iirst transaction, CWHEQ 2005,E, is described in greater detail below. Each
of the subsequent transactions is substantially similar in every material respect.
14
(a) The Purchafe Agreemen.t
4 L On or abollt August 30, 2005, Countrywide into the Purchase Agreement
with its affiliate CWHEQ, Inc. C'CWHEQ") for the 2005-E transactioll. ill which Countrywide
agreed to sell the pool of Mortgage Loans to CWHEQ. In the Purchase Agreement
Countrywide made extensive representations and warranties, including representations Lind
warranties relating to the Mortgage Loans in Section 3.02 of the Purchase Agreement (the
"Mortgage Loan Representations"). The representations included that: (i) the mortgage file
relating to each Mortgage Loan was complete; (ii) information provided by Countrywide
regarding the Mortgage Loans was true and correct in ail material respects; (iii) each Mortgage
Loan complied with applicable local, state and federal laws; (iv) the Mortgage Loans,
individually and in the aggregate, complied with underwriting such as the ratio of total
unpaid balance ofloans On the mortgaged property to the value of the mortgaged property, the
ratio of borrower debt to income, and borrower credit scores; (v) the nature of tile property was
as specified in the Mortgage Loan; and (vi) Countrywide did not have knowledge of any fact that
would cause a reasonable originator of mortgage loans to conclude that the Mortgage Loan
would not be paid in full when due.
42. The Purchase Agreement provides that, if a Mortgage. Loan Representation was
inaccurate at the time when made, and such inaccuracy materially and adversely affected the
interests ofMBIA, the inaccuracy constitutes a breach regardless of Countrywide's knowledge
of the inaccuracy at the time of the representation, If Countrywide fails to cure a breached
Mortgage Loan Representation, Countrywide can be compelled to cure the breach by
repurchasing each Mortgage Loan that is inconsistent with the Mortgage Loan Representation (a
IIDefective Loan") or by substituting an eligible loan in place of a Defective Loan,
15
(h) The ,\'ale and Servicing Agr(,(,IIIt'11f
43, On or about August 30, 2005, C W I I I ~ Q , ('nunll")'\vidc
o
CWIII:Q Revolving Iloml..'
Equity Loan Trost, St'til':-; 2005-E (the "Trust") and JPMorgnl1 Cha:-;c Bank, N.A. (the "Indenture
Trustee") entered into the Sale and Servicing Agrecment. (,WI lEO agreed to convey all right.
title and interest in the Mortgage Loans to the Trust for the purpose of using the ,Mortgage I,nans
as collateral for asset-backed securities to be sold to investors.
44. The Mortgage Loan Representations were incorporated by referene\: into the Sale
and Servicing Agreement. Like the Purchase Agreement the Sale and Servicing Agreement
states that if a Mortgage Loan Representation was inaccurate al the time it was made, and the
inaccuracy materially and adversely affects the interests ofMBIA, the inaccuracy is a breach of
the applicable representation or warranty even if Count.ry\\ride had no knowledge that the
representation was inaccurate at the time it was made. If Countrywide fails to cure a breached
Mortgage Loan Representation, Countrywide ean be compelled to repurehase each Defective
Loan or substitute an ellgible loan for the Defective Loan.
45. The Sale and Servicing Agreement also defines the obligations of Countrywide
with respect to servicing the Mortgage Loans, including covenants (i) to administer the Mortgage
Loans consistently with industry practiee, (ii) to use reasonable efforts to collect all payments
owed on the Mortgage Loans, and to follow the same collection procedures it follows for
servicing mortgage loans in its own portfolio, and (iii) to allow MBIA access to information
regarding the Mortgage Loans and its rights.
(c) The Prospectus and Supplemental PrOjpeClu$
46. The Prospectus describes Countrywide's business and operations. The Prospectus
provides a description of Countrywide's pwportedly disciplined and conservative underwriting
16
standards as well as a description of the Mortgag!.:' Loans, ilnd advises that a
Prospectus will be filed with the SEC at the tilll!..' of c;]{.:h oflL'rillg of mortgag!..·-hw:h'd s>:(;uritil.!'}>.
47. The Supplemental Prospecttl:) pnwidcs more specific information about the
Mortgage Loans backing the securities. The Supplelllcnt<iI Prosp(.'Ctus represents thul each
Mortgage Loan was evaluated in accordance with Countrywide's traditional und0rwriting
standards. The Supplemental Prospectus also states that appraisals were conducted on home
equity loans. Although the specific type of appraisal might vary, the appraisals were conducted
by an "independent third-party" appraiser, and "completed on forms approved by Fannie Mae or
Freddie Mac."
(d) The Insurance AgreemenJ
48. MBIA's agreement to provide a financial guarantee policy to the Trust is reflected
in the Insurance Agreement, a contract that was entered into by MBIA, Countrywide, the Trust
and the other parties to the Transaction Documents.
49. On or about August 30, 2005, MBIA, COIilltrywide, CWHEQ, Inc., the Trust, and
the Indenture Trustee entered into the Insurance Agreement with respect to the 2005-E
transaction. In the event that defaults in the Mortgage Loan pool result in a shOltfall of funds for
the Trust to make required payments on the securities, the Trustee is to submit a claim on the
Policy, and MBIA is to fund the shortfall.
50. Under the Insurance Agreement, MBIA has standing to seek recovery for
breaches, and to enforce the obligations o[parties to the other contracts related to the 2005-E
transaction (including contracts to which MBIA is not a party), including the Purchase
Agreement
j
Sale and Service Agreement, Indenture. Trust Agreement, the Unden:vriting
Agreement, the Securities issued by the Trust, and other documents associated with the
transaction.
17
51. Countrywide expressly represents and warrants in lnsunmcl' !\grl'cmcnt that:
u. The Countrywide Financial Statements arc compktc and correct in all
material and Countrywide is not aware of any undisclosed contingcnlliabililics that
could reasonably be expected to cause a Material Adverse Change;
b. No practice, procedure or policy in the conduct of business \'iolates any
law, reguJalion, judgment, agreement, order or decree that, if enforced, reasonably could be
expected to result in a Material Adverse Change;
c. Neither the Transaction Documents nor other material infonnation relating
to the Mortgage Loans, the operations of Countrywide (including servicing or origination of
loans) or the financial condition of Countrywide. Or any other information furnished to
contains any statement of a material fact which was untrue or misleading in any material adverse
respect when made; and
d. The offer and sale of the Securities complies with all securities and
the Prospectus and Supplemental Prospectus do not contain any untrue statement of a material
fact and do not omit to state a material fact.
52. Countrywide also agreed to perfonn various oblig.tions throughout the tenn of
the insllrdl1ce Agreement, including the following:
a. Countrywide shall allow MBIA access to infonnation, including, on .an
annual basis as well as in the event of a Material Adverse Change or default: (i) to inspect books
and records relating to the Securities, the obligations, and the transaction; (ii) to discuss the
affairs, finances and accounts with corporate officers, and (iii) to discuss the affairs, finances and
accounts with their independent accountants;
18
b. Countrywide shall pClform such as an.: required by or provided il1
the Sale and Servicing
c. Countrywide shall not take any action, or 10 wke tmy uc1ion, if such
could reasonably be expected to result in a material adverse chang.c in ability to perform
obligations under the Transaction !)ocuments; and
d_ Except as otherwise permitted, Countrywide shall not alter or amend any
Mortgage Loan, collection policies or charge-off policies in a manner that materially adversely
affects MBIA ,
53. Under the Insurance Agreement, an Event of Dcfault is defined to include a
breached representation or warranty, or a failure to materially perfonn an obHgatioIl, by a party
to any Transaction Document.
54, Like CWHEQ 2005-E, the other nine transactions (CWHEQ 2005-1, CWHEQ
2005-M, CWHEQ 2006-E, CWHEQ 2006-G, CWHEQ 2006-88, CWHEQ 2007-E, CWHEQ
2007-S I, CWHEQ 2007-S2, and CWHEQ-S3) were securitized through the use of similar types
of agreement<; that contained substantially similar tenns, representations, warranties andlor
obligations. In addition, Countrywide, the Trust, and MBIA entered into similar Insurance
Agreements incorporating the representations, warranties and obligations of the parlies sel forth
in the Transaction Documents. The dates of the remaining nine transactions are as follows:
CWHEQ 2005-1
CWHEQ 2005-M
CWHEQ 2006-E
CWHEQ 2006-G
CWHEQ 2006-S8
December 28, 2005
December 29, 2005
June 29, 2006
August 30, 2006
December 28, 2006
19
CWIIEQ 2007-E May J 1_ 20117
CWIIEQ 2007-81 Fehruary :::X. :2007
CWIIEQ 2007-82 Mardi }O_ 2007
CWHEQ 2007-S3 March 30_ 2007
v. The Countnrwidc Mortgage Loans Show I<:xccssive Defaults and J ncurahle
Breaches.
55. Starting in the summer 0[2007, the Sccurili:.r..alions began experiencing an
increase in delinquencies. A material increase in delinquencies and subsequent did
not occur until November 2007, Because of the inordinate number of Joan delinquencies, the
total cash flow from the mortgage payments in several of the Securitizations was insufficient for
the Trusts to meet their payment obligations to holders of the RMBS notes. These deficiencies
caused the Trusts to submit claims on MBIA 's insurance policies, demanding that MB1A cover
the shortage of funds. Many ofthe delinquent loans resulted in defaults, which led to further
Josses on the loans. despite the availability offorecIosure and other remedies. These defaulted
loans were subsequently charged off, increasing MBIA's exposure to even greater claims.
56. By the fourth quarter of2007, the Securitizations experienced Significant
deterioration in enhancement levels. As these events occurred, MBIA diligently complied with
its obligations under the Insurance Agreements, and in November 2007, paid claims of $2.49
million on the CWHEQ 2006-E transaction and $11.3 million on the CWHEQ 2006-G
transaction. As of September 2008, while reserving its rights, MBTA has paid over $459 million
on the Policies issued by MBIA that covered Countrywide's Securitizations. As result of the
problems in connection with the loans, MBIA also made a series of requests for approximately
19,000 loan files from Countrywide for review in order to determine the cause of defaults.
20
57. Despite its contractual obligation to do so under the Tnmsactioll J)ocullK'nts,
however, Countrywide has failed promptly to provide responses and inf<m11<.lIiOIl 011 all ortht:
requested loan files to MBrA. To the contrary, Countrywide has stonewalled MBJA's u!.!t:c$s and
review of these files by persistent delay and refusal to provide complete informHtion. Moreover.
the loan files it has provided, sometimes many monlhs after MBIA's request, ollen have been
incomplete, TIlis has forced MBIA to make supplemental requests regarding the same loan Jiles.
Countrywide's responses to these supplemental requests likewise have been dilatory. I ~ v c n now,
over seven months since MBIA made its first requests, Countrywide stili has not provided all of
the requested files.
58. But even the loan files obtained to date reveal substantial breaches of Mortgage
Loan Representations, including an extraordinarily high incidence of material deviations from
the underwriting guidelines Countrywide represented it would follow. A material discrepancy
from underwriting guidelines is very serious, and means that the loan should never have been
made. For example, the loan application may: lack key documentation, such as a verification of
borrower assets or income; include an invalid 01' incomplete appraisal; demonstrate fraud by the
borrower on the face of the application; or reflect that any of borrower income, FICO score, or
debt, or DII or CLTV, fails to meet stated Cowltrywide guidelines (without any permissible
exception).
59. In fact, MBIA's re-underwriting review has revealed that almost 90% of defaulted
or delinquent loans in the Countrywide Securitizations show material discrepancies. ll1at high
level of material discrepancies clearly evidences Countrywide's deliberate or reckless disregard
of the very underwriting guidelines it touted to sell its loans and the Securitizations. and to
induce MBIA to issue its guarantees. The tight correlation between material discrepancies and
21
defaults/delinquencies further makes plain that Countrywide's misconduct is hoth ;\ stthshmtial
and direct cause of the non-perfonnancc or Mortgage Loans in the Sl'curitiztlti()t)s. W1J -bCC.lllSC
large nwnbers of delinquencies or defaults trigger M B J A ~ s payment obligntions under the
guarantees---a proximate cause ofMBJA 's harm.
60. On May 9, and August 7, 2008, MBIA provided notices orbrcach or Mortgage
Loan Representations relating to the Defective Loans from MBIA's initial reviews. Pursuant to
the remedies provided in the Transaction Documents. MBJA demanded that Countrywide
repurchase the following Defective Loans:
CWHEQ 2005-E
362 loans with an original unpaid principal balance of$27.6 million,
CWHEQ 2005-1
476 loans with an original unpaid principal balance of $41.7 million.
CWHEQ 2006-E
569 loans with an original unpaid principal balance of$61.4 million.
CWHEQ 2006-G
489 loans with an original unpaid principal balance of$57 million.
CWHEQ 2006-S8
85 loans with an original unpaid principal balance 0[$5.6 million.
CWHEQ 2007-E
l3lloans with an original unpaid principal balance of$13.9 million.
CWHEQ 2007-SI
114 loans with an original unpaid principal balance 0[$10.1 million.
CWHEQ 2007 -S2
32 loans with an original unpaid principal balance of$3.3 million.
CWHEQ 2007-S3
34 loans with an original unpaid principal balance 0[$33 million,
Toml: 1,192 loans with an original unpaid principal balance of $224 million.
22
Significantly, the Defective Loans run across Countrywide's SL't:uritizatiollS Ihllll 2005-()7,
demonstrating the consistency ofCounlrywidc's disregard for it$ own underwriting guidelines
during this period. Further, based upon thc extraordinarily high incidC:l1cc of Hwtcrial
discrepancies in the loan files reviewed to dale. the trut: number of Defedivc I,oalls in lhe
Securitizations is far higher than the 2,292 loans already identilicd by MiliA.
61. MBIA's initial notices reflect Countrywide's material discrepancies in two
primary respects: (i) that each Defective Loan "was originated in accordance with the Sponsor's
underwriting guidelines"-where in fact the Defective Loans had debHo-income ratios or
combined loan-to-value ratios exceeding maximum guideline levels, Or (ii) that the "Sponsor had
no knowledge of any fact that would have caused a reasonabJe originator of morlgage loans to
conclude on the date of origination of each Mortgage Loan that each such Mortgage Loan would
not be paid in full when in fact the Defective Loans were approved on the basis of
unverified borrower stated income that was patently unreasonable. Each breach described in the
Notice materially and adversely affects the interests ofMBlA.
62. Notwithstanding MiliA's Notices, Countrywide to date has failed to repurchase
or replace any of the Defective Loans. As alleged below, Countrywide was aware that the Loans
were Defective at the time they were sold to the Trusts-and thus the loans never should have
been included in the Securitizations at all. Moreover, even if Countrywide had not been so
aware, the Transaction Documents provide that the breaches must be cured within no more than
90 days of written notice. MBIA provided notice that $136.5 million of these loans constituted
Defective Loans on May 9, 2008, well over 90 days ago. Any cure period for the $136.5 million
in loans, even if available, has passed. Countrywide'S improper selection and failure to
23
repurchase the Defective Loans therefore constitutes an EveJl! ur rk'rauit under the
Insurance Agreements.
63. In addition, Countrywide Home has breached its obligations under each oCthe
Sale and Servicing Agreements-which breaches also constitute Event:;; of Default under thl'
related Insurance Agreements. Fundamentally. Countrywide has to provide service and
adm.inistration of the Mortgage Loans consistent with the standards in the industry, as
contractually required. Countrywide has failed to allocate sufficient resources to service and
administer the Mortgage Loans, with (1) inadequate staff to address custOmer inquiries and to
conduct follow-up efforts and call out programs to delinquent borrowers, and (ii) inadequate
resources for work-out plans and updated software programs. TIlat failure is exacerbated by its
break-neck origination of loans in disregard of its own undenvriting guidelines, which led to an
extraordinary increase in delinquencies, foreclosures, bankruptcies, litigation and other
proceedings-aIl of which place greater demands on COlmtrywide Home itself in its capacity as
servicer.
64. Countrywide Home also has exploited its role as agent for the owner of the
Mortgage Loans for its own gain and at the expense ofMBlA. For example, Countrywide has
continued to service loans-and charge servicing fees as well as late fees that it retains as
compensation-long after any reasonable expectation that defaulted Mortgage Loans could still
result in payments. It is standard in the industry to charge off a loan after it has been delinquent
for 180 days, as Countrywide itself acknowledged on page S·9 of the Supplemental Prospectus
forCWHEQ 2007·SI, in which it defined a charged·offloan as one that had been delinquent for
more than 180 days. In some cases, Countrywide has continued to service Mortgage
Loans more than 270 days after the last payment on amounts owed on the Mortgage Loans had
24
been received. Countrywide further has faik-d to scrviCi! the Mortgage Loans consistently with
the standards of the industry, including, for exam pl\:, rdusing to accept partiul puyml..'nls hom
borrowers (ostensibly because of the added accounling and administrative burdens ofaccounting
for partial payments). COlUltrywide has also charged 011' loans where the borrower hJS made
payments after the date of the charge-off, (0 the direct detriment ofMBIA.
65. Countrywide Home's improper servicing of the loans has enabled it to rcap the
benefit of additional service and late payment fees without bearing the risk of losses from
delinquencies and defaults, all at the expense ofMBlA, which it fraudulently induced (o.cocpt
that risk.
VI. Countrvwide's Pattern and Practice of Fraud.
66. At the time of the Securitizations. Countrywide knew that its statements regarding
its underwriting guidelines and credit risk management process were false, and Countrywide had
nO intention of abiding by its contractual representations and warranties. Under the direction of
Mozilo and Sambol. Countrywide adopted a new "corporate culture" of writing as many
mortgage loans as possible-<md at the highest interest rates and fees possible-regardless of the
creditworthiness or evident fraud of the borrower, Once Mozilo and Sambol had detennined that
profit growth through securitization required accelerating loan origination, Countrywide
motivated its loan officers and external brokers to drive up loan volume regardless of material
deviations from stated underwriting guidelines.
67, Countryvvide's deteriorating undetwriting practices enabled loan applications that
reflected blatant borrower frdud, inadequate documentation, missing verifications (for example,
of borrower assets and income), title defects, excessive DTl ratios, inadequate FICO scores, and
25
other material violations of guidelines. These violations mZ\Lk Coulltrywide's rdated
representations regarding the Mortgage: Loans materially Jidsc and misk·ading.
68. The incidence of material discrepancies is so cXlraordinarily to 90
percent of the applications reviewed by MBJA for currently non-performing it could
not have been the result of human error. Instead, Countrywide was clearly ignoring sound
underwriting methodology, and it knew that its failure to follow its underwriting guidelines
would result in the origination of loans in which the bOrrOwer would not be able to rcpay.
69. For each of the ten Securitizations, these failures to adhere to the underwriting
guidelines fundamentally changed the risk profile that COtmtrywide represenled 10 MBIA and, as
Countrywide knew, raised the likelihood oflosses through defaul[s.-and thus payments by
MBIA as the credit enhancement provider-to lcvelsthat far exceeded the value of the premiums
payable to MBIA.
70. These material breaches further call into question the integrity of the shadow
ratings assigned to the collateral pools by the ratings agencies. Each of these pools was assigned
a rating ofBBB- or the equivalent. Yet the presence of such a large percentage of loans that fail
to meet underwriting guidelines renders those ratings false and misleading because they
materially understate the true risk profile of the pool. Countrywide, as originator of the loans,
knew but failed to disclose these facts either to MBIA or to the ratings agencies. One of the
consequences of Countrywide's material breaches was that the amount of overcollateralization is
insufficient to protect MBIA from delinquencies and defaults in the mortgage pools, as
Countrywide was well aware. Had MBlA been aware of these facts, it would not have entered
into any of these tnUlsactions.
26
Countrywide Misrepresented its Acllw/ (/1u/l'r1l'I'itillg ,\'fandards
71. Countrywide promoted the Secliritizatiotls hased in lurge purt on Counll')'widl'"s
reputation for disciplined underwriting standards, its cUlllmitment to high quality loans
to prime borrowers, and its comprehensive Credit PoliL:Y. COllntrywide intentionally induced
MBIA to believe that the same commitment, expertise and practices, and specifically the
disciplined application of Countrywide's Credit Policy, would be applied to the Mortgage Loans.
72. Countrywide, however, had adopted an aggressive strategy to drive up revenues,
which prompted significant changes to its underwriting standards and other aspects of its Credit
Policy. Countrywide knew that these changes, both in formal policy and in practical application,
would result in origination of mortgage loans that were materially inconsistent with its
representations. By contrast, MBIA was deprived of material information, and therefore never
had the opportunity to make such a determination.
73. Countrywide also adopted policies and practices that reduced their relevance. On
infonnation and belief. Countrywide's senior management approved compensation plans that
offered incentives tor new mortgage loan originations, with higher incentives for riskier
nonprime mortgage loans. According to the Attorney General ofCalifomia, Countrywide's
senior management imposed intense pressure on underwriters to approve mortgage loans, in
some instances requiring underwriters to process 60 to 70 mortgage loan applications in a single
day and to justifY each rejection. This created an incentive not to review loans thoroughly but
instead simply to approve them. Senior management expanded the authority of underwriters and
other employees to granl exceptions to mortgage loans that faiJed to meet Countrywide's
underwriting standards, which made it easier to accept a mortgage loan and move on.
74. On information and belief
j
Mozilo and Sambol authorized the establishment of
the Structured Loan Desk in Plano, Texas, which was created specifically to grant underwriting
27
exceptions for nonprime mortgage loan applicutions. According to the Cali j()fllia Attorney
General's complaint against Countrywide and Mnzilo, bascd on information provided hy tI
fonner COtUltrywide employee, during 2006, th .... Struclured Loan Desk procl'sscd 15.00010
20.000 mortgage loan applications a month, which represented approximately 75% to 10(% of all
mortgage loans actually originated.
Countrywide ,Failed to Disclose [he EX1en1to Which Fraudulent Applk:alions
Were Processed Through Reduced Documentation Application Programs
75. Countrywide adopted reduced documentation application programs which excuse
qualified borrowers from the general requirement of submitting documentation to confirm
income and assets, Countrywide itself has publicly admitted that the failure to maintain rigorous
standards for such loans will result in higher delinquencies. In a July 2007 call with analysts,
Johu McMurray, Countrywide's Chief Risk Officer, acknowledged that the reduced
docwnentation programs lead to higher delinquencies absent adequate controls:
matters. The less docwnentation, the higher the serious delinquency, all else
equal."
76. But Countrywide failed to use a.dequat.e contr-ols. While it claimed these
doc)) applications were designed for self.-employed professionals and business owners with high
credit scores, it made its reduced documentation applications widely available without careful
oversight, a material risk it failed to disclose to MBIA or the market at large.
77. For example, Countrywide falsely represented that it verified employment and
current salary for every loan applicant before approving a Mortgage Loan. In the Supplemental
Prospectus, Countrywide represented that even for loan applications under the Super-
Streamlined Documentation Program. Countrywide obtained telephonic verification of
empJoyment, according to the Prospectus, "is obtained from an independent source
28
(typically the borrower's employer) landl whit.:h verification n.:porls. mnollg other things, the
length of employment with thal organization and 'he borrower ',\' ('//rteJl/ .mlllry" (emphasis
added). That representation was false. MBIA later discovered thut often did 110t
obtain independent verification of income thr borrowers who applied under the Supcr-
Streamlined Documentation Program, which constituted a significant percentage oflbe total
number ofMm1gage Loans.
78. Countrywide also approved Mortgage Loans in which the borrower's stated
income was Wlfeasonable on its face and could not have been accurately reported. Countrywide
was required to exercise meaningful oversight, On infonnation and belief: pursuant to its Credit
Policy and the standards in the industry. It is standard practice among mortgage lenders
genemlly (0 try to verify employment income that appears suspicious. A borrower who inflates
his income is less likely to be able to repay his loan, which leads to a higher incidence of
delinquencies and defaults in the Mortgage Loans, to the direct detriment of MBIA. Despite the
prevalence of a substantial number of loan applications that contained highly suspicious reported
employment income, CQuntrywide failed to take sufficient, if any, corrective action.
79. On infonnation and belief, Countrywide's seDlor management was aware that
Countrywide loan officers participated in submitting fraudulent applications through the reduced
documentation application programs. According to Mark Zachary, a fonner Countrywide
executive who has filed suit against Countrywide for wrongful termination, in and around 2006,
Countrywide loan officers engaged in a practice known within Countrywide as "flipping" an
application. Loan officers who learned that a loan application submitted under the Full
Docwnentation Program was tmlikcly to be approved would the application for
consideration under a reduced documentation application program. According to Zachary,loan
29
officers would coach applicants on the level of employment iIH.:O!lli; needed to quali!"y for a
mortgage loan, and then would accept a revised loan application c:.'ont<-lining an inflated rl'l1l,lrtcd
income. The loan officer would submit the revised loan appllcl.ltiot) under a reduced
docwnentation program for consideration by the subprimc mortgage Joun operations unit in
Plano, Texas, According to Zachary. he complained to Countrywide's regional management, but
his complaints were ignored.
Countywide Misrepresented That if Obtained independent
80. 1n the Supplemental Prospectus. Countrywide represented that one or more
appraisals were obtained for nearly every Mortgage Loao. The type of appraisal obtained for a
Mortgage Loall varied; however, Countrywide assured MBiA and others that every appraisal
was detennined "on the basis for an originator-approved, independent third-party, fee-based
appraisal."
81. On infonnation and belief, Countrywide's representations that the Mortgage
Loans were appraised by independent third-parties were also untrue. Countrywide regularly
engaged appraisers which were affiliated with Country\:vide, including, on information and
belief, appraisers that were owned or controlled by Countrywide, either directly or indirectly
through intemlediate subsidiaries and/or subject to influence by Countrywide, This
misrepresentation caused hann to MBIA because it created a conflict of interest for
Countrywide, As originator and securitizer of the loans, Countrywide had an incenti ve to inflate
the value of properties if that inflation would allow a loan to be approved when it otherwise
would not be. But loans based on inflated appraisals are more likely to default and less likely to
produce sufficient assets to repay the second lien holder in foreclosure. both of which directly
hann the credit enhancement provider. An independent appraisal is necessary to ensure that
appraisals are not inflated.
30
VII. Countrywide's Corrupt Practices Arc Revealed.
82. The impact of the Mozilo-Sambol plan on Countrywide has been u
Countrywide's market capitalization declined by more than 90% injllst one year, losing $25
billion in value. Bank of America has now acquired Countrywide for just 27%1 or Countrywide's
stated $15.3 billion book value.
83. The scope and breadth of Countrywide's fraudulent schemes and other unlawful
conduct have prompted a substantial number of public and private inquiries, investigations and
actions. The actions are based, in part, upon actions and misconduct by Countrywide that arc
inconsistent \\iitb its representations, warranties and covenants in the Insurance Agreements.
84. 011 information and belief, the Department of lustice aod the SEC are
investigating potential securities fraOOs in the securitizations of mortgage loans and offerings of
mortgage-backed securities in the secondary market, as well as allegations that false aod
misleading disclosures were made to influence the stock trading price and allegations of insider
trading by Mozilo and Sambal.
85. A number of States and municipalities have announced investigations of
Countrywide's lending practices, and several commenced actions against Countrywide,
including:
a. In People of the State of California v. Countrywide Financial Corp., the
Attorney General for the State of California has filed a civil action on behalf of Countrywide
borrowers in California against Countrywide, Mozilo and Sambol, asserting statutory claims for
false advertising and unfair competition based on a plan by MoziIo and Sambol to increase the
volume of mortgage loans for securitization without regard to borrower creditworthiness.
31
b. In People (?ltl1l! Stale Illinois v. CoUnl!:J'll,it/e Filllllldaf ('orp., lh-e
Attorney General for the State of Illinois has filed a civil suit on bdlaJ r or Illinois borrowers
against Countrywide and Mozilo, and asserts state consumer prolC'ctioll and competition
statutory claims, alleging that beginning in or around 2004, Coulltryvvidc engaged in unfair and
deceptive practices, including loo::;ening underwriting standards, structuring unfair loan products
with risky features, and engaging in misleading marketing and sales practices.
c. In State a/Connecticut v. Countrywide Finandal Corp., the Connecticut
Insurance Commissioner commenced a civil action asserting that Countrywide violated state
unfair and deceptive practices statutory law by deceiving consumers into obtaining mortgage
loans for which they were not suited and could not afford.
d. In Office of the Attorney General for the Slate of Florida v. Countrywide
Financial Corp., the Florida Attorney General commenced a civil action against Countrywide
and Mozilo, asserting state unfuir practices statutory claims, alleging that since January 2004,
Countrywide promoted a deceptive scheme to originate subprime mortgage loans to unqualified
. borrowers. and a related fraudulent scheme to sell securities. The Attorney General alleges that
Countrywide violated state statutory lender laws by falsely representing that Countrywide
originated each mortgage loan in accordance with its underwriting guidelines and that each
borrower had the ability to repay the mortgage loan. The Attorney General also asserts state
securities law claims, alleging that Countrywide sold mortgage-backed securities based on
fraudulent misrepresentations.
e. In Stale a/Washington v. Countrywide fInancial Corp., the Washington
Attorney General filed a civil action asserting that Countrywide violated state anti-discrimination
laws in 2005 and 2006 by engaging in racially discriminatory lending.
32
f. In Slate (J{'Indiana v. COUnll}'l1'it/1' Fil1cmdal ('orp., the St<ltc or Indi'lIla
filed a civil acti(lJ1 asserting {hal Countrywide violalt:d the state's lInn,!r and d(;ccptivc practices
law from 2005 through 2008 by deceiving consumers into ub(uining 1ll00igagc loans lor whkh
they were not suitc:d and could not afford.
g, In Stale of West Virginia v. Coullfryw;d" Financial Corp .. (hc West
Virginia Attorney General has asserted civil claims t-lgainst Countrywide alleging violations of
state unfair competition statutes.
h. In City olCleveland v. Counlr,plvide Financial Corp .. the City has asserted
claims against Countrywide for, among other things, extending loans to horrowers it knew could
not afford to repay them.
i. In City a/San Diego v, Countrywide Financial Corp., the City has
assened claims against Countrywide for engaging in predatory lending practices in violation of
consumer protection statutes.
86. The Depamnent of Justice and the U.S. Trustees for federal bankruptcy courts in
several judicial districts, including the Districts of Rhode Island, Western Pennsylvania, Texas,
Florida and Georgia, have commenced investigations of Countrywide's alleged fraudulent
foreclosure practices. For example, in the Western District of Pennsylvania, on information and
belief, within the last year, Countrywide'S practices were tmder investigation in connection with
at least 300 deblors' proceedings in that district. Similarly, the Assistant U.S. Trustee for the
District of Rhode Island, in testimony about his investigation, explained that after reviewing
cases filed sinc·e 2002, "we have a specific and grave concern that Countrywide" is trying to
obtain money and property from debtors "under false pretenses," The U,S, Trustee for the
District of Georgia filed suit against Countrywide, and likewise noted: "Countrywide's failure to
33
ensure the accuracy of its pleadings and Ut:COllnts in this case is flot Wl isoli\tl.:d illddcnL, ." In
recent years, COWltrywide and its representatives have becn sunctioncd for liIillg in!lccura1l'
pleadings and other similar abuses within the bankruptcy system."
87. In addition, a number of privute actions have been commcoced against
Countrywide, including shareholder actions challenging the accuracy and completeness of
Countrywide'S statements in and at'{)Wld the period between 2004 and 2007, pt:lrticularly
allegations that Cotmtrywide failed to disclose the expansion of its origination of subprimc and
other higher-risk mortgage loans; and consumer actions challenging Countrywide's lending
practices,
VIII. MBlA Has Been Substantially Damaged by Countrywide's Fraud.
88. Countrywide's misconduct bas caused mauifold bann to MBIA. Because
Countrywide originated and sold to the Securitizations an extremely large number of Mortgage
Loans that materially failed to comply with its underwriting guidelines, the number of
delinquencies and defaults in those Securitizations has been extremely high. as those loans were
therefore made to borrowers who were unlikely to be able to repay. Yet, despite its knowledge
of these material breaches ofits underwriting guidelines, and MBIA's notices to that effect with
respect to the first sets of files reviewed (for $136.5 million and $87.4 million), Countrywide has
refused to repurchase those loans) contrary to its clear contractual obligations,
89. In addition, tbe delinquenc,jes and defaults those loans have suftered have greatly
reduced Ibe casbflows available to pay notebolders, aud the levels of overeollatemlization have
not been sufficient to absorb those losses. As a direct consequence, MBIA has been forced
through the Insurance Agreements to pay those shortfalls to the T r u s t s ~ resulting in hundreds of
34
millions of dollars oflossc$ to MBIA. MBL\ '::; losses bcar]}o rl'asonahk rl'ialiollship to the
risks that MBIA intended to assume or lhl.! premiums p:.tid by COlllllrywiul.:.
90, As a direct result of Countrywide's misn:prcscntations anJ brcadu:s of contract.
MBIA is therefore exposed to enOnTIOUS risks of payments under the Insurance Agreements for
which it is not being adequately compensated. This exposure h<1.':> decreased MIJIA '$ revenues
significantly, forced it to take substantial reserves, and caused it to suOer other losses.
35
CAUSlcS OF ACTION
FIRST CAliSE OF ACTION
(FRAUD)
91. MBfA incorporates by reference ulllilL' il.)fcgoing allegations <IS though Illll}' set
tbrth herein.
92. This is a claim for fraud against Countrywide.
93. As set forth above, Countrywide has made unlwc statements of material fact and
has omitted to state material facts necessary in order to make the statements, in light of the
circumstances under which they were made, not misleading.
94. Countrywide'S business primarily involved residential mortgage banking.
Countrywide Financial, COWltry'Wide Home. and Countrywide Securities each had a distinct and
specific role in the administration of a securitization of a portfolio of mortgage loans.
a. Defendant Countrywide Financial is engaged primarily in the residential
mortgage banking business. As part of its business, Counuywide Financial is responsible for the
origination, purchase, securitization, and servicing of residential mortgage loans across the
United States. As the corporate parent of Countrywide Home and Countrywide Securities, two
wholly-owned subsidiaries. Countrywide Financial directed the activities of Countrywide Home
and Countrywide Securities.
b. Defendant Countrywide Home-which advertises itself as ~ ~ t h e nation's
leading independent home loan lender"-is specifical1y responsible for the production and
servicing of residential mortgage loans through a variety of channels on a national scale.
c. Both Defendants Countrywide Financial and Countrywide Home are
responsible for selecting the mortgage loans for securitization. generally selecting from among
36
mortgage loans that had been originated by Countrywide Home, and also selecting from among
mortgage loans acquired from other mortgage lenders. Additionally, Defcndanl ('ollotrywide
Home is responsible for transferring the mortgage loans into the Trusts lor and
entering into servicing agreements with the Trusts to service the mortgage
d. Defendant Countrywide Securities is a lhat primarily
specializes in underwriting and tTading in residential mortgage-backed securities. These
securities are then sold in the national market. As such, Countrywide Securities is responsible
for underwriting and managing the offering of each Trust's securities to buyers in the secondary
mortgage market.
e. The Trusts distribute payments on the mortgage loans collected and
remitted by Countrywide Home to the securities holders. Each Trust, along willI Countrywide
Home, also entered into the Insurance Agreement with the credit enhancer" MBIA, who
guaranteed the obligations of each Trust to the securities holders. The Trusts are responsible for
filing claims against MBIA's insurance policies in the event of shortfalls in principal or interest
payments.
95. As part ofCoWltrywide's fraud, Countrywide Financial and Countrywide Home
expanded their origination of mortgage loans in order to increase overall origination revenues, as
well as to increase the inventory of mortgage loans available to securitize and sell in the
secondary mortgage market. Many oflhese mortgage loans had significant but undisclosed
credit risk, in violation of Countrywide's underwriting guidelines and standards.
96, Countrywide Home then transferred the portfolio of mortgage loans originated to
the Trust. Through the Trust, CowltIywide Securities, securitized the mortgage loans, and then,
through offerings of securities, ollloaded the risks associated with the mortgage loans that
37
COlU1tryv.ride Home had originatcd. Although thl' securities m.:n: l'nll,lkralizcd hy Il1l' risk-
challenged mortgage loans, Countrywide SccuriLks murkt:tcd Ik by rruuuuk'lllly
representing that the mortgage loans had been originated consistently with ('oul1try\vidL'
Financial and Countrywide I lome's traditional underwriting standards, and the strength of their
reputation for conservative lending practices and high quality loans.
97. A critical component of the fraud required the procurement of credit cnhanct':tllcnt
on the securitization, including from MBIA, as described in detail above. Countrywide needed
credit enhancement to improve marketability and reduce intereslliabilities of the securities, and
importantly to further disperse the risks of defaults on the mortgage loans among the investors in
the secondary mortgage market. Although Countrywide still held the residuals, it had elTectively
transferred the risks of default through securitization, and therefore it was protected from the
impact of mortgage loan defaults. further, the higher credit rating obtained through credit
enhancement allowed Countrywide to sell a greater number of securities in a wider market. By
obtaining credit enhancement, usually by fraudulently misrepresenting the risk profile of the
portfolio of mortgage loans to the credit enhancer, Countrywide transferred economic risk of
defaults on the mortgage loans, generally at a fraudulently low premium, and improved the
marketability and pricing of the securities. The proceeds from the offering of securities we·re
used to finance new originations of mortgage loans, thereby further perpetuating the fraud,
98. In an etfort to fraudulently induce MBIA to provide credit enhancement for each
of the ten securitizations, Countrywide made the following representations with respect to and at
the time of execution of each Insurance Agreement and that, inter alia, were untrue:
38
u. All of the Mortgage '.oans had bc,,'n I.:valuated pursuant tt> ('tHlIIlt) \vide
Financial and Countrywide Home's underwriting standards and policies and complk'd with ,Ill
applicable local, state and federal laws;
b, Countrywide did not have knowledge of any fact that would haw caused a
reasonable originator to conclude that a borrower would not be able to repay the loan;
c. Each of the Mortgage Loalls hud btien evaluated pursuant to a meaningful
application of Countrywide's undenvriting standards, c..;ollducted in good failh, and lhallhc
Mortgage Loan Schedule accurately reflected Countrywide's good failh belief as [0 lhe
underwriting criteria of the Mortgage Loans;
d. Countrywide disclosed to MBIA its underwriting guidelines, including
any material changes to the guidelines;
e. Each mortgaged property had been appraised by an independent third-
party appraiser;
f. Countrywide Home obtained. or least sought to obtain, verification of
employment and current salary for each Mortgage Loan borrower; and
g. Countrywide operated in compliance with all relevant federal, state and
l o c a l l a w s ~ regulations and rules,
99. On numerous occasions, between at least 2005 and the present, Countrywide
knowingly and with the intent to defraud, caused its employees and agents to submit materially
false and misleading mortgage loan documentation to MBIA in order to procure credit
enhancement.
100. Countrywide Home delivered to MBIA materially false and misleading loan
documentation, including requests for bids, loan tapes, and Transaction Documents, for each of
39
the below Securitizations insured by MBIA. Among other things, ('oulltry",idc 1100111 . .'·S
representations regarding the Mortgage '.oans, including information :)w.:h as the loan-til-value
ratio, the debt-lo-income ratio, and the borrower's FICO score, were iH<llerially raise and
misleading.
a. On August 2, 2005, David Andersen of Countrywide Ilome sent MB IA a
materially false and misleading request for bids for the 2005-E transaction. including a materially
false and misleading 200S-E loan tape, bye-mail.
b. On November 4, 2005, Garrett Galati of Countrywide Home sent MBiA a
materially false and misleading request for bids for the 2005-1 transaction, including a materially
false and misleading 2005-1 loan bye-mail.
c, On December 12.2005, Garrett Galati of Countrywide Home sent MBIA
a materiaUy false and misleading request for bids for the 20()S-M transaction, including a
materially false and misleading 2005-M loan tape, bye-mail.
d. On May 29, 2006 Garrett Galati of Countrywide Home sent MBIA a
materially false and misleading request for bids for the 2006-E transaction, including a materially
false and misleading 2006-E loan tape. bye-maiL
e. On July 27,2006 Garrett Galati of Countrywide Home sent MBIA a
materiaUy false and misleading request for bids for the 2006-G including a
materially false and misleading 2006-G loan tape, bye-mail.
f. On December 4, 2006 Garrett Galati of Countrywide Home sent MBIA a
materially false and misleading request for bids for the transaction, including a
materially false and misleading 2006-S8 loan tape. bye-mail.
40
g. On February 15,2007 Garrett (jalati of( 'tllUllrywidt: Ilome Sl'nt MiliA a
materially false and misleading request for bids for lhe 2007-S I transaction, including II
materially false and misleading 2007-S1 loan tape, by
h. On March 13.2007 Garretl Galati tlf('ountrywidl' I fome sent MBI;\ <I
materially false and misleading request lor bids for the 2007 -S2 transaction. including a
materially false and misleading 2007-S2 loan tape, bye-mail.
1. On March 19,2007 Garrett Galati OfCouI11rywide Horne sent MBIA a
materially false and misleading request fur bids for the 2007-S3 transaction, including a
materially false and misleading 2007-S3 loan tape, bye-mail.
j. On May 21, 2007 Garrett Galati of Countrywide Home sent MBIA a
materially false and misleading request for bids for the 2007-E transaction, including a materially
false and misleading 2007-E loan tape, bye-mail.
101. Countrywide Securities also provided materially false and misleading information
to MBIA regarding the Securitizations when it transmitted the Prospectuses and Supplemental
Prospectuses for each Securitization to MBIA as detailed below: Among other things,
Countrywide Securities' representations regarding Countrywide's compliance with its
underwriting guidelines; Countrywide's knowledge of facts that would have caused a reasonable
originator to conclude that a borrower would not be able to repay the loan; and Countrywide's
infonnation regarding the Mortgage Loans
t
including the ratio
j
the debt· to-income
and the borrower's FICO score, were materially false and misleading.
a. Countrywide Securities provided materially false information to MBIA
concerning the 2005-E transaction in an August 30, 2005 e-mail from Mahsa Kazeminy of
Countrywide transmitting the ftnal version of the Prospectus for the 2005-E transaction.
41
b. Countrywide Securities providL'd llIi.tll:rially false inform,l{ion 10 MBIA
concerning the 2 0 0 5 ~ f transaction in a December 2J, 2005 l:-mail from its all('II"/H'::YS transmitting
the final version of the Prospectus for the 2005-1 tr:lIlsat'tion.
c. Countrywide Securities provided materially false inlcH"l11Htioll 10 MHIA
concerning the 2005-M transaction in a December 28, 2005 e-mail from its auorneys
transmitting the final version of the Prospectus tor the 2005-M transaction.
d. Countrywide Securities provided materially false information to MBIA
concerning the 2006-E transaction in a July J I, 2006 e-mail from its attorneys transmitting the
final version of the Prospectus for the 2006-E transaction.
e. Countrywide Securities provided materially false infonnation to MBIA
concerning the 2006-G transaetion in an August 30, 2006 e-mail from its attorneys, transmitting
the tinaJ version of the Prospectus for the 2006-G transaction.
f Countrywide Securities provided materially false information to MBIA
concerning the 2006-S8 transaction in a December 28, 2006 e-mail from its attorneys,
transmitting the final version of the Prospectus for the 2006-88 transaction. A December 28,
2006 e-mail from Miranda Wang of Countrywide apprised Melissa Brice ofMBIA that the same
PrOspectus was available from Countrywide Securities via an internet portal controlled by
Countrywide Securities.
g. Countrywide Securities provided materially false information to MBIA
concerning the 2007-S1 transaction in a February 28, 2007 e-mail from its attorneys, transmitting
the final version of the Prospectus for the 2007-51 transaction. A February 28, 2007 e-mail from
Sean Daily of Countrywide apprised Melissa Brice ofMBlA that the same Prospectus was
42
available from Countrywide Securities via 1.111 internet portal by Countrywide
Securities.
h. Countrywide Securities provided materially false infimualion to MBIA
concerning the 2007-S2 transaction in a March 30, 2007 e-mail from its attornGYs, transmitting
the final version of the Prospectus for the 2007-S2 transaction. A March 30, 2007 c-mail from
Sean Daily of Countrywide apprised Carl Webb ofMBIA that the same Prospectus was available
from Countrywide Securities via an internet portal controlled by Countrywide Securities.
i. Countrywide Securities provided materially false infonnation to MBIA
concerning the 2007-S3 transaction in a March 30, 2007 e-mail from its attorneys, transmitting
the final version of the Prospectus for the 2007-S3 transaction. A March 30, 2007 e-mail from
Sean Daily o[Countrywide apprised Melissa Brice ofMBlA that the same Prospectus was
available from Countrywide Securities via an internet portal controlled by Countrywide
Securities.
j. Countrywide Securities provided materially false information 10 MBIA
concerning the 2007-E transaction in a May 31, 2007 e-mail from its a!lorneys, transmitting the
final version of the Prospectus for the 2007-E transaction.
102. Countrywide failed to disclose material facts, which they were obliged to disclose
and which, in the absence of disclosure, caused other representations to be misleading in a
material way, including that:
a. CountIywide Financial and Countrywide Home had adopted a strategy of
increasing origination of mortgage loans, including mortgage loans that increased credit risk
compared to the mortgage loans it traditionally had originated; and
43
b, Countrywide Financial and CountrywidL' IlolllL' l'XPl'ctcd tn rcdu\.:c its
underwriting standards and guidelines to facl1itatc im:rcl.Iscd uriJJ.ination of mortgage loans.
103. MBIA or its predecessors justiJiably. rCllsonahly and !()fcsccably rdicd on these
representations and false statements.
104. Countrywide) s misrepresentations of facts. and omissions of tact that caused other
statements of fact to be misleading, related to contemporaneous matters and to the state of alTairs
as of and then existing at the time MBIA was induced to enter into an Insurance Agreement.
105. Countrywide's misrepresentations of facts, and omissions of fact that caused other
statements of fact to be misleading, relate to its own acts and omissions, and it was only by
making such representations that Countrywide was able to obtain the credit enhancement from
MBIA for the Securitizations.
106. Countrywide Home knew at the time it entered into e""h Insurance Agreement
that the above statements were false Ot, at the very least. made recklessly, without any belief in
the truth of the statements.
107. Countrywide intended to defraud MBIA and induce reliance by MBIA in this
regard, as Countrywide sought to securitize the Mortgage Loans and transfer the risk of such
loans to other parties, including (as d=ribed above) MBIA. Countrywide knew that the
securities issued by the Trusts would be mted higher by rating agencies and would be more
attractive to investors, and therefore would likely be sold at a higher price and/or lower cost to
Countrywide, if MBIA agreed to guaruntee payments on the securities.
108. Countrywide knew that MBIA was relying on Countrywide's expertise, and
Countrywide encouraged such reliance. COWltrywide knew that its representations described
above would be relied upon by MBIA in cOIlilection -with its decision to enter into each Insurance
44
Agreement. Based on its expertise and specialized knowledge, and in light or its J:1L,,1.: and
misleading representations, Countrywide owed a duty to M BIA to di::;du$L' Ilwtcrial !lIds ahout
the Securitizations.
109. Countrywide's representations substantially influenced MBIA '$ dL'dslon to enter
into each Insurance Agreement MBIA would new!' have agreed to pn)Vidc <lny of the Pol ides
had it known that Countrywide's representations about thc Mortgage Loans wen: false and that
Countrywide had omitted material infonnation.
110. As a result of Countrywide's false and misleading statements and omissions as
alleged herein, lvlBIA has suffered, and is reasonably certain to continue suffering, damages,
including, but not limited to. paying out claims on the Insurance Agreements caused by the
excessively high default rates within the pools of Mortgage Loans. MBlA is further entitled to
rescission of the Insurance Agreements because of Countrywide's fraudu1ent inducement.
111. Because Countrywide committed these acts and omissions maliciously, wantonly
and oppressively, and because the consequences of CountTywide's acts knowingly affected the
general public, including but not limited to all persons with interests in the Securitizations,
MBIA is entitled to recover punitive damages.
herein,
SECOND CAUSE OF ACTION
(NEGLIGENT MISREPRESENTATION)
112, MBIA incorporates by reference all the foregoing allegations as if fully set forth
113. This is a claim for negligent misrepresentation against Countrywide.
114, CountJ:Yl'1de was aware that MBIA relied on Countrywide's expertise and
experience and depended upon Countrywide for accurate and truthful infonnation, Countrywide
45
also knew that the facts regarding Countrywide's compliance with its undl.'l"wrililll,t standards
were exclusively vvithin Countrywide's knowledge,
J 15, Countrywide had a duty to provide MBIA complck. <leCunl!!.!, and timely
infonnation regarding the Mortgage Loans and the Sccuriti7.ations. Countrywide breached its
duty to provide such information (0 Ml3JA.
116. MBIA reasonably relied on the infonnation Countrywide did provide and was
damaged as a result ofCoWltrywide's misrepresentations.
THIRD CAUSE OF ACTION
(BREACH OF CONTRACT: INSURANCE AGREEMENT)
117. MBIA incorporates by reference all the foregoing allegations as though fully set
forth herein.
118. This is a claim for breach of contract against Countrywide.
I 19. The Insurance Agreement is a valid and enforceable contract that gives rise to
certain obligations on the part of Countrywide with respect to the Mortgage Loans. Each Sale
and Servicing Agreement provides that MBIA is a third-party heneficiary with the right to
enforce the covenants and obligations of the parties thereto.
120. META has perfonned and continues to perfonn all conditions, covenants, and
promises required on its part to be perfonned in accordance with the tenus and conditions of the
Insurance Agreement.
121. Countrywide's express representations and warranties in the Insurance
Agreement, and representations and warranties incorporated by reference within the Insurance
Agreement, are untrue and inaccurate in material ways as of the date of the Insurance
46
Agreement. The untrue and inaccurate representations and warwnliL's m<ll\.·ri.dly .llld 'Idu,·rsely
affect MBIA's with respect to tmnsw'::lions in Transaction Doculll!.:nts.
122, In addition to others described abov!.:, the express representations and
warranties were untrue and inaccurate as of the date of each applit:ubk Insurance AgrcL'lnl.'nt:
a, Countrywide's representation that: the Transaction Documents
nor other material information relating to the Mortgage Loans. operations of the Master
Servicer, the Sponsor or the Depositor (including servicing or origination of loans) or thL'
financial condition of the Master Servicer, the Sponsor Or the Depositor Or any other information
(collectively, the 'Documents') fumished to the Insurer contains any statement ofa material fact
which was untrue or misleading in any material adverse respect when made." Among other
things, the Prospectuses and Supplemental Prospectuses contain statements of material facts
which are Wltrue and/or misleading in material adverse respects;
b. Countrywide's representation that "[NJo practice, procedure or policy
employed, or proposed to be employed, by the Servicer, Sponsor or Depositor in the conduct of
its business violates any regulation) judgment, agreement, order or decree that, if enforced.
could reasonably be expected to result in a Material Adverse Change to the Servicer, Sponsor or
Depositor." On infOlmation and belief, and based on the publicly-filed actions commenced by
States and acknowledgments by other States' representatives of investigations of alleged
unlawful conduct by Countrywide, Countrywide knew or should have known that it employed
practices, procedures and policies that violated,. among other things, state conswner protection
and predatory lending laws in cOlUlection with the origination of mortgages and servicing of
mortgage loans, state nondiscrimination lending lam, state banking laws, and federal and state
47
securities Jaws. At the time of the Insurance AgrcCflll:nts. cnJon.:cmcnl of such n.:axoJ1ably
could be expected to result, and has resulted. in a Material Adverse Change to Countrywidl!.
c. Countrywide's representation that: '"'T.lh0 sale and oiler ofSl:t:urilics
complies with all requirements including registration requirements and that the Offering
Document does not contain any untrue statement of material fact or omit to state a material fact."
Among other things, the Supplemental Prospectus contains untrue statements of muterial fact and
omits to state material facts, and the sale of Securities olhef\\/ise failed to cOl'nply with the
requirements of laws.
d. Cotllltrywide's representations that: HFinancial Statements of Sponsor and
Master Servicer (i) are complete and conect in all material respects, (ii) present fairly financial
condition and results. There has been no Material Adverse Change and no tmdisclosed
contingent liabilities that, individually or in the aggregate, could cause a Material Adverse
Change." At the time of Countrywide's representation, the Financial Statement'), inter alia, were
not complete and correct in all material respects, and did not present fairly the financial condition
and results, and did not disclose contingent liabilities which Countrywide knew, or reasonably
should have known, could (and did) cause a Material Adverse Change.
123. CotUltrywide's representations and warranties were material to each decision by
MBIA to enter into an Insurance Agreement. MBIA relied on Countrywide'S express and
incorporated representations and warranties, and was induced thereby to enter into each
Insurance Agreement and to perfonn its obligations and covenants: thereundcc
124. Countrywide also breached a Mortgage Loan Representation in the Purchase
Agreement, which is incorporated within the Insurance Agreement. Under the Purchase
Agreement, Countrywide represented that the Mortgage Loans had been originated in accordance
48
with Countrywide's underwriting guidelines, and also consistently with Ih!..' shmdards in the
industry. In a d d i t i o n ~ COWltrywide represented and warranted it was not awan: orany
infonnation that would suggest that a Mortgage Loan would not be repaid. On inli:mnati()I1 and
belief, Countrywide had not applied its undcnvriting guidelines to any of the Mortgage Loans.
125. Under the Purchase Agreement, Countrywide Illso was to provide a Mortgage
Loan Schedule that accurately reflected the Mortgage Loans. The Mortgage Loan Schedule
accurately reflected the results of Countrywide's purported underwriting exercise; however, it
failed to accurately reflect the Mortgage Loans.
126. . Countrywide's representations and warranties in the Purchase Agreement were
untrue and accurate, and therefore constitute an Event of Default under the Insurance Agreement.
127. Countrywide is further in breach or the Mortgage Loan Representations with
respect to a substantial number of Defective Loans, and ha.., breached its obligations, under each
Insurance Agreement and the applicable Purchase Agreement and the Sale and Servicing
Agreement, to cure, repurchase or substitute for each of the Defective Loans.
128. Each Insurance Agreement and other relevan t Transaction Document further
requires Countrywide, after becoming aware of defective or missing documentation in the
Mortgage Loan files, or of another breach by Countrywide of a Mortgage Loan Representation
contained in a Transaction Document. to cure such breach within ninety days from the date that
Countrywide was notified of such breach or not later than the business day prior to the payment
date in which such cure period expired (the "Cure Date"), or to repurchase and/or substitute an
eligible loan for the Defective Loan in accordance with the applicable Sale and Servicing
Agreement
49
129. MBlA's written notice of Defective Loans notice ofbrl'uch oj' 1111.'
Mortgage Loan Representation, and commences the running Oflhl' cure period. The ('Ul"(,' Dak'
has long passed. As of the date of this filing, Countrywidl: has Ittikd and refused. and continues
to fail and refuse, to perform its obligations under erich Insurance AgreC'ment and the applicable
Purchase Agreement and the Sale and Servicing Agreement. in that Countrywide refuses it) t'urc
the breaches of the Mortgage Loan Representations, repurchase the Defective Loans. and/or
substitute qualified mortgage loans in their place.
130, Countrywide has also breached the covenants in Article 2 of the Insurance
Agreement, including;
a. Countrywide was obliged to comply with all material requirements. laws,
rules and regulations where noncompliance could reasonably be expected to result in a Material
Adverse Change, On information and belief, and based on the publicly-filed actions commenced
by States and acknowledgments by other States of investigations of alleged unlawful conduct by
Countrywide, Countrywide knew or should have known that it employed practices, procedures
and policies that violated, among other things, state consumer protection and predatory lending
laws in connection with the origination of mortgage and servicing of mortgage loans. state
nondiscrimination lending state banking laws, and federal and state securities laws,
b, Countrywide was obliged not to take any actioll, or fail to take any action,
that "could reasonably be expected to result in a Material Adverse Change to the Master
Servicer, Sponsor or Depositor," As described above, Countrywide engaged in actions that at
the time could reasonably be expected to result in a Material Adverse including its
failure to originate mortgage loans consistently with prudent undetwriting standards and
consistently with states' laws; tailure to disclose material infOImation to shareholders and others
50
in cormection with the purchase or sale of stock; Ilnd failure to administer pt..:nsion funds
consistent with ERISA and its fiduciary
131. At the time action Or inaclion in breach or tl t'tlVl..'llaJlt in Artick
2 of the Insurance Agreement, it could reasomlbly be expected to, and" as described ahovc, did,
result in a Material Adverse Change to COutllrywidc's business:, financial condition, rl..'sults of
operations or properties; and also Countrywide's ability to perform its obligations under any of
the Transaction Documents. Countrywide's breach of covenants has led to substantial
impairment of Countrywide's business and financial condition, nearly fordng it into bankruptcy,
and of Countrywide's ability to perfonn its obligations, including to repurchase Defective Loans.
to service the Mortgage Loans and to provide MBIA with access to informatjon.
132. Countrywide has also breached its covenant in the Insurance Agreement to not
take any action, or fail to take any action, that may «interfere with the enforcement of any rights
ofllie Insurer under or with respect to the Transaction Documents,"
a. Countrywide has interfered with the enforcement of MBIA 's rights under
the Purchase Agreement, including by failing to repurchase the Defective Loans, and by failing
to provide full and timely access to Mortgage Loan files, records and infonnation.
b. CountryWide has breached its obligations under the Sale and Servicing
Agreement to service the Mortgage Loans consistently with the standards in the industry) and to
refrain from altering its collection and charge-off policies in ways that materially and adversely
affect MBIA.
133. MBIA is entitled to rescission of the Insurance Agreement based on
Countrywide's untrue and inaccurate representations and warranties.
134. In the alternative, MBIA is entitled to damages in an amount to be proved at trial.
51
FOURTH ('AliSE OF A<;:T10N
(BREACH OF CONTRACT: SAU; ANI) SEIWI('ING A<;REEMENT)
135, MBIA incorporates by rcfcn .. 'lIcc all the alk:ga!iol1s as though fully
forth herein.
136. This is a daim for breach of contract against
137. Each Sale and Servicing Agreement is a valid ano cnfi)f(.'cabk contract that gives
rise to certain obligations on the part of Countrywide.
138. Each Sale and Servicing Agreement expressly provides that MBfA is a lhird-party
beneficiary thereunder, with the right to enforce the covenants and the obligations of the parties
thereto.
139. Under the Sale and Servicing Agreement, Countrywide is obligated, among other
things, to provide service and administration consistent with the standards in the industry.
Countrywide has failed to perfonn service and administration at industry standards.
140. Countrywide has failed to commit adequate resources even to perfonn its
obligations) such as staff to respond to customer inquiries, conduct follow-up efforts and call out
programs to delinquent borrowers, and resources for work-out plans and updated softvvare
programs. This inadequate resource commitment has been exacerbated by Countrywide's blatant
disregard of its own underwriting guidelines, which hal) led to substantial increases in
delinquencies and defaults,
141. Countrywide also has exploited its role as agent for the owner of the Mortgage
Loans for its own gain at the expense of MBIA. For example, Countrywide has continued to
service loans-and collect serviCing fees-even where it has become reasonably certain that it
defaulted Mortgage Loan will not produce any further payments to reduce amounts of accrued
interest or outstanding principal. It is standard in the industry to charge off a loan after it has
52
been delinquent for 180 day::), as Countrywide itsdf adnowbl),!,\..·d on pag\..· S-9 or the
Supplemental Prospectus forCWHEQ 2007-S1, in whid1 it ddincd u chargl'd-ofrloan ,.is one
that had been delinquent for more than 180 days. In SOI1lI.: cas!..:s, however. Countrywide has
continued to service Mortgage Loans more than 270 d,tys allcr the last payment 011 amounts
owed on the Mortgage Loans had been received. Countfy"vidc has contiI1t1ed to service such
Mortgage Loans for the sole purpose of continuing to collect service, late payment and other fec::;
that it retains as compensation. When a payment on a Mortgage I,oan is delinquent a latc
payment fee is accrued on the account. Countrywide, as Master Servicer, is entitled to retain all
such late payment fees and senrice charges and any interest thereon as its compensation.
142. Countrywide has otherwise failed to service the Mortgage Loans consistently with
the standards of the industry, including, for example, refusing to accept partjai payments from
borrowers ostensibly because of the added accounting and administrative burdens of accounting
for partial payments, Countrywide has also charged o!floans where the borrower has made
payments after the date of the charge-off, to the direct detriment ofMBlA.
143, Countrywide's breach of the Sale and Servicing Agreement has caused substantial
harm and damages to M B I A ~ in an amount to be proved at trial, but at a minimwn including
substantially higher claims on Policies and other losses and expenses.
FIFTH CAUSE OF ACTION
(BREACH OF IMPLIED DUTY OF GOOD FAITII AND FAIR DEALING)
144. MBlA incorporates by reference all the foregoing allegations as though fully set
forth herein,
145. This is a claim for breach of the implied covenant of good faith and fair dealing
against Countrywide.
53

146. The Insurance Agreement and the Tmnsw.:tion Documents incorporated therein
were built on the premise that. as Countrywide aftirma{ivdy represented, the Mortgage Loans
had been evaluated consistently with the underwriting slundanJs tlUll led Countrywide to be an
industry leader. COlU1trywide encouraged trust and rcliancl.! nil its underwriting precisely
because of its expertise and experience.
147. The implied duty of good faith and fairdealing required application of
underwriting standards consistent with MBIA's understanding, and with Countrywide's
awareness of what MBIA had understood.
148. Countrywide's breach has caused substantial hann and danlages to MBIA, in an
amowlt to be proved at trial. At a minimum, Countrywide's breach has caused:
a. Damages representing the aggregate amount of actual and future claims on
its Policies substantially in excess of the aggregate amount of claims that would have been made
in the absence of Countrywide's breach;
h. Damages representing losses sustained by MBIA because of its credit risk
and exposure on the Policies, which are substantially greater than the parties bargained, and has
led to loss of business and other losses and expenses.
SIXTH CAUSE OF ACJ10N
QNDEMNIFICA nON)
149. MBIA repeats incOlporates by reference all the foregoing allegations as iffully
stated herem.
150. This is a claim for indemnification against Countrywide,
151. In addition to the obligation to repurchase or substitute eligible loans for the
Defective Loans, each Insurance Agreement requires Countrywide to indemnify MBlA for any
54

losses) costs, and expenses resulting from the breach of any n:pn:sl'lll;ttioIlS Hnd warranties
contained in the Transaction Documents.
152. Countrywide is further obliged to indemnily MBIA for its attorllcys' lees ~ l J l d
costs associated with enfon:ing its legal rights under the agreements.
55
,
. ,
.
PRA YEn FOR RELI EF
WHEREFORE MBIA prays for relief as follows:
An award of damages against Countrywide, in an amount to be proven at trial, but
including at a minimum representing:
a. MBIA IS payments on current and future claims under the Policic:l, including draw
downs on guarantees;
b. MBIA's losses, including lost profits and opportunities;
c. Indemnification for MBIA)s attorneys' fees and costs associated with enforcing
its legal rights under the Transaction Docwnents;
d. PWlitive damages;
e. Prejudgment interest at the maximum legal rate; and
f. Such other and further relief as the Court may deem just and proper.
DATED: New York, New York
September 30, 2008
56
QUINN EMANUEL URQUHART OLIVER &
HED
eter E. Calamari
Philippe Z. Selendy
51 Madison Avenue, 22nd Floor
New York, New York 10010-1601
(212) 849-7000
Attorneys for Plaintiff
t ., v
,
Index No, /6 (\?.
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK CITY
MBIA Insurance Corporation,
Plaintiff,
-against-
Countrywide Home Loans, Inc., Countrywide Securities
and Countrywide Financial Corp.,
Defendants.
COMPLAINT
QUINN EMANUEL URQUHART
OLIVER & HEDGES, LLP
51 Madison Avenue, 22nd Floor
New York, New York 10010
(212) 849-7000
Couf/Sel for Plaintiff
MBlA Insurance

EXHIBIT 2

1

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA Insurance Corporation,

Plaintiff,

-against-

Countrywide Home Loans, Inc., Countrywide
Securities Corp., Countrywide Financial
Corp., Countrywide Home Loans Servicing,
LP and Bank of America Corp.,

Defendants.
Index No. 08/602825

IAS Part 3 (Bransten, J.)

AMENDED COMPLAINT

Plaintiff MBIA Insurance Corporation (“MBIA”), by its attorneys, Quinn
Emanuel Urquhart Oliver & Hedges LLP, for its Complaint herein against Countrywide Home
Loans, Inc. (“Countrywide Home”), Countrywide Home Loans Servicing, LP (“Countrywide
Servicing”), Countrywide Securities Corporation (“Countrywide Securities”), Countrywide
Financial Corporation (“Countrywide Financial”) (collectively, “Countrywide” or “Countrywide
Defendants”) and Bank of America Corporation (“BofA” or “Bank of America”) (collectively
“Defendants”) alleges as follows:
NATURE OF ACTION
1. This action arises out of the fraudulent acts and breaches of contract of
Countrywide in connection with fifteen securitizations of pools of residential second-lien
mortgages (the “Mortgage Loans”). Countrywide, the largest residential mortgage originator and
servicer in the country, originated or acquired and then sold (or otherwise conveyed) the
Mortgage Loans to trusts that in turn issued and sold residential mortgage-backed securities
(“RMBS”) to investors. To make these securitizations more marketable, Countrywide induced
MBIA to provide billions of dollars of credit enhancement in the form of financial guarantees of

2

the trust obligations on particular classes of RMBS. In order to do so, Countrywide falsely
represented to both MBIA and the investors that Countrywide had originated the Mortgage
Loans in strict compliance with its underwriting standards and guidelines, which were developed
over time to screen the creditworthiness of borrowers and the likelihood that the Mortgage Loans
would be repaid.
2. In reality, as it fought aggressively to expand its already enormous market share
in the mortgage lending boom of the past few years, Countrywide—under the direction of former
Chief Executive Officer Angelo Mozilo and former President and Chief Operating Officer David
Sambol—developed a systematic pattern and practice of abandoning its own guidelines for loan
origination and underwriting by knowingly lending to borrowers who could not afford to repay
the loans, who committed fraud in loan applications, or who otherwise did not satisfy the basic
risk criteria for prudent and responsible lending that Countrywide claimed to use.
3. From at least 2004 through 2007, in securitization after securitization, these
practices fundamentally changed the risk profile of the Mortgage Loans from that represented by
Countrywide. Countrywide’s deliberate misconduct as a loan originator and its fraudulent
representations as to the characteristics of the loan pools in the securitizations for which MBIA
provided guarantees has caused thousands of Mortgage Loans to default and go into foreclosure.
As a direct result of Countrywide’s actions, MBIA has already paid out over $1.4 billion on its
guarantees and is exposed to claims in excess of hundreds of millions of dollars more.
4. Further, compounding the harms of its original fraud, Countrywide has refused to
repurchase or replace non-compliant Mortgage Loans with eligible loans that do meet
Countrywide’s own guidelines, thereby breaching express representations and warranties in its
contracts with MBIA. If Countrywide had truthfully represented its deliberate deviation from

3

guidelines and past practice in loan origination, MBIA never would have issued guarantees on
the RMBS notes, and MBIA would not have suffered the related declines in its market value and
other losses.
5. As alleged by the Attorney General for the State of California in a complaint
against Countrywide Financial and Countrywide Home: “Countrywide’s deceptive scheme had
one primary goal—to supply the secondary market with as many loans as possible, ideally loans
that would earn the highest premiums. Over a period of several years, Countrywide constantly
expanded its share of the consumer market for mortgage loans through a wide variety of
deceptive practices, undertaken with the direction, authorization, and ratification of Sambol and
Mozilo, in order to maximize its profits from the sale of those loans to the secondary market.”
6. In short, Countrywide deliberately abandoned its own guidelines to drive up
revenues from increased origination fees, securitization fees, and servicing fees—no matter the
cost to borrowers, investors, or guarantors like MBIA.
7. Accordingly, MBIA now brings this action against Countrywide for fraud,
negligent misrepresentation and breach of contract.
PARTIES
8. Plaintiff MBIA Insurance Corporation is a New York corporation with its
principal place of business at 113 King Street, Armonk, New York. MBIA is one of the nation’s
oldest and largest monoline insurers, and provides financial guarantee insurance and other forms
of credit protection, generally on financial obligations which are sold in the new issue and
secondary markets.
9. Defendant Countrywide Financial Corporation is a Delaware corporation with its
principal place of business in Calabasas, California. Countrywide Financial, itself or through its
subsidiaries, is engaged in mortgage lending and other real estate finance-related businesses,

4

including mortgage banking, securities dealing, and insurance underwriting. On July 1, 2008,
Countrywide Financial merged with Bank of America. As of April 27, 2009, Countrywide
Financial ceased operating under the brand name Countrywide. Now combined with Bank of
America’s pre-existing mortgage and home loan business, Countrywide Financial operates as
Bank of America Home Loans, a division of Bank of America.
10. Defendant Countrywide Home Loans, Inc., a wholly-owned subsidiary of
Countrywide Financial, is a New York corporation with its principal place of business in
Calabasas, California. Countrywide Home originates and services residential home mortgage
loans. Countrywide Home was acquired by Bank of America on July 1, 2008, and is now doing
business as Bank of America Home Loans, a division of Bank of America.
11. Defendant Countrywide Home Loans Servicing LP, a wholly-owned subsidiary of
Countrywide Financial, is a limited partnership organized under the laws of Texas with offices in
Plano, Texas and Calabasas, California. Countrywide Servicing services residential home
mortgage loans. Countrywide Servicing was acquired by Bank of America on July 1, 2008, and
is now doing business as BAC Home Loan Servicing, LP.
12. Defendant Countrywide Securities Corporation, a wholly-owned subsidiary of
Countrywide Financial, is a Delaware corporation with its principal place of business in
Calabasas, California and in New York, New York. Countrywide Securities is a registered
broker-dealer and underwrites offerings of mortgage-backed securities. Countrywide Securities
was acquired by Bank of America on July 1, 2008.
13. Defendant Bank of America Corporation is a Delaware Corporation with its
principal place of business in Charlotte, North Carolina and offices and branches in Manhattan.
Bank of America is one of the world’s largest financial institutions, serving individual

5

consumers, small- and middle-market businesses and large corporations with a full range of
banking, investing, asset-management and other financial and risk-management products and
services. Countrywide merged with Bank of America on July 1, 2008. As explained more fully
below, Bank of America is a successor-in-interest to the Countrywide Defendants. It is thus
vicariously liable for the conduct of the Countrywide Defendants alleged herein.
JURISDICTION AND VENUE
14. This Court has jurisdiction over this proceeding pursuant to CPLR §§ 301 and
302. Countrywide Home is a New York corporation, and has appointed an agent for service of
process and has consented to the jurisdiction of the courts within the State. In addition, each of
the Countrywide Defendants expressly consented to the jurisdiction of this Court over
contractual and all other claims arising out of the transactions that give rise to the claims in the
Complaint. Moreover, Countrywide participated in negotiations and other activities within the
State which led to the transactions that give rise to the claims in the Complaint, and the
transactions themselves occurred within the State. Bank of America is registered and/or licensed
to do business within the State and has agreed to the jurisdiction of the Courts within the State
over matters arising out of its activities within the State. Countrywide and Bank of America
have offices and/or regularly transact or have transacted business within the State.
15. Venue is proper in this Court pursuant to CPLR § 503(c). Each of the
Countrywide Defendants expressly agreed that the Courts within the County and State of New
York are an appropriate venue for all actions arising out of the transactions that give rise to the
claims in the Complaint. In addition, negotiations and other substantial activities relating to the
transactions that give rise to the claims in the Complaint occurred within the State.

6

FACTUAL ALLEGATIONS
I. Countrywide Promotes Itself As a Reputable and Conservative Loan
Originator.

16. Co-founded in 1969 by Angelo Mozilo, Countrywide was an industry leader of
the residential mortgage lending industry. As of March 31, 2008, Countrywide was the largest
originator of residential mortgage loans in the country, and also the largest servicer of mortgage
loans in the country. In the first quarter of 2008 alone, despite a sharp decline in residential
home sales, Countrywide originated $73 billion in mortgage loans. During that same quarter,
Countrywide serviced and administered approximately $1.5 trillion of residential loans
originated by itself and other lenders, generating $1.4 billion in revenues.
17. In addition to the origination and servicing of residential mortgage loans,
Countrywide, itself or through affiliates, purchases and sells mortgage loans, provides loan
closing services, provides residential real estate and home appraisal services in connection with
loan origination and servicing, manages a captive mortgage reinsurance company, packages and
arranges securitizations of mortgage loan pools, and underwrites public offerings of mortgage-
backed securities in the secondary market.
18. On information and belief, prior to 2004, the substantial majority of mortgage
loans that Countrywide originated each year were traditional long term, fixed-rate, first lien
mortgage loans to prime borrowers which met the guidelines for sale to the Federal National
Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation
(“Freddie Mac”). Fannie Mae and Freddie Mac are authorized to purchase only mortgage loans
that conform to specific regulatory guidelines (known in the industry as “conforming loans”).
Conforming loans, if properly underwritten and serviced, historically were the most conservative
loans, with the lowest rates of delinquency and default, in the residential mortgage industry.

7

Mortgage loans which fail to meet the regulatory guidelines are known in the industry as “non-
conforming loans.”
19. Countrywide extolled its conservative Credit Policy, which it proclaimed was
“designed to produce high quality loans through a rigorous pre-loan screening procedure and
post-loan auditing and appraisal and underwriting reviews.” In its 2004 annual report,
Countrywide summarized the comprehensive standards and procedures of its Credit Policy:
Our Credit Policy establishes standards for the determination of acceptable credit
risks. Those standards encompass borrower and collateral quality, underwriting
guidelines and loan origination standards and procedures. Borrower quality
includes consideration of the borrower’s credit and capacity to pay. We assess
credit and capacity to pay through . . . manual or automated underwriting of
additional credit characteristics. Our loan origination standards and procedures
are designed to produce high quality loans. These standards and procedures
encompass underwriter qualifications and authority levels, appraisal review
requirements, fraud prevention, funds disbursement controls, training of our
employees and ongoing review of their work . . . In addition, we employ
proprietary underwriting systems in our loan origination process that improve the
consistency of underwriting standards, assess collateral adequacy and help to
prevent fraud, while at the same time increasing productivity.
In addition, Countrywide described the extensive post-origination Credit Policy procedures that
had been implemented to ensure consistency, accuracy and fraud detection:
In addition to our pre-funding controls and procedures, we employ an extensive
post-funding quality control process. Our Quality Control Department, under the
direction of the Chief Credit Officer, is responsible for completing comprehensive
loan audits that consist of a re-verification of loan documentation, an in-depth
underwriting and appraisal review, and if necessary, a fraud investigation.
20. Countrywide claimed that its disciplined underwriting standards not only
distinguished it from other lenders in the industry, but reflected best-in-class practices to be
emulated. For example, in an investor forum hosted by Countrywide in September 2006, Mozilo
explained that Countrywide not only led the industry in developing efficiencies, but also in
responsible lending:

8

Not only did we drive efficiency in the marketplace, but as an industry leader we
served as a role model to others in terms of responsible lending. We take
seriously the role of a responsible lender for all of our constituencies. . . . To help
protect our bond holder customers, we engage in prudent underwriting
guidelines. (Emphasis added.)
21. At the same forum, Sambol added that:
We’re extremely competitive in terms of our desire to win, and we have a
particular focus on offense, which at the same time is supplemented by a strong
defense as well, meaning that we have an intense and ongoing focus on share
growth while at the same time maintaining a very strong internal control
environment and what we believe is best-of-class governance. . . . [O]ur culture is
also characterized by a very high degree of ethics and integrity in everything that
we do. (Emphasis added.)
II. Countrywide Seeks More Market Share But Pledges Continued Rigorous
Underwriting.

22. In or around 2003, there was rising demand on Wall Street for “private label”
securitizations of non-conforming loans. Private label securitizations are arranged and
underwritten by private firms (i.e., not government-sponsored entities) and are comprised of non-
conforming loans that cannot be purchased by Fannie Mae and Freddie Mac. Because they may
be comprised of riskier loans than those meeting Fannie Mae and Freddie Mac’s criteria, private
label securitizations generate higher returns for investors, as well as greater revenues for
originators.
23. Increased securitizations required increased loan origination to generate the
underlying pools of loans. In a January 2004 call with analysts, Mozilo announced that
Countrywide, already the industry leader with nearly a 15% loan origination market share,
planned to double its market share within four years: “Our goal is market dominance, and we are
talking 30% origination market share by 2008.” Countrywide pledged, however, that the growth
in originations would not compromise its strict underwriting standards. Indeed Mozilo stated
that Countrywide would target the safest borrowers in this market in order to maintain its

9

commitment to quality. “Going for 30% mortgage share here is totally unrelated to quality of
loans we go after.... There will be no compromise in that as we grow market share. Nor is there a
necessity to do that.” (Emphasis added.)
24. Starting in 2004 and accelerating in 2005, Countrywide expanded its origination
and securitization of riskier lines of products, including subprime mortgages, interest-only loans,
Pay Option ARMs (an adjustable rate mortgage loan that allows a borrower to make initial
minimum monthly payments less than monthly accrued interest), closed-end second liens
(“CES”), and home equity lines of credit (“HELOCs”), with a much broader base of potential
borrowers. A HELOC is a second lien on residential property. The borrower’s equity in the
property (i.e., the value of the property that is not used as collateral for the first lien)
collateralizes a specified line of credit that may be drawn down by the borrower. A CES is also
collateralized by the borrower’s equity, but the loan is of a fixed amount. Because they are both
second liens, HELOCs and CESs are junior in priority to the first lien. As a consequence, if the
property is foreclosed, the proceeds must be used to fully satisfy the first lien before the second
lien is paid.
25. At the same time, Countrywide reassured investors and credit enhancers, such as
MBIA, that its underwriting procedures and credit risk management remained highly rigorous.
For example, in its 2005 10-K and thereafter, and incorporated in the Prospectus for each
securitization for which MBIA provided a guarantee, Countrywide represented that:
[Countrywide] ensure[s] . . . ongoing access to the secondary mortgage market by
consistently producing quality mortgages and servicing those mortgages at levels that
meet or exceed secondary mortgage market standards . . . . [W]e have a major focus on
ensuring the quality of our mortgage loan production and we make significant
investments in personnel and technology in this regard.


10

26. In particular, Countrywide touted its underwriting guidelines, claiming to
ascertain facts about “borrower and collateral quality” including applicant assets and liabilities,
income, employment history, and other demographics and personal information, as well as a full
property appraisal. Countrywide claimed that it obtained all applicable income, liability, asset,
employment, credit, and property information, on the basis of which it ascertained debt-to-
income ratios (the ratio of a borrower’s total monthly debt obligations to gross monthly income)
and combined loan-to-value ratios (the ratio of the total outstanding value of the senior and
subordinate loans on a property to the value of such property). Because the guidelines are
ostensibly designed to ensure that loans perform over time, Countrywide knew that the quality of
its guidelines—and its adherence to them—would materially affect the risks of investing in or
guaranteeing its securitizations.
27. Throughout Countrywide’s expansion, Mozilo consistently represented that
Countrywide would not sacrifice the strict and disciplined underwriting standards that had made
it an industry leader in responsible lending. During a March 15, 2005 conference with analysts,
Mozilo responded to a question about Countrywide’s strategy for increasing market share, and
again assured Countrywide’s constituents:
Your question is 30 percent, is that realistic, the 30 percent goal that we set for
ourselves 2008? . . . Is it achievable? Absolutely . . . But I will say this to you,
that under no circumstances will Countrywide ever sacrifice sound lending and
margins for the sake of getting to that 30 percent market share. (Emphasis
added.)
28. Other Countrywide senior officers echoed that Countrywide had not, and would
not, loosen its underwriting standards. For example, in an April 2005 conference call with
analysts, Eric Sieracki, Countrywide’s Chief Financial Officer, responding to a question asking
whether Countrywide had changed its underwriting protocols, said: “I think they [FICO scores,
combined loan-to-value and debt-to-income ratios] will remain . . . consistent with the first

11

quarter and most of what we did in 2004. We don’t see any change in our protocol relative to
the volume [of] loans that we’re originating.” In a July 2005 conference call, Sieracki further
stated that as to the Countrywide-originated HELOCs: “The credit quality of our home equities
should be emphasized here as well. We are 730 FICO on these home equities, and that’s
extraordinary throughout the industry.” (emphases added).
III. Nature of the Securitizations.
29. From 2002 through 2007, MBIA provided credit enhancement for a total of 17
Countrywide securitizations of second-lien mortgage loans. This action concerns the following
fifteen securitizations of HELOCs and CESs: CWABS 2004-I, CWABS 2004-P, CWHEQ
2005-A, CWHEQ 2005-E, CWHEQ 2005-I, CWHEQ 2005-M, CWHEQ 2006-E, CWHEQ
2006-G, CWHEQ 2006-S8, CWHEQ 2006-S9, CWHEQ 2006-S10, CWHEQ 2007-E, CWHEQ
2007-S1, CWHEQ 2007-S2, and CWHEQ 2007-S3 (the “Securitizations”). Each securitization
generally comprised one or two pools of mortgage loans of between approximately 8,000 and
48,000 mortgage loans.
30. For each of the Securitizations, Countrywide Home originated, or acquired
through external mortgage brokers or correspondent banks, the underlying second-lien
residential mortgages. Countrywide Home or Countrywide Servicing acted as servicer for the
mortgage loans in each Securitization. Countrywide Home then conveyed pools of these
mortgage loans to a depositor, also a Countrywide entity, in exchange for cash. The depositor in
turn conveyed the pools of mortgage loans to the Countrywide-created Trusts for the purpose of
using the mortgage loans as collateral for asset-backed securities that would be sold to investors.
The Countrywide-created Trusts then worked with the underwriters, including Countrywide
Securities, to price and sell the RMBS Notes to investors.
31. The notes were purchased originally through public offerings of mortgage-backed
securities issued by the Trusts. Countrywide Securities acted as an underwriter for each of the
Securitizations, and offered the notes to the public. Investors were able to purchase notes,

12

representing an undivided interest in pools of underlying mortgage loans. The cashflows from
these underlying loans (in the form of payments of interest and principal) are used to pay
obligations on the notes. A purchase of an RMBS note is thus the purchase of a right to
participate in the cashflows generated by the pool of mortgages.
IV. Relying on Countrywide’s Unique and Special Knowledge Regarding the
Underlying Mortgages and its Representations as to its Conservative
Underwriting Standards, MBIA Agreed to Provide Credit Enhancement
for the Securitizations.

32. To increase the marketability of the notes, Countrywide engaged MBIA to
provide credit enhancement on the RMBS. The credit enhancement—in the form of a guarantee
of repayment of principal and interest for the RMBS notes in each Securitization—allowed the
guaranteed, or wrapped, tranches of RMBS to have higher credit quality (reflected by a “AAA”
or equivalent credit rating) than the underlying collateral. Because the Trust’s obligations are
backed by MBIA, in its capacity as insurer, any shortfalls in trust payments of principal or
interest are covered by MBIA. That allowed Countrywide to market the notes on the basis of
MBIA’s then-AAA credit rating, rather than the lower credit quality implied by the collateral and
the RMBS structure alone.
33. For each securitization, Countrywide generally solicited bids from several
monoline insurers, requiring responses within a short time period.
34. In connection with each securitization, Countrywide generally provided a
description of the structure of the deal and specific data points for each loan in what is known as
a loan tape. The loan tape generally included information such as the loan-to-value ratio (LTV)
for each loan, the debt-to-income (DTI) ratio for each borrower, and the measurement of each
borrower’s creditworthiness as reflected in the borrower’s FICO score.

13

35. In an effort to induce MBIA to guarantee the securitizations, Countrywide also
made available to MBIA a summary of its underwriting procedures for each Securitization, and
represented that its underwriting of the Mortgage Loans conformed to its stated underwriting
procedures as well as industry standards. Countrywide also represented that it was not aware of
any reason why a borrower would not be able to repay a mortgage loan.
36. Countrywide further provided MBIA with shadow credit ratings on the proposed
pool of mortgage loans intended for securitization. On information and belief, Countrywide
solicited the shadow ratings from credit rating agencies based on information and representations
provided by Countrywide as to the credit quality of the mortgage loans and the amount of
overcollateralization in the deal. All of the Securitizations had shadow ratings of at least BBB-
or the equivalent. Absent credit quality reflected by a shadow rating of at least BBB-, MBIA
would not have agreed to provide credit enhancement.
37. Countrywide also provided, or referenced, the original Prospectus filed with the
SEC in connection with each public offering of mortgage-backed securities (including the
Securitizations). In that Prospectus, Countrywide described its business and operations, its
purportedly disciplined underwriting standards, and the quality of the mortgage loans it
originated.
38. Countrywide also provided Supplemental Prospectuses that would be filed with
the SEC shortly before the securities for each deal were issued to the public. The Supplemental
Prospectuses provided more specific information about, among other things, the Mortgage Loans
underlying the securities in each Securitization.
39. In addition to and separate from the information provided in connection with each
Securitization, Countrywide also made regular presentations to MBIA at MBIA’s offices in New

14

York, including on June 23, 2004 and in May 2005, and at Countrywide’s offices in California
on May 19, 2004, March 15, 2005, November 1 and 2, 2006, and in March 2007. During these
meetings, Countrywide touted its expertise and capabilities in loan origination and servicing, and
repeatedly represented that its risk management systems were state of the art—both in its
origination of loans and in its servicing of mortgages.
40. As part of its solicitation of bids, Countrywide encouraged MBIA to rely, and was
aware that MBIA in fact relied, on the information set forth above as well as Countrywide’s
public commitment to conservative underwriting and historical record of strong loan
performance, including lower rates of delinquencies and defaults than that of most lenders in the
industry.
41. Because Countrywide arranged the Securitizations, originated or acquired,
underwrote, and serviced all of the underlying mortgage loans, Countrywide had unique and
special knowledge and expertise regarding the loans in the Securitizations. In particular,
Countrywide had unique and special knowledge and expertise regarding the quality of the
underwriting of those loans as well as the servicing practices employed as to such loans.
Because MBIA could not evaluate the underwriting quality or the servicing practices of the
mortgage loans in the Securitizations on a loan-by-loan basis, it relied on Countrywide’s unique
and special knowledge and expertise regarding the underlying mortgage loans when determining
whether to provide credit enhancement for each of the Securitizations. Moreover, although
MBIA conducted its own due diligence of the securitizations, MBIA was entirely reliant on
Countrywide to provide accurate information regarding the loans to conduct that analysis.
42. To induce MBIA to guarantee the payment of principal and interest on the
RMBSs, Countrywide also made numerous contractual representations and warranties to MBIA

15

concerning the origination and quality of the Mortgage Loans, including that the Mortgage Loans
had been underwritten pursuant to its extensive set of approved guidelines. Countrywide further
represented that the Mortgage Loans would be selected from among the outstanding home equity
loan agreements in its portfolio that met stated criteria, and that “[n]o selection will be made in a
manner that adversely affects the interests of the Noteholders or [MBIA]” in the Securitizations.
43. Countrywide backed up its representations by agreeing that, in the event of a
breach of any representation or warranty related to a Mortgage Loan (a “Defective Loan”),
Countrywide would either cure the breach or repurchase or substitute eligible Mortgage Loans
for the Defective Loan. Because identifying Defective Loans is itself costly and time-
consuming, this “put-back” remedy was intended to address situations where only a small
number of loans failed to satisfy eligibility requirements.
44. As set forth in greater detail below, MBIA relied upon Countrywide’s guidelines,
representations, and warranties in evaluating the risks presented by the Securitizations and in
agreeing to guarantee the obligations to the Notes.
45. The longstanding relationship between Countrywide and MBIA coupled with
Countrywide’s unique and special knowledge and expertise as to the loans underlying the
RMBSs created a “special relationship” of trust and confidence between Countrywide and
MBIA.
V. The Contractual Provisions of Each Securitization.
46. Countrywide arranged and securitized the Securitizations.
47. Of the fifteen Securitizations, the following nine securitizations involve HELOCs:
CWABS 2004-I, CWABS 2004-P, CWHEQ 2005-A, CWHEQ 2005-E, CWHEQ 2005-I,

16

CWHEQ 2005-M, CWHEQ 2006-E, CWHEQ 2006-G, and CWHEQ 2007-E (the “HELOC
Securitizations”).
48. The remaining six securitizations involve CESs: CWHEQ 2006-S8, CWHEQ
2006-S9, CWHEQ 2006-S10, CWHEQ 2007-S1, CWHEQ 2007-S2 and CWHEQ 2007-S3 (the
“CES Securitizations”).
49. Each of the fifteen Securitizations are governed by a set of transaction documents
that provide for among other things: (a) the sale of the mortgages by Countrywide Home to a
Countrywide-affiliated special purpose vehicle; (b) the servicing of those mortgages by
Countrywide Home or Countrywide Servicing; and (c) the rights of the noteholders.
50. For the HELOC Securitizations, there are three documents that primarily govern
the rights and obligations of the parties: (a) a Mortgage Loan Purchase Agreement (the
“Purchase Agreement”) which provides for the sale of mortgage loans by Countrywide Home to
a Countrywide affiliate created to effect the Securitizations; (b) a Sale and Servicing Agreement
which transferred the mortgage loans to a single purpose Trust, and confirmed the terms of
Countrywide Home’s engagement by the Trust to service the mortgage loans; and (c) a Trust
Indenture, which, among other things, established the rights of holders of securities and the
obligations of the Trustee.
51. For the CES Securitizations, the rights and obligations of the parties are governed
primarily by a Pooling and Servicing Agreement.
52. Each of the Securitizations has a master servicer. Countrywide Home is the
master servicer for the HELOC Securitizations. Countrywide Servicing is the master servicer for
the CES Securitizations.

17

53. For each of the Securitizations, Countrywide Home and/or Countrywide
Servicing, the Trust and MBIA also entered into an Insurance Agreement which provided the
terms for the issuance of an MBIA financial guaranty policy (a “Policy”) that would be issued to
the Trust. In each transaction, the Insurance Agreement incorporated the representations and
warranties and the obligations of the parties in the Transaction Documents (as defined below),
and gave MBIA the right to rely on representations in the Transaction Documents, to enforce
their terms, and to exercise remedies for any breach.
54. In addition to these documents, for each Securitization, Countrywide issued a
Supplemental Prospectus that purported to summarize the terms of the transaction documents.
The Supplemental Prospectus was issued at or around the time of the closing of each
Securitization and was a supplement to the original Prospectus for each Securitization.
55. Collectively, for each Securitization, these documents (along with other
documents executed by the parties at the time of the closing of each transaction) are the
“Transaction Documents.”
56. One transaction, the CWHEQ 2005-E securitization, is described in greater detail
below. It provides a representative example of the rights and obligations of the parties under all
the Securitizations. Although the 2005-E securitization is a HELOC securitization, the rights
and obligations of the parties under the governing documents for the CES securitizations are
materially the same. For the CES Securitizations, in addition to Countrywide Home,
Countrywide Servicing is a party to the Transaction Documents.
(a) The Purchase Agreement
57. On or about August 30, 2005, Countrywide Home entered into the Purchase
Agreement with its affiliate CWHEQ, Inc. (“CWHEQ”) for the 2005-E transaction, in which

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Countrywide Home agreed to sell the pool of Mortgage Loans to CWHEQ. In the Purchase
Agreement, Countrywide Home made extensive representations and warranties, including
representations and warranties relating to the Mortgage Loans in Section 3.02 of the Purchase
Agreement (the “Mortgage Loan Representations”).
58. The representations included that: (i) the mortgage file relating to each Mortgage
Loan was complete; (ii) information provided by Countrywide Home regarding the Mortgage
Loans was true and correct in all material respects; (iii) each Mortgage Loan complied with
applicable local, state and federal laws; (iv) the Mortgage Loans, individually and in the
aggregate, complied with underwriting criteria, such as the ratio of total unpaid balance of loans
on the mortgaged property to the value of the mortgaged property, the ratio of borrower debt to
income, and borrower credit scores; (v) the nature of the property was as specified in the
Mortgage Loan; and (vi) Countrywide Home did not have knowledge of any fact that would
cause a reasonable originator of mortgage loans to conclude that the Mortgage Loan would not
be paid in full when due.
59. The Purchase Agreement provides that, if a Mortgage Loan Representation was
inaccurate at the time when made, and such inaccuracy materially and adversely affected the
interests of MBIA, the inaccuracy constitutes a breach regardless of Countrywide Home’s
knowledge of the inaccuracy at the time of the representation. If Countrywide Home fails to
cure a breached Mortgage Loan Representation, Countrywide Home can be compelled to cure
the breach by repurchasing each Mortgage Loan that is inconsistent with the Mortgage Loan
Representation (a “Defective Loan”) or by substituting an eligible loan in place of a Defective
Loan.


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(b) The Sale and Servicing Agreement
60. On or about August 30, 2005, CWHEQ, Countrywide Home, CWHEQ Revolving
Home Equity Loan Trust, Series 2005-E (the “Trust”) and JPMorgan Chase Bank, N.A. (the
“Indenture Trustee”) entered into the Sale and Servicing Agreement. CWHEQ agreed to convey
all right, title and interest in the Mortgage Loans to the Trust for the purpose of using the
Mortgage Loans as collateral for asset-backed securities to be sold to investors.
61. The Mortgage Loan Representations were incorporated by reference into the Sale
and Servicing Agreement. Like the Purchase Agreement, the Sale and Servicing Agreement
states that if a Mortgage Loan Representation was inaccurate at the time it was made, and the
inaccuracy materially and adversely affects the interests of MBIA, the inaccuracy is a breach of
the applicable representation or warranty even if Countrywide Home had no knowledge that the
representation was inaccurate at the time it was made. If Countrywide Home fails to cure a
breached Mortgage Loan Representation, Countrywide Home can be compelled to repurchase
each Defective Loan or substitute an eligible loan for the Defective Loan.
62. The Sale and Servicing Agreement also defines the obligations of Countrywide
Home with respect to servicing the Mortgage Loans, including covenants (i) to administer the
Mortgage Loans consistently with industry practice, (ii) to use reasonable efforts to collect all
payments owed on the Mortgage Loans, and to follow the same collection procedures it follows
for servicing mortgage loans in its own portfolio, and (iii) to allow MBIA access to information
regarding the Mortgage Loans and its rights.
(c) The Prospectuses and Supplemental Prospectus
63. The Prospectus describes Countrywide’s business and operations. The Prospectus
provides a description of Countrywide’s purportedly disciplined and conservative underwriting

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standards as well as a description of the Mortgage Loans, and advises that a Supplemental
Prospectus will be filed with the SEC at the time of each offering of mortgage-backed securities.
The Prospectus was issued by Countrywide prior to the closing of the transaction.
64. The Supplemental Prospectus provides more specific information about the
Mortgage Loans backing the securities. It was issued at around the time of the closing of the
transaction.
65. The Supplemental Prospectus represents that each Mortgage Loan was evaluated
in accordance with Countrywide’s traditional underwriting standards. The Supplemental
Prospectus also states that appraisals were conducted on home equity loans. Although the
specific type of appraisal might vary, the appraisals were conducted by an “independent third-
party” appraiser, and “completed on forms approved by Fannie Mae or Freddie Mac.”
(d) The Insurance Agreement
66. MBIA’s agreement to provide a financial guarantee policy to the Trust is reflected
in the Insurance Agreement, a contract that was entered into by MBIA, Countrywide Home, the
Trust and the other parties to the Transaction Documents.
67. On or about August 30, 2005, MBIA, Countrywide Home, CWHEQ, Inc., the
Trust, and the Indenture Trustee entered into the Insurance Agreement with respect to the 2005-E
transaction. In the event that defaults in the Mortgage Loan pool result in a shortfall of funds for
the Trust to make required payments on the securities, the Trustee is to submit a claim on the
Policy, and MBIA is to fund the shortfall.
68. Under the Insurance Agreement, MBIA has standing to seek recovery for
breaches, and to enforce the obligations of parties to the other contracts related to the 2005-E
transaction (including contracts to which MBIA is not a party), including the Purchase
Agreement, Sale and Servicing Agreement, Indenture, Trust Agreement, the Underwriting

21

Agreement, the Securities issued by the Trust, and other documents associated with the
transaction.
69. Countrywide Home expressly represents and warrants in the Insurance Agreement
that:
a. The Countrywide Home’s financial statements are complete and correct in
all material respects, and Countrywide is not aware of any undisclosed contingent liabilities that
could reasonably be expected to cause a Material Adverse Change;
b. No practice, procedure or policy in the conduct of business violates any
law, regulation, judgment, agreement, order or decree that, if enforced, reasonably could be
expected to result in a Material Adverse Change;
c. Neither the Transaction Documents nor other material information relating
to the Mortgage Loans, the operations of Countrywide Home (including servicing or origination
of loans) or the financial condition of Countrywide Home, or any other information furnished to
MBIA, contains any statement of a material fact which was untrue or misleading in any material
adverse respect when made; and
d. The offer and sale of the Securities complies with all securities laws, and
the Prospectus and Supplemental Prospectus do not contain any untrue statement of a material
fact and do not omit to state a material fact.
70. Countrywide Home also agreed to perform various obligations throughout the
term of the Insurance Agreement, including the following:
a. Countrywide Home shall allow MBIA access to information, including, on
an annual basis as well as in the event of a Material Adverse Change or default: (i) to inspect
books and records relating to the Securities, the obligations, and the transaction; (ii) to discuss

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the affairs, finances and accounts with corporate officers, and (iii) to discuss the affairs, finances
and accounts with their independent accountants;
b. Countrywide Home shall perform such actions as are required by or
provided in the Sale and Servicing Agreement;
c. Countrywide Home shall not take any action, or fail to take any action, if
such could reasonably be expected to result in a material adverse change in ability to perform
obligations under the Transaction Documents; and
d. Except as otherwise permitted, Countrywide Home shall not alter or
amend any Mortgage Loan, collection policies or charge-off policies in a manner that materially
adversely affects MBIA.
71. Under the Insurance Agreement, an Event of Default is defined to include a
breached representation or warranty, or a failure to materially perform an obligation, by a party
to any Transaction Document.
72. Like CWHEQ 2005-E, the other fourteen securitizations (CWABS 2004-I,
CWABS 2004-P, CWHEQ 2005-A, CWHEQ 2005-I, CWHEQ 2005-M, CWHEQ 2006-E,
CWHEQ 2006-G, CWHEQ 2006-S8, CWHEQ 2006-S9, CWHEQ 2006-S10, CWHEQ 2007-E,
CWHEQ 2007-S1, CWHEQ 2007-S2 and CWHEQ 2007-S3) were securitized through the use of
similar types of agreements that contained substantially similar terms, representations, warranties
and/or obligations. In addition, Countrywide, the Trust, and MBIA entered into similar
Insurance Agreements incorporating the representations, warranties and obligations of the parties
set forth in the Transaction Documents.
73. The dates of the remaining securitizations are as follows:
CWABS 2004-I September 29, 2004

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CWABS 2004-P October 29, 2004
CWHEQ 2005-A February 24, 2005
CWHEQ 2005-I December 28, 2005
CWHEQ 2005-M December 29, 2005
CWHEQ 2006-E June 29, 2006
CWHEQ 2006-G August 30, 2006

CWHEQ 2006-S8 December 28, 2006

CWHEQ 2006-S9 December 29, 2006

CWHEQ 2006-S10 December 29, 2006

CWHEQ 2007-E May 31, 2007

CWHEQ 2007-S1 February 28, 2007

CWHEQ 2007-S2 March 30, 2007

CWHEQ 2007-S3 March 30, 2007
VI. The Countrywide Mortgage Loans Show Excessive Defaults and Incurable
Breaches.

74. In the late fall of 2007, a material increase in delinquencies, defaults, and
subsequent charge-offs of the loans underlying the Securitizations became apparent. Because of
the number of loan delinquencies and defaults, and subsequent charge-offs, the total cash flow
from the mortgage payments in several of the Securitizations was insufficient for the Trusts to
meet their payment obligations to holders of the RMBS Notes.
75. In November 2007, the charge-offs resulting from the deficiencies and defaults
caused the Trusts to submit claims on MBIA’s note guaranty insurance policies, demanding that
MBIA cover the shortage of funds. Many of the delinquent loans defaulted and were
subsequently charged off, increasing MBIA’s exposure to even greater claims.

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76. To date, while reserving its rights, MBIA has paid over $1.4 billion in claims on
its guarantees and is exposed to claims in excess of hundreds of millions of dollars more.
77. On May 9, 2008, August 7, 2008, and December 17, 2008, MBIA provided
notices of breach of representations relating to the defective loans from fifteen of the seventeen
Countrywide securitizations.
78. The loan files obtained to date reveal substantial breaches of Mortgage Loan
Representations, including an extraordinarily high incidence of material deviations from the
underwriting guidelines Countrywide represented it would follow. A material discrepancy from
underwriting guidelines is very serious, and means that the loan should never have been made.
79. For example, the loan application may: (i) lack key documentation, such as a
verification of borrower assets or income; (ii) include an invalid or incomplete appraisal; (iii)
demonstrate fraud by the borrower on the face of the application; or (iv) reflect that any of
borrower income, FICO score, debt, DTI or CLTV ratios, fails to meet stated Countrywide
guidelines (without any permissible exception).
80. In fact, MBIA’s re-underwriting review has revealed that 91% of defaulted or
delinquent loans in these fifteen Countrywide Securitizations show material discrepancies from
underwriting guidelines. That high level of material discrepancies clearly evidences
Countrywide’s deliberate or reckless disregard of the very underwriting guidelines it touted to
induce MBIA to provide financial guaranty insurance in connection with the Securitizations.
The tight correlation between material discrepancies and defaults/delinquencies further makes
plain that Countrywide’s misconduct is both a substantial and direct cause of the non-
performance of Mortgage Loans in the Securitizations, and—because large numbers of

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delinquencies or defaults trigger MBIA’s payment obligations under the guarantees—a
proximate cause of MBIA’s harm.
81. Pursuant to the remedies provided in the Transaction Documents, MBIA has
demanded that Countrywide repurchase the following Defective Loans:
a.. 166 loans with an original unpaid principal balance of
approximately $5.611 million from the CWABS 2004-I securitization;

b. 155 loans with an original unpaid principal balance of
approximately $10.056 million from the CWABS 2004-P securitization;

c. 193 loans with an original unpaid principal balance of
approximately $10.611 million from the CWHEQ 2005-A securitization;

d. 528 loans with an original unpaid principal balance of
approximately $38.445 million from the CWHEQ 2005-E securitization;

e. 786 loans with an original unpaid principal balance of
approximately $66.085 million from the CWHEQ 2005-I securitization;

f. 687 loans with an original unpaid principal balance of
approximately $53.385 million from the CHWEQ 2005-M securitization;

g. 715 loans with an original unpaid principal balance of
approximately $74.202 million from the CWHEQ 2006-E securitization;

h. 688 loans with an original unpaid principal balance of
approximately $74.435 million from the CWHEQ 2006-G securitization;

i. 85 loans with an original unpaid principal balance of
approximately $5.551 million from the CWHEQ 2006-S8 securitization;

j. 86 loans with an original unpaid principal balance of
approximately $5.771 million from the CWHEQ 2006-S9 securitization;

k. 100 loans with an original unpaid principal balance of
approximately $6.261 million from the CWHEQ 2006-S10 securitization;

l. 234 loans with an original unpaid principal balance of
approximately $22.524 million from the CWHEQ 2007-E securitization;

m. 159 loans with an original unpaid principal balance of
approximately $13.649 million from the CWHEQ 2007-S1 securitization;

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n. 64 loans with an original unpaid principal balance of
approximately $6.397 million from the CWHEQ 2007-S2 securitization; and

o. 43 loans with an original unpaid principal balance of
approximately $3.898 million from the CWHEQ 2007-S3 securitization.

Total: 4,689 loans with an original unpaid principal balance of approximately
$396.881 million.
82. Significantly, the Defective Loans run across Countrywide’s Securitizations from
2004-2007, demonstrating the consistency of Countrywide’s disregard for its own underwriting
guidelines during this period. Further, based upon the extraordinarily high incidence of material
discrepancies in the loan files reviewed to date, the true number of Defective Loans in the
Securitizations is far higher than the 4,689 loans already identified by MBIA.
83. MBIA’s initial notices reflect Countrywide’s material discrepancies in two
primary respects: (i) that each Defective Loan “was originated in accordance with the Sponsor’s
underwriting guidelines”—where in fact the Defective Loans had debt-to-income ratios or
combined loan-to-value ratios exceeding maximum guideline levels, or (ii) that the “Sponsor had
no knowledge of any fact that would have caused a reasonable originator of mortgage loans to
conclude on the date of origination of each Mortgage Loan that such Mortgage Loan would not
be paid in full when due”—where in fact the Defective Loans were approved on the basis of
unverified borrower stated income that was patently unreasonable. Each breach described in the
Notice materially and adversely affects the interests of MBIA.
84. Notwithstanding MBIA’s Notices, to date, Countrywide has failed to repurchase
or replace all but a small percentage of the Defective Loans. As alleged below, Countrywide
was aware that the Loans were Defective at the time they were sold to the Trusts—and thus the
loans never should have been included in the Securitizations at all. Moreover, even if

27

Countrywide had not been so aware, the Transaction Documents provide that the breaches must
be cured within no more than 90 days of written notice. To date, MBIA has provided notice on
May 9, 2008, August 7, 2008 and December 17, 2008 that a total of 4,689 loans constituted
Defective Loans. Any cure period for these $396.881 million in loans, even if available, has
passed. Countrywide’s improper selection and failure to repurchase the Defective Loans
therefore constitutes an Event of Default under the respective Insurance Agreements.
VII. Breaches of Countrywide’s Servicing Obligations.
85. In addition, Countrywide Home and Countrywide Servicing have breached their
obligations under the Sale and Servicing Agreements and Pooling and Servicing Agreements,
respectively—which breaches also constitute Events of Default under the related Insurance
Agreements. Fundamentally, Countrywide Home and Countrywide Servicing have failed to
provide service and administration of the Mortgage Loans consistent with the standards in the
industry, as contractually required. Countrywide Home and Countrywide Servicing have failed
to allocate sufficient resources to service and administer the Mortgage Loans, with (i) inadequate
staff to address customer inquiries and to conduct follow-up efforts and call out programs to
delinquent borrowers, and (ii) inadequate resources for work-out plans and updated software
programs. That failure is exacerbated by Countrywide’s break-neck origination of loans in
disregard of its own underwriting guidelines, which led to an extraordinary increase in
delinquencies, defaults, foreclosures, bankruptcies, litigation and other proceedings—all of
which place greater demands on Countrywide Home and Countrywide Servicing in their
capacities as master servicers.
86. Countrywide Home and Countrywide Servicing also have exploited their roles as
agents for the owner of the Mortgage Loans for their own gain and at the expense of MBIA. For

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example, Countrywide Home and Countrywide Servicing have continued to service loans—and
charge servicing fees as well as late fees that they retain as compensation—long after any
reasonable expectation that defaulted Mortgage Loans could still result in payments. It is
standard in the industry to charge off a loan after it has been delinquent for 180 days, as
Countrywide itself acknowledged on page S-9 of the Supplemental Prospectus for CWHEQ
2007-S1, in which it defined a charged-off loan as one that had been delinquent for more than
180 days. In some cases, however, Countrywide Home and Countrywide Servicing have
continued to service Mortgage Loans more than 270 days after the last payment on amounts
owed on the Mortgage Loans had been received.
87. Countrywide Home and Countrywide Servicing further have failed to service the
Mortgage Loans consistently with the standards of the industry, including, for example, refusing
to accept partial payments from borrowers (ostensibly because of the added accounting and
administrative burdens of accounting for partial payments). Countrywide Home and
Countrywide Servicing also prematurely charged off loans to the direct detriment of MBIA by
charging off loans where the borrower was able to and in fact, made payments after the date of
the charge-off. Moreover, Countrywide has failed to seek recourse against borrowers whose
loans have been charged off for full satisfaction of their loans subsequent to the completion of
foreclosure proceedings.
88. Countrywide Home and Countrywide Servicing’s improper servicing of the loans
has enabled it to reap the benefit of additional service and late payment fees without bearing the
risk of losses from delinquencies and defaults, all at the expense of MBIA, which it fraudulently
induced to accept that risk.

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VIII. Countrywide’s Pattern and Practice of Fraud.
89. At the time of the Securitizations, Countrywide knew that its statements regarding
its underwriting guidelines and credit risk management process were false, and that it had no
intention of abiding by its contractual representations and warranties. Under the direction of
Mozilo and Sambol, Countrywide adopted a new “corporate culture” of writing as many
mortgage loans as possible—and at the highest interest rates and fees possible—regardless of the
creditworthiness or evident fraud of the borrower. Once Mozilo and Sambol had determined that
profit growth through securitization required accelerating loan origination, Countrywide
motivated its loan officers and external brokers to drive up loan volume regardless of material
deviations from stated underwriting guidelines.
90. Countrywide’s deteriorating underwriting practices enabled loan applications that
reflected blatant borrower fraud, inadequate documentation, missing verifications (for example,
of borrower assets and income), title defects, excessive DTI ratios, inadequate FICO scores, and
other material violations of guidelines. These violations made Countrywide’s related
representations regarding the Mortgage Loans materially false and misleading.
91. The incidence of material discrepancies is so extraordinarily high—91 percent of
the applications reviewed by MBIA for currently non-performing loans—that it could not have
been the result of human error. Instead, Countrywide was clearly ignoring sound underwriting
methodology, and it knew that its failure to follow its underwriting guidelines would result in the
origination of loans in which the borrower would not be able to repay.
92. For each Securitization, these failures to adhere to the underwriting guidelines
fundamentally changed the risk profile that Countrywide represented to MBIA and, as
Countrywide knew, raised the likelihood of losses through defaults—and thus payments by

30

MBIA as the credit enhancement provider—to levels that far exceeded the value of the premiums
payable to MBIA.
93. These material breaches further call into question the integrity of the shadow
ratings assigned to the collateral pools by the ratings agencies. Each of these pools was assigned
a rating of BBB- or the equivalent. Yet the presence of such a large percentage of loans that fail
to meet underwriting guidelines renders those ratings false and misleading because they
materially understate the true risk profile of the pool. Countrywide, as originator of the loans,
knew but failed to disclose these facts either to MBIA or to the ratings agencies. One of the
consequences of Countrywide’s material breaches was that the amount of overcollateralization is
insufficient to protect MBIA from delinquencies and defaults in the mortgage pools, as
Countrywide was well aware. Had MBIA been aware of these facts, it would not have entered
into any of these transactions.
Countrywide Misrepresented Its Actual Underwriting Standards.
94. Countrywide promoted the Securitizations based in large part on Countrywide’s
reputation for disciplined underwriting standards, its commitment to high quality mortgage loans
to prime borrowers, and its comprehensive Credit Policy. Countrywide intentionally induced
MBIA to believe that the same commitment, expertise and practices, and specifically the
disciplined application of Countrywide’s Credit Policy, would be applied to the Mortgage Loans.
95. Countrywide, however, had adopted an aggressive strategy to drive up revenues,
which prompted significant changes to its underwriting standards and other aspects of its Credit
Policy. Countrywide knew that these changes, both in formal policy and in practical application,
would result in origination of mortgage loans that were materially inconsistent with its
representations. By contrast, MBIA was deprived of material information, and therefore never
had the opportunity to make such a determination.

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96. On information and belief, Mozilo and Sambol authorized the establishment of
the Structured Loan Desk in Plano, Texas and Calabasas, California, which was created
specifically to grant underwriting exceptions for nonprime mortgage loan applications.
According to the California Attorney General’s complaint against Countrywide and Mozilo,
based on information provided by a former Countrywide employee, during 2006, the Structured
Loan Desk processed 15,000 to 20,000 mortgage loan applications a month, which represented
approximately 7.5% to 10% of all mortgage loans actually originated.
Countrywide Failed to Disclose the Extent to Which Fraudulent Applications
Were Processed Through Reduced Documentation Application Programs.
97. Countrywide adopted reduced documentation application programs which excuse
qualified borrowers from the general requirement of submitting documentation to confirm
income and assets. Countrywide itself has publicly admitted that the failure to maintain rigorous
standards for such loans will result in higher delinquencies. In a July 2007 call with analysts,
John McMurray, Countrywide’s Chief Risk Officer, acknowledged that the reduced
documentation programs lead to higher delinquencies absent adequate controls:
“[D]ocumentation matters. The less documentation, the higher the serious delinquency, all else
equal.”
98. But Countrywide failed to use adequate controls. While it claimed these “low-
doc” applications were designed for self-employed professionals and business owners with high
credit scores, it made its reduced documentation applications widely available without careful
oversight, a material risk it failed to disclose to MBIA or the market at large.
99. For example, Countrywide falsely represented that it verified employment and
current salary for every loan applicant before approving a Mortgage Loan. In the Supplemental
Prospectus, Countrywide represented that even for loan applications under the Super-

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Streamlined Documentation Program, Countrywide obtained telephonic verification of
employment, which, according to the Prospectus, “is obtained from an independent source
(typically the borrower’s employer) [and] which verification reports, among other things, the
length of employment with that organization and the borrower’s current salary” (emphasis
added). That representation was false. MBIA later discovered that Countrywide often did not
obtain independent verification of income for borrowers who applied under the Super-
Streamlined Documentation Program, which constituted a significant percentage of the total
number of Mortgage Loans.
100. Countrywide also approved Mortgage Loans in which the borrower’s stated
income was unreasonable on its face and could not have been accurately reported. Countrywide
was required to exercise meaningful oversight, on information and belief, pursuant to its Credit
Policy and the standards in the industry. It is standard practice among mortgage lenders
generally to try to verify employment income that appears suspicious. A borrower who inflates
his income is less likely to be able to repay his loan, which leads to a higher incidence of
delinquencies and defaults in the Mortgage Loans, to the direct detriment of MBIA. Despite the
prevalence of a substantial number of loan applications that contained highly suspicious reported
employment income, Countrywide failed to take sufficient, if any, corrective action.
101. On information and belief, Countrywide’s senior management was aware that
Countrywide loan officers participated in submitting fraudulent applications through the reduced
documentation application programs. According to Mark Zachary, a former Countrywide
executive who has filed suit against Countrywide for wrongful termination, in and around 2006,
Countrywide loan officers engaged in a practice known within Countrywide as “flipping” an
application. Loan officers who learned that a loan application submitted under the Full

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Documentation Program was unlikely to be approved would “flip” the application for
consideration under a reduced documentation application program. According to Zachary, loan
officers would coach applicants on the level of employment income needed to qualify for a
mortgage loan, and then would accept a revised loan application containing an inflated reported
income. The loan officer would submit the revised loan application under a reduced
documentation program for consideration by the Structured Loan Desk in Plano, Texas and
Calabasas, California. According to Zachary, he complained to Countrywide’s regional
management, but his complaints were ignored.
Countrywide Misrepresented That it Obtained Independent Appraisals.
102. In each Supplemental Prospectus, Countrywide represented that one or more
appraisals were obtained for nearly every Mortgage Loan. Although, the type of appraisal
obtained for a Mortgage Loan varied, Countrywide assured MBIA and others that every
appraisal was determined “on the basis [of] an originator-approved, independent third-party, fee-
based appraisal.”
103. On information and belief, Countrywide’s representations that the Mortgage
Loans were appraised by independent third-parties were also untrue. Countrywide regularly
engaged appraisers which were affiliated with Countrywide, including, on information and
belief, appraisers that were owned or controlled by Countrywide, either directly or indirectly
through intermediate subsidiaries and/or subject to influence by Countrywide. This
misrepresentation caused harm to MBIA because it created a conflict of interest for
Countrywide. As originator and securitizer of the loans, Countrywide had an incentive to inflate
the value of properties if that inflation would allow a loan to be approved when it otherwise
would not have been. But loans based on inflated appraisals are more likely to default and less
likely to produce sufficient assets to repay the second lien holder in foreclosure, both of which

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directly harm the credit enhancement provider. An independent appraisal is necessary to ensure
that appraisals are not inflated.
Countrywide Changed The Compensation Structure and Incentive Programs to Encourage
Origination and Approval of Greater Number of Riskier Loans.
104. On information and belief, Countrywide’s senior management approved
compensation plans that offered incentives for new mortgage loan originations, with higher
incentives for riskier nonprime mortgage loans. According to the Attorney General of
California, Countrywide’s senior management imposed intense pressure on underwriters to
approve mortgage loans, in some instances requiring underwriters to process 60 to 70 mortgage
loan applications in a single day and to justify each rejection. This created an incentive not to
review loans thoroughly but instead simply to approve them. Senior management expanded the
authority of underwriters and other employees to grant exceptions to mortgage loans that failed
to meet Countrywide’s underwriting standards, which made it easier to approve a mortgage loan
and move on to the next application.
IX. Countrywide’s Corrupt Practices Are Revealed.
105. The impact of the Mozilo-Sambol plan on Countrywide has been a disaster.
Countrywide’s market capitalization declined by more than 90% in 2007, losing $25 billion in
value. Bank of America acquired Countrywide for just 27% of Countrywide’s stated $15.3
billion book value.
106. The scope and breadth of Countrywide’s fraudulent schemes and other unlawful
conduct have prompted a substantial number of public and private inquiries, investigations and
actions. The actions are based, in part, upon acts and misconduct by Countrywide that are
inconsistent with its representations, warranties and covenants in the Insurance Agreements.

35

107. On information and belief, the Department of Justice and the Federal Bureau of
Investigation are investigating Countrywide’s loan origination practices to determine whether
Countrywide committed securities fraud through misrepresentations in its securities filings
regarding the quality of its mortgage loans.
108. Additionally, on June 4, 2009, the United States Securities and Exchange
Commission (the “SEC”) filed a civil complaint against Countrywide former executives Mozilo,
Sambol, and Sieracki for their fraudulent disclosures relating to Countrywide’s purported
adherence to conservation loan origination and underwriting guidelines, as well as insider trading
by Mozilo.
109. According to the SEC’s complaint, “[t]he credit losses experienced by
Countrywide in 2007 not only were foreseeable by [Mozilo and Sambol], they were in fact
foreseen at least as early as September 2004.” At that time, “Risk Management warned
Countrywide’s senior officers that several aggressive features of Countrywide’s guidelines (e.g.
high loan to value programs, ARM loans, interest only loans, reduced documentation loans, and
loans with layered risk factors) significantly increased Countrywide’s credit risk.”
110. Moreover, according to the SEC’s complaint, “both Mozilo and Sambol were
aware as early as June 2006 that a significant percentage of borrowers who were taking out
stated income loans were engaged in mortgage fraud.” On June 1, 2006, “Mozilo advised
Sambol” that many Countrywide originated loans were “underwritten on a reduced
documentation basis and that there was evidence that borrowers were lying about their income in
the application process.” Further, on June 2, 2006, “Sambol received an email reporting on the
results of a quality control audit at Countrywide Bank that showed that 50% of the stated income

36

loans audited by the bank showed a variance in income from the borrowers’ IRS filings of
greater than 10%. Of those, 69% had an income variance of greater than 50%.”
111. A number of States and municipalities have also announced investigations of
Countrywide’s lending practices, and several commenced actions against Countrywide,
including:
a. In People of the State of California v. Countrywide Financial Corp., the
Attorney General for the State of California filed a civil action on behalf of Countrywide
borrowers in California against Countrywide, Mozilo and Sambol, asserting statutory claims for
false advertising and unfair competition based on a plan by Mozilo and Sambol to increase the
volume of mortgage loans for securitization without regard to borrower creditworthiness.
b. In People of the State of Illinois v. Countrywide Financial Corp., the
Attorney General for the State of Illinois filed a civil suit on behalf of Illinois borrowers against
Countrywide and Mozilo, asserting state consumer protection and unfair competition statutory
claims, alleging that beginning in or around 2004, Countrywide engaged in unfair and deceptive
practices, including loosening underwriting standards, structuring unfair loan products with risky
features, and engaging in misleading marketing and sales practices.
c. In State of Connecticut v. Countrywide Financial Corp., the Connecticut
Insurance Commissioner commenced a civil action asserting that Countrywide violated state
unfair and deceptive practices statutory law by deceiving consumers into obtaining mortgage
loans for which they were not suited and could not afford.
d. In Office of the Attorney General for the State of Florida v. Countrywide
Financial Corp., the Florida Attorney General commenced a civil action against Countrywide
and Mozilo, asserting state unfair practices statutory claims, alleging that since January 2004,

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Countrywide promoted a deceptive scheme to originate subprime mortgage loans to unqualified
borrowers, and a related fraudulent scheme to sell securities. The Attorney General alleges that
Countrywide violated state statutory lender laws by falsely representing that Countrywide
originated each mortgage loan in accordance with its underwriting guidelines and that each
borrower had the ability to repay the mortgage loan. The Attorney General also asserts state
securities law claims, alleging that Countrywide sold mortgage-backed securities based on
fraudulent misrepresentations.
e. In State of Washington v. Countrywide Financial Corp., the Washington
Attorney General filed a civil action asserting that Countrywide violated state anti-discrimination
laws in 2005 and 2006 by engaging in racially discriminatory lending.
f. In State of Indiana v. Countrywide Financial Corp., the State of Indiana
filed a civil action asserting that Countrywide violated the state’s unfair and deceptive practices
law from 2005 through 2008 by deceiving consumers into obtaining mortgage loans for which
they were not suited and could not afford.
g. In State of West Virginia v. Countrywide Financial Corp., the West
Virginia Attorney General has asserted civil claims against Countrywide alleging violations of
state unfair competition statutes.
112. On October 6, 2008, these seven states, plus 23 others, all joined in a settlement
with Bank of America, pursuant to which Bank of America (as the successor-in-interest to the
Countrywide Defendants) agreed to pay $150 million for state foreclosure relief programs and
loan modifications for borrowers totaling $8.4 billion.
113. The Department of Justice and the U.S. Trustees for federal bankruptcy courts in
several judicial districts, including the Districts of Rhode Island, Western Pennsylvania, Texas,

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Florida and Georgia, have also commenced investigations of Countrywide’s alleged fraudulent
foreclosure practices. For example, in the Western District of Pennsylvania, on information and
belief, within the last year, Countrywide’s practices were under investigation in connection with
at least 300 debtors’ proceedings in that district. Similarly, the Assistant U.S. Trustee for the
District of Rhode Island, in testimony about his investigation, explained that after reviewing
cases filed since 2002, “we have a specific and grave concern that Countrywide” is trying to
obtain money and property from debtors “under false pretenses.” The U.S. Trustee for the
District of Georgia filed suit against Countrywide, and likewise noted: “Countrywide’s failure to
ensure the accuracy of its pleadings and accounts in this case is not an isolated incident. . . . In
recent years, Countrywide and its representatives have been sanctioned for filing inaccurate
pleadings and other similar abuses within the bankruptcy system.”
114. Furthermore, dozens of private actions have been commenced against
Countrywide, including shareholder actions challenging the accuracy and completeness of its
statements in and around the period between 2004 and 2007—particularly allegations that
Countrywide failed to disclose the expansion of its origination of subprime and other higher-risk
mortgage loans—as well as consumer actions challenging Countrywide’s lending practices.
Plaintiffs have defeated Countrywide’s motions to dismiss in at least four litigations brought
under the federal securities laws: In Re CFC Securities Litigation, 588 F.Supp.2d 1132 (C.D.
Cal. 2008) (order denying motions to dismiss with regard to certain claims); In re CFC
Derivatives Litigation, 2:07-CV-06923-MRP (C.D. Cal. May 14, 2008) (order denying motions
to dismiss securities claims); Argent Classic Convertible Arbitrage Fund L.P. v. Countrywide
Financial Corp., 2:07-CV-07097-MRP (C.D. Cal. March 19, 2009) (order denying all
defendants’ motions to dismiss except for Bank of America’s); and New Mexico State Investment

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Council v. Countrywide Financial Corp., D-0101-CV-2008-02289 (1st Judicial Dist. Ct. April 14,
2008) (order denying defendants’ motion to dismiss but granting motion to dismiss for lack of
personal jurisdiction).
115. In one of these actions, the United States District Court in the Central District of
California concluded, in denying a motion to dismiss by Countrywide, that the plaintiffs’
“allegations present the extraordinary case where a company’s essential operations were so at
odds with the company’s public statements” that many statements that would not be actionable in
the vast majority of cases are rendered cognizable in that case. In re Countrywide Fin. Corp.
Secs. Litig., 2008 WL 5100124, at *2 (C.D. Cal. Dec. 1, 2008). The court further concluded that
“[p]laintiffs have created a cogent and compelling inference of a company obsessed with loan
production and market share with little regard for the attendant risks, despite the company’s
repeated assurances to the market.” Id. at *39.
X. MBIA Has Been Substantially Damaged by Countrywide’s Fraud.
116. Countrywide’s misconduct has caused manifold harm to MBIA. Because
Countrywide originated and sold to the Trusts an extremely large number of Mortgage Loans
that materially failed to comply with its underwriting guidelines, the number of delinquencies
and defaults in the Securitizations has been extremely high, as those loans were therefore made
to borrowers who were unlikely to be able to repay. Yet, despite its knowledge of these material
breaches of its underwriting guidelines, and MBIA’s notices to that effect for over 4,680 loans,
Countrywide has refused to repurchase the vast majority of those loans, contrary to its clear
contractual obligations.
117. In addition, the delinquencies and defaults those loans have suffered have greatly
reduced the cashflows available to pay noteholders, and the levels of overcollateralization have

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not been sufficient to absorb those losses. As a direct consequence, MBIA has been forced
through the Insurance Agreements to pay those shortfalls to the Trusts, resulting in over $1.4
billion in payments by MBIA. MBIA’s losses bear no reasonable relationship to the risks that
MBIA intended to assume or the premiums paid by Countrywide.
118. As a direct result of Countrywide’s misrepresentations and breaches of contract,
MBIA is therefore exposed to enormous risks of payments under the Insurance Agreements for
which it is not being adequately compensated. This exposure has decreased MBIA’s revenues
significantly, forced it to take substantial reserves, and caused it to suffer other losses.
XI. Bank of America Has Merged with Countrywide Financial
and Become the Successor in Liability to All the Countrywide Defendants.
119. On July 1, 2008, Bank of America acquired Countrywide Financial and the other
Countrywide Defendants through an all-stock transaction involving a Bank of America
subsidiary that was created for the sole purpose of facilitating the acquisition of Countrywide.
Bank of America has described the transaction as a merger, and has made clear that it intends to
fully integrate Countrywide into Bank of America by the end of 2009.
120. In a July 2008 Bank of America press release, Barbara Desoer, identified as the
head of the “combined mortgage, home equity and insurance businesses” of Bank of America
and Countrywide, said: “Now we begin to combine the two companies and prepare to introduce
our new name and way of operating.” The press release stated that the bank “anticipates
substantial cost savings from combining the two companies. Cost reductions will come from a
range of sources, including the elimination of positions announced last week, and the reduction
of overlapping technology, vendor and marketing expenses. In addition, the company is
expected to benefit by leveraging its broad product set to deepen relationships with existing
Countrywide customers.”

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121. In its 2008 Annual Report, Bank of America confirmed that “[o]n July 1, 2008,
we acquired Countrywide,” and it stated that the merger “significantly improved our mortgage
originating and servicing capabilities, making us a leading mortgage originator and servicer.” In
the Q&A section of the same report, the question was posed: “How do the recent acquisitions of
Countrywide and Merrill Lynch fit into your strategy?” Bank of America responded that by
acquiring Countrywide it became the “No. 1 provider of both mortgage originations and
servicing” and “as a combined company,” it would be recognized as a “responsible lender who is
committed to helping our customers become successful homeowners” (emphasis added).
122. Similarly, in a July 1, 2008 Countrywide press release, Mozilo stated that “the
combination of Countrywide and Bank of America will create one of the most powerful
mortgage franchises in the world.” (emphasis added).
123. On April 27, 2009, Bank of America announced in a press release that “[t]he
Countrywide brand has been retired.” Instead, Bank of America will operate its home loan and
mortgage business through a new division named Bank of America Home Loans, which
“represents the combined operations of Bank of America’s mortgage and home equity business
and Countrywide Home Loans.” The press release makes clear that Bank of America plans to
complete its integration of Countrywide Financial into Bank of America “later this year.”
124. In the interim, according to the Bank of America website, “Countrywide
customers . . . have access to Bank of America’s 6,100 banking centers.” The old Countrywide
website redirects customers to the mortgage and home loans section of Bank of America’s
website. And, according to press reports, Bank of America Home Loans will operate out of
Countrywide’s offices in Calabasas, California with substantially the same employees as the
former Countrywide entities.

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125. Desoer, the head of Bank of America’s combined mortgage business, was also
interviewed for the May 2009 issue of Housing Wire magazine. The article reported that
While the move to shutter the Countrywide name is essentially complete, the
operational effort to integrate across two completely distinct lending and service
systems is just getting under way. One of the assets BofA acquired with
Countrywide was a vast technology platform for originating and servicing loans,
and Desoer says that the bank will be migrating some aspects of BofA’s mortgage
operations over to Countrywide’s platforms.

Desoer was quoted as follows: “We’re done with defining the target, and we’re in the middle of
doing the development work to prepare us to be able to do the conversion of the part of the
portfolio going to the legacy Countrywide platforms.” Desoer explained that the conversion
would happen in the “late fall” of 2009, and that the integration of the Countrywide and Bank of
America platforms was a critical goal.
126. Following its merger with Countrywide Financial, Bank of America has also
taken steps to expressly and impliedly assume Countrywide’s liabilities. Substantially all of
Countrywide’s assets were transferred to Bank of America on November 7, 2008, “in connection
with Countrywide’s integration with Bank of America’s other businesses and operations,” along
with certain of Countrywide’s debt securities and related guarantees. Countrywide Financial
ceased filing its own financial statements in November 2008, and instead its assets and liabilities
have been included in Bank of America’s recent financial statements.
127. Additionally, Bank of America has paid to restructure certain of Countrywide’s
home loans on its behalf, including settling predatory-lending lawsuits brought by state attorneys
general by agreeing to modify up to 390,000 Countrywide loans, an agreement valued at up to
$8.4 billion. Bank of America restructured 300,000 home loans in 2008, of which 87% had been
made or serviced by Countrywide.

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128. Moreover, in an interview published on February 22, 2008 in the legal publication
Corporate Counsel, a Bank of America spokesperson admitted that the company had assumed
Countrywide’s liabilities:
Handling all this litigation won’t be cheap, even for Bank of America, the
soon-to-be largest mortgage lender in the country. Nevertheless, the
banking giant says that Countrywide’s legal expenses were not overlooked
during negotiations. “We bought the company and all of its assets and
liabilities,” spokesman Scott Silvestri says. “We are aware of the claims
and potential claims against the company and have factored these into the
purchase.” (Emphasis added).

Thus, Bank of America has officially acknowledged that it has assumed Countrywide’s assets
and liabilities. In purchasing Countrywide for 27% of its book value, Bank of America was fully
aware of the pending claims and potential claims against Countrywide and factored them into the
transaction.
129. Bank of America has made additional statements reflecting its assumption of the
liabilities of Countrywide. In a January 11, 2008 press release announcing the merger, Bank of
America’s former Chairman and Chief Executive Officer Kenneth D. Lewis stated that he was
aware of the “issues within the housing and mortgage industries” and said that “the transaction
[with Countrywide] reflects those challenges,”—statements implicitly acknowledging that Bank
of America was taking on Countrywide’s liabilities in the merger.
130. Similarly, Mr. Lewis was recently quoted in a January 23, 2009 New York Times
article reporting on the acquisition of Countrywide, in which he showed that Bank of America
knew of Countrywide’s legal liabilities and impliedly accepted them as part of the cost of the
acquisition:
“We did extensive due diligence. We had 60 people inside the company
for almost a month. It was the most extensive due diligence we have ever
done. So we feel comfortable with the valuation,” Mr. Lewis said. “We

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looked at every aspect of the deal, from their assets to potential lawsuits
and we think we have a price that is a good price.” (Emphasis added).

131. Because Bank of America has merged with Countrywide Financial, and acquired
substantially all of the assets of all the Countrywide Defendants, it is the successor in liability to
Countrywide and is jointly and severally liable for the wrongful conduct, as alleged herein, of the
Countrywide Defendants.

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CAUSES OF ACTION

FIRST CAUSE OF ACTION
(FRAUD)
(against Countrywide Financial, Countrywide Home and Countrywide Securities)
132. MBIA incorporates by reference all the foregoing allegations as though fully set
forth herein.
133. This is a claim for fraud against Countrywide Financial, Countrywide Home and
Countrywide Securities.
134. As set forth above, Countrywide has made untrue statements of material fact and
has omitted to state material facts necessary in order to make the statements, in light of the
circumstances under which they were made, not misleading.
135. Countrywide’s business primarily involved residential mortgage banking.
Countrywide Financial, Countrywide Home, and Countrywide Securities each had a distinct and
specific role in the administration of a securitization of a portfolio of mortgage loans.
a. Defendant Countrywide Financial is engaged primarily in the residential
mortgage banking business. As part of its business, Countrywide Financial is responsible for the
origination, purchase, securitization, and servicing of residential mortgage loans across the
United States. As the corporate parent of Countrywide Home and Countrywide Securities, two
wholly-owned subsidiaries, Countrywide Financial directed the activities of Countrywide Home
and Countrywide Securities.
b. Defendant Countrywide Home—which advertises itself as “the nation’s
leading independent home loan lender”—is specifically responsible for the production and
servicing of residential mortgage loans through a variety of channels on a national scale.

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c. Both Defendants Countrywide Financial and Countrywide Home are
responsible for selecting the mortgage loans for securitization, generally selecting from among
mortgage loans that had been originated by Countrywide Home, and also selecting from among
mortgage loans acquired from other mortgage lenders. Additionally, Defendant Countrywide
Home is responsible for transferring the mortgage loans into the Trusts for securitization, and
entering into servicing agreements with the Trusts to service the mortgage loans.
d. Defendant Countrywide Securities is a broker-dealer that primarily
specializes in underwriting and trading in residential mortgage-backed securities. These
securities are then sold in the national market. As such, Countrywide Securities is responsible
for underwriting and managing the offering of each Trust’s securities to buyers in the secondary
mortgage market.
e. The Trusts distribute payments on the mortgage loans collected and
remitted by Countrywide Home to the securities holders. Each Trust, along with Countrywide
Home, also entered into the Insurance Agreement with the credit enhancer, MBIA, who
guaranteed the obligations of each Trust to the securities holders. The Trusts are responsible for
filing claims against MBIA’s insurance policies in the event of shortfalls in principal or interest
payments.
136. As part of Countrywide’s fraud, Countrywide Financial and Countrywide Home
expanded their origination of mortgage loans in order to increase overall origination revenues, as
well as to increase the inventory of mortgage loans available to securitize and sell in the
secondary mortgage market. Many of these mortgage loans had significant but undisclosed
credit risk, in violation of Countrywide’s underwriting guidelines and standards.

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137. Countrywide Home then transferred the portfolio of mortgage loans originated to
the Trust. Through the Trust, Countrywide Securities securitized the mortgage loans, and then,
through offerings of securities, offloaded the risks associated with the mortgage loans that
Countrywide Home had originated. Although the securities were collateralized by the risk-
challenged mortgage loans, Countrywide Securities marketed the securities by fraudulently
representing that the mortgage loans had been originated consistently with Countrywide
Financial and Countrywide Home’s traditional underwriting standards, and the strength of their
reputation for conservative lending practices and high quality loans.
138. A critical component of the fraud required the procurement of credit enhancement
on the securitization, including from MBIA, as described in detail above. Countrywide needed
credit enhancement to improve marketability and reduce interest liabilities of the securities, and
importantly to further disperse the risks of defaults on the mortgage loans among the investors in
the secondary mortgage market. Although Countrywide still held the residuals, it had effectively
transferred the risks of default through securitization, and therefore it was protected from the
impact of mortgage loan defaults. Further, the higher credit rating obtained through credit
enhancement allowed Countrywide to sell a greater number of securities in a wider market. By
obtaining credit enhancement, usually by fraudulently misrepresenting the risk profile of the
portfolio of mortgage loans to the credit enhancer, Countrywide transferred economic risk of
defaults on the mortgage loans, generally at a fraudulently low premium, and improved the
marketability and pricing of the securities. The proceeds from the offering of securities were
used to finance new originations of mortgage loans, thereby further perpetuating the fraud.

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139. In an effort to fraudulently induce MBIA to provide credit enhancement for each
of the fifteen Securitizations, Countrywide made the following representations with respect to
and at the time of execution of each Insurance Agreement and that, inter alia, were untrue:
a. All of the Mortgage Loans had been evaluated pursuant to Countrywide
Financial and Countrywide Home’s underwriting standards and policies and complied with all
applicable local, state and federal laws;
b. Countrywide did not have knowledge of any fact that would have caused a
reasonable originator to conclude that a borrower would not be able to repay the loan;
c. Each of the Mortgage Loans had been evaluated pursuant to a meaningful
application of Countrywide’s underwriting standards, conducted in good faith, and that the
Mortgage Loan Schedule accurately reflected Countrywide’s good faith belief as to the
underwriting criteria of the Mortgage Loans;
d. Countrywide disclosed to MBIA its underwriting guidelines, including
any material changes to the guidelines;
e. Each mortgaged property had been appraised by an independent third-
party appraiser;
f. Countrywide Home obtained, or at least sought to obtain, verification of
employment and current salary for each Mortgage Loan borrower; and
g. Countrywide operated in compliance with all relevant federal, state and
local laws, regulations and rules.
140. Countrywide’s representations and warranties were material to each decision by
MBIA to enter into an Insurance Agreement. MBIA relied on Countrywide’s express and

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incorporated representations and warranties, and was induced thereby to enter into each
Insurance Agreement and to perform its obligations and covenants thereunder.
141. On numerous occasions, between at least 2005 and the present, Countrywide
knowingly and with the intent to defraud, caused its employees and agents to submit materially
false and misleading mortgage loan documentation to MBIA in order to procure credit
enhancement.
142. Countrywide Home delivered to MBIA materially false and misleading loan
documentation, including requests for bids, loan tapes, and Transaction Documents, for each of
the below Securitizations insured by MBIA. Among other things, Countrywide Home’s
representations regarding the Mortgage Loans, including information such as the loan-to-value
ratio, the debt-to-income ratio, and the borrower’s FICO score, were materially false and
misleading.
a. On or about August 3, 2004, Ted Bouloukos of Countrywide Home sent
MBIA a materially false and misleading request for bids for the 2004-I transaction, including a
materially false and misleading 2004-I loan tape, by e-mail.
b. On or about October 19, 2004, David Andersen of Countrywide Home
sent MBIA a materially false and misleading request for bids for the 2004-P transaction,
including a materially false and misleading 2004-P loan tape, by e-mail.
c. On or about January 14, 2005, David Andersen of Countrywide Home
sent MBIA a materially false and misleading request for bids for the 2005-A transaction,
including a materially false and misleading 2005-A loan tape, by e-mail.

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d. On or about August 2, 2005, David Andersen of Countrywide Home sent
MBIA a materially false and misleading request for bids for the 2005-E transaction, including a
materially false and misleading 2005-E loan tape, by e-mail.
e. On or about November 3, 2005, Garrett Galati of Countrywide Home sent
MBIA a materially false and misleading request for bids for the 2005-I transaction, including a
materially false and misleading 2005-I loan tape, by e-mail.
f. On or about December 12, 2005, Garrett Galati of Countrywide Home
sent MBIA a materially false and misleading request for bids for the 2005-M transaction,
including a materially false and misleading 2005-M loan tape, by e-mail.
g. On or about May 29, 2006, Garrett Galati of Countrywide Home sent
MBIA a materially false and misleading request for bids for the 2006-E transaction, including a
materially false and misleading 2006-E loan tape, by e-mail.
h. On or about July 7, 2006, Garrett Galati of Countrywide Home sent MBIA
a materially false and misleading request for bids for the 2006-G transaction, including a
materially false and misleading 2006-G loan tape, by e-mail.
i. On or about December 4, 2006, Garrett Galati of Countrywide Home sent
MBIA a materially false and misleading request for bids for the 2006-S8 transaction, including a
materially false and misleading 2006-S8 loan tape, by e-mail.
j. On or about December 12, 2006, Garrett Galati of Countrywide Home
sent MBIA a materially false and misleading request for bids for the 2006-S9 transaction,
including a materially false and misleading 2006-S9 loan tape, by e-mail.

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k. On or about December 13, 2006, Garrett Galati of Countrywide Home
sent MBIA a materially false and misleading request for bids for the 2006-S10 transaction,
including a materially false and misleading 2006-S10 loan tape, by e-mail.
l. On or about February 15, 2007, Garrett Galati of Countrywide Home sent
MBIA a materially false and misleading request for bids for the 2007-S1 transaction, including a
materially false and misleading 2007-S1 loan tape, by e-mail.
m. On or about March 13, 2007, Garrett Galati of Countrywide Home sent
MBIA a materially false and misleading request for bids for the 2007-S2 transaction, including a
materially false and misleading 2007-S2 loan tape, by e-mail.
n. On or about March 19, 2007, Garrett Galati of Countrywide Home sent
MBIA a materially false and misleading request for bids for the 2007-S3 transaction, including a
materially false and misleading 2007-S3 loan tape, by e-mail.
o. On or about May 21, 2007, Garrett Galati of Countrywide Home sent
MBIA a materially false and misleading request for bids for the 2007-E transaction, including a
materially false and misleading 2007-E loan tape, by e-mail.
143. Countrywide Securities also provided materially false and misleading information
to MBIA regarding the Securitizations when it transmitted or caused to be transmitted the
Prospectuses and Supplemental Prospectuses for each Securitization to MBIA as detailed below:
Among other things, Countrywide Securities’ representations regarding Countrywide’s
compliance with its underwriting guidelines; Countrywide’s knowledge of facts that would have
caused a reasonable originator to conclude that a borrower would not be able to repay the loan;
and Countrywide’s information regarding the Mortgage Loans, including the loan-to-value ratio,
the debt-to-income ratio, and the borrower’s FICO score, were materially false and misleading.

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a. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2004-I transaction in a September 27, 2004 e-mail
transmitting the final version of the Prospectus for the 2004-I transaction.
b. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2004-P transaction in a October 27, 2004 email
transmitting the final version of the Prospectus for the 2004-P transaction.
c. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2005-A transaction in a February 24, 2005 email
transmitting the final version of the Prospectus for the 2005-A transaction.
d. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2005-E transaction in an August 30, 2005 e-mail from
Mahsa Kazeminy of Countrywide transmitting the final version of the Prospectus for the 2005-E
transaction.
e. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2005-I transaction in a December 23, 2005 e-mail
transmitting the final version of the Prospectus for the 2005-I transaction.
f. Countrywide Securities provided materially false information to MBIA
concerning the 2005-M transaction in a December 28, 2005 e-mail transmitting the final version
of the Prospectus for the 2005-M transaction.
g. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2006-E transaction in a July 11, 2006 e-mail transmitting
the final version of the Prospectus for the 2006-E transaction.

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h. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2006-G transaction in an August 30, 2006 e-mail,
transmitting the final version of the Prospectus for the 2006-G transaction.
i. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2006-S8 transaction in a December 28, 2006 e-mail,
transmitting the final version of the Prospectus for the 2006-S8 transaction. A December 28,
2006 e-mail from Miranda Wang of Countrywide apprised Melissa Brice of MBIA that the same
Prospectus was available from Countrywide Securities via an internet portal controlled by
Countrywide Securities.
j. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2006-S9 transaction in a December 29, 2006 e-mail
transmitting the final version of the Prospectus for the 2006-S9 transaction.
k. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2006-S10 transaction in a December 29, 2006 transmitting
the final version of the Prospectus for the 2006-S10 transaction.
l. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2007-S1 transaction in a February 28, 2007 e-mail,
transmitting the final version of the Prospectus for the 2007-S1 transaction. A February 28, 2007
e-mail from Sean Daily of Countrywide apprised Melissa Brice of MBIA that the same
Prospectus was available from Countrywide Securities via an internet portal controlled by
Countrywide Securities.
m. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2007-S2 transaction in a March 30, 2007 e-mail,

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transmitting the final version of the Prospectus for the 2007-S2 transaction. A March 30, 2007 e-
mail from Sean Daily of Countrywide apprised Carl Webb of MBIA that the same Prospectus
was available from Countrywide Securities via an internet portal controlled by Countrywide
Securities.
n. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2007-S3 transaction in a March 30, 2007 e-mail
transmitting the final version of the Prospectus for the 2007-S3 transaction. A March 30, 2007 e-
mail from Sean Daily of Countrywide apprised Melissa Brice of MBIA that the same Prospectus
was available from Countrywide Securities via an internet portal controlled by Countrywide
Securities.
o. Countrywide Securities provided or caused to be provided materially false
information to MBIA concerning the 2007-E transaction in a May 31, 2007 e-mail transmitting
the final version of the Prospectus for the 2007-E transaction.
144. Countrywide failed to disclose material facts, which they were obliged to disclose
and which, in the absence of disclosure, caused other representations to be misleading in a
material way, including that:
a. Countrywide Financial and Countrywide Home had adopted a strategy of
increasing origination of mortgage loans, including mortgage loans that increased credit risk
compared to the mortgage loans it traditionally had originated; and
b. Countrywide Financial and Countrywide Home expected to reduce its
underwriting standards and guidelines to facilitate increased origination of mortgage loans.
145. MBIA or its predecessors justifiably, reasonably and foreseeably relied on these
representations and false statements.

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146. Countrywide’s misrepresentations of facts, and omissions of fact that caused other
statements of fact to be misleading, related to contemporaneous matters and to the state of affairs
as of and then existing at the time MBIA was induced to enter into an Insurance Agreement.
147. Countrywide’s misrepresentations of facts, and omissions of fact that caused other
statements of fact to be misleading, relate to its own acts and omissions, and it was only by
making such representations that Countrywide was able to obtain the credit enhancement from
MBIA for the Securitizations.
148. Countrywide Home knew at the time it entered into each Insurance Agreement
that the above statements were false or, at the very least, made recklessly, without any belief in
the truth of the statements.
149. Countrywide intended to defraud MBIA and induce reliance by MBIA in this
regard, as Countrywide sought to securitize the Mortgage Loans and transfer the risk of such
loans to other parties, including (as described above) MBIA. Countrywide knew that the
securities issued by the Trusts would be rated higher by rating agencies and would be more
attractive to investors, and therefore would likely be sold at a higher price and/or lower cost to
Countrywide, if MBIA agreed to guarantee payments on the securities.
150. Countrywide knew that MBIA was relying on Countrywide’s expertise, and
Countrywide encouraged such reliance. Countrywide knew that its representations described
above would be relied upon by MBIA in connection with its decision to enter into each Insurance
Agreement. Based on its expertise and specialized knowledge, and in light of its false and
misleading representations, Countrywide owed a duty to MBIA to disclose material facts about
the Securitizations.

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151. Countrywide’s representations substantially influenced MBIA’s decision to enter
into each Insurance Agreement. MBIA would never have agreed to provide any of the Policies
had it known that Countrywide’s representations about the Mortgage Loans were false and that
Countrywide had omitted material information.
152. As a result of Countrywide’s false and misleading statements and omissions as
alleged herein, MBIA has suffered, and is reasonably certain to continue suffering, damages,
including, but not limited to, paying out claims on the Insurance Agreements caused by the
excessively high default rates within the pools of Mortgage Loans. MBIA is further entitled to
rescissory damages in connection with the Insurance Agreements because of Countrywide’s
fraudulent inducement.
153. Because Countrywide committed these acts and omissions maliciously, wantonly
and oppressively, and because the consequences of Countrywide’s acts knowingly affected the
general public, including but not limited to all persons with interests in the Securitizations,
MBIA is entitled to recover punitive damages.
SECOND CAUSE OF ACTION
(NEGLIGENT MISREPRESENTATION)
(against Countrywide Financial, Countrywide Home and Countrywide Securities)
154. MBIA incorporates by reference all the foregoing allegations as if fully set forth
herein.
155. This is a claim for negligent misrepresentation against Countrywide Financial,
Countrywide Home and Countrywide Securities.
156. From 2002 through 2007, MBIA provided credit enhancement for 17
securitizations for which Countrywide acted as the arranger. Countrywide also originated or
acquired, underwrote, and serviced all the loans held by the Trusts.

57

157. Because Countrywide arranged the Securitizations, and originated or acquired,
underwrote, and serviced all of the underlying mortgage loans, Countrywide had unique and
special knowledge about the loans in the Securitizations. In particular, Countrywide had unique
and special knowledge and expertise regarding the quality of the underwriting of those loans as
well as the servicing practices employed as to such loans. Because MBIA could not evaluate the
underwriting quality or the servicing practices of the mortgage loans in the Securitizations on a
loan-by-loan basis, it relied on Countrywide’s unique and special knowledge regarding the
underlying mortgage loans when determining whether to provide credit enhancement for each of
the Securitizations. Moreover, although MBIA engaged in its own due diligence of the
Securitizations, MBIA was entirely reliant on Countrywide to provide accurate information
regarding the loans in engaging in that analysis. Accordingly, Countrywide thus was uniquely
situated to evaluate the economics of each Securitization.
158. For at least a five year period, MBIA relied on Countrywide’s unique and special
knowledge regarding the quality of the underlying Mortgage Loans and their underwriting when
determining whether to provide credit enhancement for each of the Securitizations.
159. This longstanding relationship coupled with Countrywide’s unique and special
knowledge about the loans held by the RMBSs created a “special relationship” of trust and
confidence between Countrywide and MBIA.
160. Countrywide was aware that MBIA relied on Countrywide’s unique and special
expertise and experience and depended upon Countrywide for accurate and truthful information.
Countrywide also knew that the facts regarding Countrywide’s compliance with its underwriting
standards were exclusively within Countrywide’s knowledge.

58

161. Countrywide had a duty to provide MBIA complete, accurate, and timely
information regarding the Mortgage Loans and the Securitizations. Countrywide breached its
duty to provide such information to MBIA.
162. MBIA reasonably relied on the information Countrywide did provide and was
damaged as a result of Countrywide’s misrepresentations.
THIRD CAUSE OF ACTION
(BREACH OF CONTRACT: INSURANCE AGREEMENT)
(against Countrywide Home and Countrywide Servicing)
163. MBIA incorporates by reference all the foregoing allegations as though fully set
forth herein.
164. This is a claim for breach of contract against Countrywide Home and
Countrywide Servicing.
165. The Insurance Agreement is a valid and enforceable contract that gives rise to
certain obligations on the part of Countrywide Home and Countrywide Servicing with respect to
the Mortgage Loans. Each Sale and Servicing Agreement and Pooling and Servicing Agreement
provides that MBIA is a third-party beneficiary with the right to enforce the covenants and
obligations of the parties thereto.
166. MBIA has performed and continues to perform all conditions, covenants, and
promises required on its part to be performed in accordance with the terms and conditions of the
Insurance Agreement.
167. Countrywide’s express representations and warranties in the Insurance
Agreement, and representations and warranties incorporated by reference within the Insurance
Agreement, are untrue and inaccurate in material ways as of the date of the Insurance
Agreement. The untrue and inaccurate representations and warranties materially and adversely
affect MBIA’s interests with respect to transactions in the Transaction Documents.

59

168. In addition to others described above, the following express representations and
warranties were untrue and inaccurate as of the date of each applicable Insurance Agreement:
a. Countrywide’s representation that: “Neither the Transaction Documents
nor other material information relating to the Mortgage Loans, the operations of the Master
Servicer, the Sponsor or the Depositor (including servicing or origination of loans) or the
financial condition of the Master Servicer, the Sponsor or the Depositor or any other information
(collectively, the ‘Documents’) furnished to the Insurer contains any statement of a material fact
which was untrue or misleading in any material adverse respect when made.” Among other
things, the Prospectuses and Supplemental Prospectuses contain statements of material facts
which are untrue and/or misleading in material adverse respects;
b. Countrywide’s representation that “[N]o practice, procedure or policy
employed, or proposed to be employed, by the Servicer, Sponsor or Depositor in the conduct of
its business violates any law, regulation, judgment, agreement, order or decree that, if enforced,
could reasonably be expected to result in a Material Adverse Change to the Servicer, Sponsor or
Depositor.” On information and belief, and based on the publicly-filed actions commenced by
States and acknowledgments by other States’ representatives of investigations of alleged
unlawful conduct by Countrywide, Countrywide knew or should have known that it employed
practices, procedures and policies that violated, among other things, state consumer protection
and predatory lending laws in connection with the origination of mortgages and servicing of
mortgage loans, state nondiscrimination lending laws, state banking laws, and federal and state
securities laws. At the time of the Insurance Agreements, enforcement of such laws reasonably
could be expected to result, and has resulted, in a Material Adverse Change to Countrywide;

60

c. Countrywide’s representation that: “[T]he sale and offer of Securities
complies with all requirements of law, including registration requirements and that the Offering
Document does not contain any untrue statement of material fact or omit to state a material fact.”
Among other things, the Supplemental Prospectus contains untrue statements of material fact and
omits to state material facts, and the sale of Securities otherwise failed to comply with the
requirements of laws;
d. Countrywide’s representations that: “Financial Statements of Sponsor and
Master Servicer (i) are complete and correct in all material respects, (ii) present fairly financial
condition and results. There has been no Material Adverse Change and no undisclosed
contingent liabilities that, individually or in the aggregate, could cause a Material Adverse
Change.” At the time of Countrywide’s representation, the Financial Statements, inter alia, were
not complete and correct in all material respects, and did not present fairly the financial condition
and results, and did not disclose contingent liabilities which Countrywide knew, or reasonably
should have known, could (and did) cause a Material Adverse Change.
169. Countrywide also breached a Mortgage Loan Representation in the Purchase
Agreement, which is incorporated within the Insurance Agreement. Under the Purchase
Agreement, Countrywide represented that the Mortgage Loans had been originated in accordance
with Countrywide’s underwriting guidelines, and also consistently with the standards in the
industry. In addition, Countrywide represented and warranted it was not aware of any
information that would suggest that a Mortgage Loan would not be repaid. On information and
belief, Countrywide had not applied its underwriting guidelines to the vast majority of the
Mortgage Loans.

61

170. Under the Purchase Agreement, Countrywide also was to provide a Mortgage
Loan Schedule that accurately reflected the Mortgage Loans. The Mortgage Loan Schedule
accurately reflected the results of Countrywide’s purported underwriting exercise; however, it
failed to accurately reflect the Mortgage Loans.
171. Countrywide’s representations and warranties in the Purchase Agreement were
untrue and inaccurate, and therefore constitute an Event of Default under the Insurance
Agreement.
172. Countrywide is further in breach of the Mortgage Loan Representations with
respect to a substantial number of Defective Loans, and has breached its obligations, under each
Insurance Agreement and the applicable Purchase Agreement and the Sale and Servicing
Agreement, to cure, repurchase or substitute for each of the Defective Loans.
173. Each Insurance Agreement and other relevant Transaction Document further
requires Countrywide, after becoming aware of defective or missing documentation in the
Mortgage Loan files, or of another breach by Countrywide of a Mortgage Loan Representation
contained in a Transaction Document, to cure such breach within ninety days from the date that
Countrywide was notified of such breach or not later than the business day prior to the payment
date in which such cure period expired (the “Cure Date”), or to repurchase and/or substitute an
eligible loan for the Defective Loan in accordance with the applicable Sale and Servicing
Agreement.
174. MBIA’s written notice of Defective Loans constitutes notice of breach of the
Mortgage Loan Representation, and commences the running of the cure period. The Cure Date
has long passed. As of the date of this filing, Countrywide has failed and refused, and continues
to fail and refuse, to perform its obligations under each Insurance Agreement and the applicable

62

Purchase Agreement and the Sale and Servicing Agreement, in that Countrywide refuses to cure
the breaches of the Mortgage Loan Representations, repurchase the vast majority of the
Defective Loans, and/or substitute qualified mortgage loans in their place.
175. Countrywide has also breached the covenants in Article 2 of the Insurance
Agreement, including:
a. Countrywide was obliged to comply with all material requirements, laws,
rules and regulations where noncompliance could reasonably be expected to result in a Material
Adverse Change. On information and belief, and based on the publicly-filed actions commenced
by States and acknowledgments by other States of investigations of alleged unlawful conduct by
Countrywide, Countrywide knew or should have known that it employed practices, procedures
and policies that violated, among other things, state consumer protection and predatory lending
laws in connection with the origination of mortgage and servicing of mortgage loans, state
nondiscrimination lending laws, state banking laws, and federal and state securities laws.
b. Countrywide was obliged not to take any action, or fail to take any action,
that “could reasonably be expected to result in a Material Adverse Change to the Master
Servicer, Sponsor or Depositor.” As described above, Countrywide engaged in actions that at
the time could reasonably be expected to result in a Material Adverse Change, including its
failure to originate mortgage loans consistently with prudent underwriting standards and
consistently with states’ laws; failure to disclose material information to shareholders and others
in connection with the purchase or sale of stock; and failure to administer pension funds
consistent with ERISA and its fiduciary duties.
176. At the time of Countrywide’s action or inaction in breach of a covenant in Article
2 of the Insurance Agreement, it could reasonably be expected to, and, as described above, did,

63

result in a Material Adverse Change to Countrywide’s business, financial condition, results of
operations or properties; and also Countrywide’s ability to perform its obligations under any of
the Transaction Documents. Countrywide’s breach of covenants has led to substantial
impairment of Countrywide’s business and financial condition, nearly forcing it into bankruptcy,
and of Countrywide’s ability to perform its obligations, including to repurchase Defective Loans,
to service the Mortgage Loans and to provide MBIA with access to information.
177. Countrywide has also breached its covenant in the Insurance Agreement to not
take any action, or fail to take any action, that may “interfere with the enforcement of any rights
of the Insurer under or with respect to the Transaction Documents.”
a. Countrywide has interfered with the enforcement of MBIA’s rights under
the Purchase Agreement and/or Pooling and Servicing Agreement, including by failing to
repurchase the Defective Loans, and by failing to provide full and timely access to Mortgage
Loan files, records and information.
b. Countrywide has breached its obligations under the Sale and Servicing
Agreement and/or Pooling and Servicing Agreement to service the Mortgage Loans consistently
with the standards in the industry, and to refrain from altering its collection and charge-off
policies in ways that materially and adversely affect MBIA.
178. MBIA is entitled to rescissory damages based on Countrywide’s untrue and
inaccurate representations and warranties.
179. In the alternative, MBIA is entitled to damages in an amount to be proved at trial.
FOURTH CAUSE OF ACTION
(BREACH OF CONTRACT: SALE AND SERVICING AGREEMENT)
(against Countrywide Home and Countrywide Servicing)
180. MBIA incorporates by reference all the foregoing allegations as though fully set
forth herein.

64

181. This is a claim for breach of contract against Countrywide Home and
Countrywide Servicing.
182. Each Sale and Servicing Agreement and Pooling and Servicing Agreement is a
valid and enforceable contract that gives rise to certain obligations on the part of Countrywide.
183. Countrywide Home Loans is the master servicer for the following securitizations:
CWABS 2004-I, CWABS 2004-P, CWHEQ 2005-A, CWHEQ 2005-E, CWHEQ 2005-I,
CWHEQ 2005-M, CWHEQ 2006-E, CWHEQ 2006-G, and CWHEQ 2007-E.
184. Countrywide Servicing is the master servicer for the following securitizations:
CWHEQ 2006-S8, CWHEQ 2006-S9, CWHEQ 2006-S10, CWHEQ 2007-S1, CWHEQ 2007-
S2 and CWHEQ 2007-S3.
185. Each Sale and Servicing Agreement and Pooling and Servicing Agreement
expressly provides that MBIA is a third-party beneficiary thereunder, with the right to enforce
the covenants and the obligations of the parties thereto.
186. Under both servicing agreements, Countrywide is obligated, among other things,
to provide service and administration consistent with the standards in the industry. Countrywide
has failed to perform service and administration at industry standards.
187. Countrywide has failed to commit adequate resources even to perform its
obligations, such as staff to respond to customer inquiries, conduct follow-up efforts and call out
programs to delinquent borrowers, and resources for work-out plans and updated software
programs. This inadequate resource commitment has been exacerbated by Countrywide’s blatant
disregard of its own underwriting guidelines, which has led to substantial increases in
delinquencies and defaults.

65

188. Countrywide also has exploited its role as agent for the owner of the Mortgage
Loans for its own gain at the expense of MBIA. For example, Countrywide has continued to
service loans—and collect servicing fees—even where it has become reasonably certain that a
defaulted Mortgage Loan will not produce any further payments to reduce amounts of accrued
interest or outstanding principal. It is standard in the industry to charge off a loan after it has
been delinquent for 180 days, as Countrywide itself acknowledged on page S-9 of the
Supplemental Prospectus for CWHEQ 2007-S1, in which it defined a charged-off loan as one
that had been delinquent for more than 180 days. In some cases, however, Countrywide has
continued to service Mortgage Loans more than 270 days after the last payment on amounts
owed on the Mortgage Loans had been received. Countrywide has continued to service such
Mortgage Loans for the sole purpose of continuing to collect service, late payment and other fees
that it retains as compensation. When a payment on a Mortgage Loan is delinquent, a late
payment fee is accrued on the account. Countrywide, as Master Servicer, is entitled to retain all
such late payment fees and service charges and any interest thereon as its compensation.
189. Countrywide has otherwise failed to service the Mortgage Loans consistently with
the standards of the industry, including, for example, refusing to accept partial payments from
borrowers ostensibly because of the added accounting and administrative burdens of accounting
for partial payments. Countrywide has also charged off loans where the borrower has made
payments after the date of the charge-off, to the direct detriment of MBIA.
190. Countrywide’s breaches of the servicing agreements has caused substantial harm
and damages to MBIA, in an amount to be proved at trial, but at a minimum including
substantially higher claims on Policies and other losses and expenses.

66

FIFTH CAUSE OF ACTION
(BREACH OF IMPLIED DUTY OF GOOD FAITH AND FAIR DEALING)
(against Countrywide Home and Countrywide Servicing)
191. MBIA incorporates by reference all the foregoing allegations as though fully set
forth herein.
192. This is a claim for breach of the implied covenant of good faith and fair dealing
against Countrywide Home and Countrywide Servicing.
193. The Insurance Agreement and the Transaction Documents incorporated therein
were built on the premise that, as Countrywide affirmatively represented, the Mortgage Loans
had been evaluated consistently with the underwriting standards that led Countrywide to be an
industry leader. Countrywide encouraged trust and reliance on its underwriting precisely
because of its expertise and experience.
194. The implied duty of good faith and fair dealing required application of
underwriting standards consistent with MBIA’s understanding, and with Countrywide’s
awareness of what MBIA had understood.
195. Countrywide’s breach has caused substantial harm and damages to MBIA, in an
amount to be proved at trial. At a minimum, Countrywide’s breach has caused:
a. Damages representing the aggregate amount of actual and future claims on
its Policies substantially in excess of the aggregate amount of claims that would have been made
in the absence of Countrywide’s breach;
b. Damages representing losses sustained by MBIA because of its credit risk
and exposure on the Policies, which are substantially greater than the parties bargained, and has
led to loss of business and other losses and expenses.

67

SIXTH CAUSE OF ACTION
(INDEMNIFICATION)
(against Countrywide Home and Countrywide Servicing)
196. MBIA incorporates by reference all the foregoing allegations as if fully stated
herein.
197. This is a claim for indemnification against Countrywide Home and Countrywide
Servicing.
198. In addition to the obligation to repurchase or substitute eligible loans for the
Defective Loans, each Insurance Agreement requires Countrywide to indemnify MBIA for any
losses, costs, and expenses resulting from the breach of any representations and warranties
contained in the Transaction Documents.
199. Countrywide is further obliged to indemnify MBIA for its attorneys’ fees and
costs associated with enforcing its legal rights under the agreements.
SEVENTH CAUSE OF ACTION
(SUCCESSOR AND VICARIOUS LIABILITY)
(against Bank of America)

200. MBIA incorporates by reference all the foregoing allegations as if fully stated
herein.
201. Bank of America is jointly and severally liable for any and all damages resulting
from the wrongful actions of Countrywide, as alleged herein, because it is the successor in
liability to all of the Countrywide Defendants.
202. On July 1, 2008, Bank of America acquired Countrywide Financial and the other
Countrywide Defendants through an all-stock transaction. Bank of America has described the
transaction as a merger, and is actively incorporating the Countrywide mortgage business into
Bank of America.

68

203. On April 27, 2009, Bank of America announced that “[t]he Countrywide brand
has been retired.” Instead, Bank of America will operate its home loan and mortgage business
through a new division named Bank of America Home Loans, which “represents the combined
operations of Bank of America’s mortgage and home equity business and Countrywide Home
Loans.” The integration of Countrywide into Bank of America is expected to be completed by
the end of the year. According to press reports, Bank of America Home Loans will operate out
of Countrywide’s offices in Calabasas, California.
204. On November 7, 2008, Bank of America acquired substantially all of the assets of
Countrywide. And, at that time, Countrywide ceased submitting filings to the SEC, which are
now submitted as part of Bank of America’s filings.
205. Bank of America has also taken responsibility for Countrywide’s pre-merger
liabilities, including restructuring hundreds of thousands of loans created and serviced by
Countrywide. As a spokesperson for Bank of America admitted: “We bought the company and
all of its assets and liabilities.”
206. Moreover, in each of the Transaction Documents, each of the Countrywide
Defendants is defined to include its “successors and assigns.”
207. Because Bank of America has merged with Countrywide Financial, and acquired
substantially all of the assets of all the Countrywide Defendants, it is the successor in liability to
the Countrywide, and is jointly and severally or otherwise vicariously liable for the wrongful
conduct, as alleged herein, of the Countrywide Defendants.

69

PRAYER FOR RELIEF
WHEREFORE MBIA prays for relief as follows:
An award of damages against the Defendants, in an amount to be proven at trial, but
including at a minimum representing:
a. MBIA’s payments on current and future claims under the Policies, including draw
downs on guarantees;
b. MBIA’s losses, including lost profits and business opportunities;
c. Indemnification for MBIA’s attorneys’ fees and costs associated with enforcing
its legal rights under the Transaction Documents;
d. Punitive damages;
e. Prejudgment interest at the maximum legal rate; and
f. Such other and further relief as the Court may deem just and proper.
DATED: New York, New York
August 24, 2009


QUINN EMANUEL URQUHART OLIVER &
HEDGES, LLP

By: s/ Philippe Z. Selendy
Peter E. Calamari
Philippe Z. Selendy
51 Madison Avenue, 22nd Floor
New York, New York 10010-1601
(212) 849-7000
Attorneys for Plaintiff
MBIA Insurance Corporation




EXHIBIT 3
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 4
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 5
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 6
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 7
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 8
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 9
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 10
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 11
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 12
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 13
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 14
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 15
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 16
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 17
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 18
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 19
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 20
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 21
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 22
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 23
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 24
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 25
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 26
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 27
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 28
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 29
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 30
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 31
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 32
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 33
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 34
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 36
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 37
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 38
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 39
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 40
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 41
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 42
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 43
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 44
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 45
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 46
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 47
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 48
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 49
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 50
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 51
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 52
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 53
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 54
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 55
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 56
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 57
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 58
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 59
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 60
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 61
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 62
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 63
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 64
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 65
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 66
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 67
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 68
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 69
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 70
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 71
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 72
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 73
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 74
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 75
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 76
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 77
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 78
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 79
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 80
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 81
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 82
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 83
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 84
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 85
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 86
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 87
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 88
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 89
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 90
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 91
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 92
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 93
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 94
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 95
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 96
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 97
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 98
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 99
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 100
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 101
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 102
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 103
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 104
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 105
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 106
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 107
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 108
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 109
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 110
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 111
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 112
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 113
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 114
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 115
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 116
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 117
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 118
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 119
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 120
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 121
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 122
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 123
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 124
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 125
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 126
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 127
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 128
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 129
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 130
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 131
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 132
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 133
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 134
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 135
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 136
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 137
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 138
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 139
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 140
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 141
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 142
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 143
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 144
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 145
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 146
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 147
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 148
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 149
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.

EXHIBIT 150
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 151
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 152
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 153
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 154
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 155
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 156
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 157
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 158
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 159
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 160
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 161
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 162
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 163
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 164
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 165
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 166
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 167
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 168
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 169
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 170
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 171
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 172
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 173
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 174
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 175
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 176
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 177
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 178
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 179
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 180
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 181
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 182
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 183
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 184
Print Page | Close Window
Pr ess Rel ease

Bank of Amer i ca Announces Agr eement on Mor t gage Repur chase
Cl ai ms Wi t h Monol i ne I nsur er Assur ed Guar ant y
Fully Addresses Assured Guarant y’s Out st anding and Pot ent ial Repurchase Claims Represent ing
Original Collat eral Exposure of Approximat ely $35. 8 Billion


CHARLOTTE – Bank of America Corporat ion t oday announced t hat t he company, including it s legacy
Count rywide Financial Corporat ion affiliat es, has reached an agreement wit h Assured Guarant y Lt d.
and it s subsidiaries t o resolve all of t he monoline insurer’s out st anding and pot ent ial repurchase
claims relat ed t o alleged represent at ions and warrant ies breaches involving 29 first - and second- lien
resident ial mort gage- backed securit izat ion ( RMBS) t rust s where Assured provided financial guarant ee
insurance. The agreement also resolves hist orical loan servicing issues and ot her pot ent ial liabilit ies
wit h respect t o t hese t rust s.

"This agreement is an import ant st ep t owards resolving non- Government Sponsored Ent erprise legacy
issues on t erms beneficial t o our company, " said Terry Laughlin, Legacy Asset Servicing execut ive. "As
we have said on numerous occasions, our goals remain t he same: focus on serving cust omers and
client s, cont inue t o help dist ressed homeowners facing difficult t imes and address our legacy issues. "

The agreement covers 21 first - lien RMBS t rust s and eight second- lien RMBS t rust s, represent ing t ot al
original collat eral exposure of approximat ely $35. 8 billion, wit h t ot al principal at risk ( which is t he sum
of out st anding principal balance on severely delinquent loans and principal balance on previously
default ed loans) of approximat ely $10. 9 billion, which includes principal at risk previously resolved.

The agreement includes a cash payment of approximat ely $1. 1 billion t o Assured Guarant y, as well as
a loss- sharing reinsurance arrangement t hat has an expect ed value of approximat ely $470 million,
and ot her t erms. The t ot al cost of t he agreement is current ly est imat ed t o be approximat ely $1. 6
billion, which t he company has fully provided for in it s account s as of March 31, 2011.


Bank of America
Bank of America is one of t he world' s largest financial inst it ut ions, serving individual consumers,
small- and middle- market businesses and large corporat ions wit h a full range of banking, invest ing,
asset management and ot her financial and risk management product s and services. The company
provides unmat ched convenience in t he Unit ed St at es, serving approximat ely 58 million consumer and
small business relat ionships wit h approximat ely 5, 800 ret ail banking offices and approximat ely 18, 000
ATMs and award- winning online banking wit h 30 million act ive users. Bank of America is among t he
world' s leading wealt h management companies, and is a global leader in corporat e and invest ment
banking and t rading across a broad range of asset classes, serving corporat ions, government s,
inst it ut ions and individuals around t he world. Bank of America offers indust ry- leading support t o
approximat ely 4 million small business owners t hrough a suit e of innovat ive, easy- t o- use online
product s and services. The company serves client s t hrough operat ions in more t han 40 count ries.
Bank of America Corporat ion st ock ( NYSE: BAC) is a component of t he Dow Jones I ndust rial Average
and is list ed on t he New York St ock Exchange.

Forward- Looking St at ement s
Cert ain st at ement s in t his press release are forward- looking st at ement s wit hin t he meaning of t he
Privat e Securit ies Lit igat ion Reform Act of 1995 wit h respect t o fut ure event s, including t he impact of
t he Assured agreement and it s cost , including t he expect ed loss value of t he reinsurance
arrangement . These st at ement s are not guarant ees and involve cert ain risks, uncert aint ies and
assumpt ions t hat are difficult t o predict and oft en are beyond Bank of America’s cont rol. Act ual
out comes and result s may differ mat erially from t hose expressed in, or implied by, t he forward-
looking st at ement s. You should not place undue reliance on any forward- looking st at ement and should
consider t he following uncert aint ies and risks, as well as t he risks and uncert aint ies more fully
Page 1 of 2 Bank of America Corporation | Newsroom | Press ReleaseBank ...
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discussed under Part 1, I t em 1A. “ Risk Fact ors” of Bank of America’s 2010 Annual Report on Form 10-
K and in any of Bank of America’s ot her subsequent Securit ies and Exchange Commission ( SEC)
filings: t he pot ent ial assert ion and impact of addit ional claims not addressed by t he agreement and
t he accuracy and variabilit y of est imat es and assumpt ions in det ermining t he expect ed loss value of
t he reinsurance arrangement and t he t ot al cost of t he agreement t o t he company. Forward- looking
st at ement s speak only as of t he dat e t hey are made, and Bank of America undert akes no obligat ion t o
updat e any forward- looking st at ement t o reflect t he impact of circumst ances or event s t hat arise aft er
t he dat e t he forward- looking st at ement was made.

w w w .bank of amer i ca. com

# # #

I nvest ors May Cont act :
Kevin St it t , Bank of America, 1.980. 386. 5667
Lee McEnt ire, Bank of America, 1. 980. 388. 6780

Report ers May Cont act :
Jerry Dubrowski, Bank of America, 1. 980. 388. 2840
j erome. f. dubrowski@bankofamerica. com
" Safe Harbor" St at ement under t he Privat e Securit ies Lit igat ion Reform Act of 1995: St at ement s in t his press
release regarding Bank of America Corporat ion' s business which are not hist orical fact s are "forward- looking
st at ement s" t hat involve risks and uncert aint ies. For a discussion of such risks and uncert aint ies, which could cause
act ual result s t o differ from t hose cont ained in t he forward- looking st at ement s, see "Risk Fact ors" in t he Company' s
Annual Report or Form 10- K for t he most recent ly ended fiscal year.
Page 2 of 2 Bank of America Corporation | Newsroom | Press ReleaseBank ...
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EXHIBIT 185
Press Release



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Syncora Guarantee Settles its Countrywide Litigation
Announces Completion of Additional Remediations
NEW YORK, July 17, 2012 /PRNewswire/ -- Syncora Holdings Ltd. ("Syncora") today announced that its wholly
owned, New York financial guarantee insurance subsidiary, Syncora Guarantee Inc. ("Syncora Guarantee" or
the "Company"), had settled its RMBS-related claims and other claims, with Countrywide Financial
Corporation, Bank of America Corporation and affiliates thereof.
In return for releases of all claims the Company has against Countrywide and Bank of America Corporation
arising from its provision of insurance in relation to five second lien transactions that were the subject of
litigation and all of the Company's claims in relation to nine other first and second lien transactions, the
Company received a cash payment of $375 Million. In addition, in an effort to terminate other relationships
between the parties, the Company transferred assets to subsidiaries of Bank of America Corporation and
subsidiaries of Bank of America Corporation transferred or agreed to transfer to the Company certain of the
Company's and Syncora's preferred shares, surplus notes and other securities.
In addition, and unrelated to the foregoing, since the posting of the Company's first quarter 2012 statutory
financial statements, the Company has remediated several credits with total cash disbursements by the
Company of approximately $96 Million.
The combined effects of the foregoing are expected to have a materially positive effect on the Company's
surplus as regards policyholders that will be reflected or noted in its second quarter statutory financial
statements, which the Company expects to post on or about August 15, 2012. Despite these developments,
the Company continues to face significant risks and uncertainties, as described in the Company's financial
statements.
About Syncora Holdings Ltd.
Syncora Holdings Ltd. (OTC: SYCRF) is a Bermuda-domiciled holding company. Each of Syncora Guarantee
Inc. and Syncora Capital Assurance Inc. are wholly owned subsidiaries of Syncora Holdings Ltd. For more
information, please visit www.syncora.com.
Investor and Media Contact:
Michael Corbally
+1 212-478-3400
michael.corbally@scafg.com
FORWARD-LOOKING STATEMENTS
This release contains statements about future results, plans and events that may constitute "forward-looking"
statements. You are cautioned that these statements are not guarantees of future results, plans or events and
such statements involve risks and uncertainties that may cause actual results to differ materially from those set
forth in these statements. Forward-looking statements are subject to a number of risks and uncertainties, many
of which are beyond the Company's control. These factors include, but are not limited to: the performance of
invested assets; payment of claims on guaranteed obligations, including Jefferson County, Alabama and
residential mortgage-backed securities ("RMBS"); and actions that may be required in order to meet
anticipated liquidity and surplus needs; the Company's ability to maintain minimum policyholders' surplus;
higher losses and adverse development of reserves on guaranteed obligations due to continued deterioration
in the credit and mortgage markets; reduced availability of funds due to the purchase of certain RMBS and the
potential inability to convert those assets to cash at their carrying value; reduced availability of funds due to
capitalization of Syncora Capital Assurance Inc.; reduced availability of funds due to consideration paid in
connection with the master transaction agreement between the Company and certain financial counterparties
to the Company's CDS contracts (the "2009 MTA"); the suspension of writing all new business; uncertainty as
to the fair value of credit default swap ("CDS") contracts and liabilities thereon; decision by the Company's
Page 1 of 3 Syncora Holdings Ltd. - Press Release
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regulators to take regulatory action such as rehabilitation or liquidation of the Company at any time; Syncora
Capital Assurance Inc. being required to make mark-to-market termination payments under its CDS contracts;
the Company's ability to continue as a going concern; bankruptcy events involving counterparties to CDS
contracts; the potential loss of certain control rights under certain financial guarantee insurance; non-payment
of premium and make wholes owed or cancellation of policies; impact of the non-payment of dividends on
Syncora's series A preference shares on the composition of Syncora's Board of Directors; uncertainty in
portfolio modeling which makes it difficult to estimate potential paid claims and loss reserves; potential adverse
developments at Syncora Capital Assurance Inc. and recapture of business to be ceded to Syncora Capital
Assurance Inc. under the 2009 MTA; the financial condition of Syncora Guarantee (U.K.) Limited and action by
the Financial Services Authority; requirement of the Company to provide Syncora Guarantee (U.K.) Limited
with sufficient funds to maintain its minimum solvency margin; challenges to related 2009 MTA and any
commutations and releases; defaults by counterparties to reinsurance arrangements; the interconnectedness
of risks that affect the Company's reinsurance and insurance portfolio and financial guarantee products;
termination payments related to less traditional products, including CDS contracts, possibly in excess of
current resources; nonpayment of premiums by policyholders; changes in accounting policies or practices or
the application thereof; changes in officers or key employees; further deterioration in general economic
conditions, including as a result of the financial crisis as well as inflation or deflation, interest rates, foreign
currency exchange rates and other factors and the effects of disruption or economic contraction due to
catastrophic events or terrorist acts; the commencement of new litigation or investigations or the outcome of
current and new litigation or investigations; legislative or regulatory developments, including changes in tax
laws and regulation of mortgages; losses from fraudulent conduct due to unconditional and irrevocable nature
of financial guarantee insurance; problems with the transaction servicers in relation to structured finance
transactions; limitations on the availability of net operating loss carryforwards; uncertainty as to federal income
tax treatment of CDS contracts; liquidity risks including due to timing of claims payments and reduced
availability of funds undertakings with the NYDFS; conflicts of interests with significant shareholders of
Syncora; limitations on the transferability of the common shares of Syncora and other additional factors, risks
or uncertainties described in Syncora's historical filings with the New York State Department of Financial
Services or the Securities and Exchange Commission, including in its Annual Report on Form 10K for the fiscal
year ended December 31, 2008, as amended and in Syncora's, SGI's and Syncora Capital Assurance Inc.'s
financial statements posted on its website at www.syncora.com. Readers are cautioned not to place undue
reliance on forward-looking statements which speak only as of the date they are made. Syncora does not
undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after
the date the forward-looking statements are made.

SOURCE Syncora Holdings Ltd.

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EXHIBIT 186
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 187
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 188
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 189
CONGRESSIONAL OVERSIGHT PANEL
NOVEMBER OVERSIGHT REPORT*
EXAMINING THE CONSEQUENCES OF
MORTGAGE IRREGULARITIES FOR FI-
NANCIAL STABILITY AND FORE-
CLOSURE MITIGATION
NOVEMBER 16, 2010.—Ordered to be printed
* Submitted under Section 125(b)(1) of Title 1 of the Emergency Economic
Stabilization Act of 2008, Pub. L. No. 110–343
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U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON :
For sale by the Superintendent of Documents, U.S. Government Printing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
U.S. Government Printing Office. Phone 202–512–1800, or 866–512–1800 (toll-free). E-mail, gpo@custhelp.com.
1
61–835 2010
CONGRESSIONAL OVERSIGHT PANEL
NOVEMBER OVERSIGHT REPORT*
EXAMINING THE CONSEQUENCES OF
MORTGAGE IRREGULARITIES FOR FI-
NANCIAL STABILITY AND FORE-
CLOSURE MITIGATION
NOVEMBER 16, 2010.—Ordered to be printed
* Submitted under Section 125(b)(1) of Title 1 of the Emergency Economic
Stabilization Act of 2008, Pub. L. No. 110–343
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(II)
CONGRESSIONAL OVERSIGHT PANEL
PANEL MEMBERS
SEN. TED KAUFMAN, Chairman
RICHARD H. NEIMAN
DAMON SILVERS
J. MARK MCWATTERS
KENNETH TROSKE
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(III)
C O N T E N T S
Page
Executive Summary ................................................................................................. 1
Section One:
A. Overview ....................................................................................................... 4
B. Background .................................................................................................. 5
C. Timeline ........................................................................................................ 6
D. Legal Consequences of Document Irregularities ....................................... 10
1. Potential Flaws in the Recording and Transfer of Mortgages and
Violations of Pooling and Servicing Agreements ................................. 12
2. Possible Legal Consequences of the Document Irregularities to
Various Parties ...................................................................................... 19
3. Additional Considerations .................................................................... 27
E. Court Cases and Litigation ......................................................................... 28
1. Fraud Claims ......................................................................................... 29
2. Existing and Pending Claims under Various Fraud Theories .......... 33
3. Other Potential Claims ......................................................................... 35
4. Other State Legal Steps ....................................................................... 36
5. Other Possible Implications: Potential ‘‘Front-end’’ Fraud and Doc-
umentation Irregularities ...................................................................... 38
F. Assessing the Potential Impact on Bank Balance Sheets ........................ 42
1. Introduction ........................................................................................... 42
2. Foreclosure Irregularities: Estimating the Cost to Banks ................. 48
3. Securitization Issues and Mortgage Put-backs ................................... 52
G. Effect of Irregularities and Foreclosure Freezes on Housing Market ..... 59
1. Foreclosure Freezes and their Effect on Housing ............................... 59
2. Foreclosure Irregularities and the Crisis of Confidence .................... 64
H. Impact on HAMP ......................................................................................... 65
I. Conclusion ..................................................................................................... 68
Section Two: Correspondence with Treasury ........................................................ 71
Section Three: TARP Updates Since Last Report ................................................. 72
Section Four: Oversight Activities .......................................................................... 96
Section Five: About the Congressional Oversight Panel ...................................... 97
Appendices:
APPENDIX I: LETTER FROM CHAIRMAN TED KAUFMAN TO SPE-
CIAL MASTER PATRICIA GEOGHEGAN, RE: FOLLOW UP TO EX-
ECUTIVE COMPENSATION HEARING, DATED NOVEMBER 1,
2010 ................................................................................................................ 98
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* The Panel adopted this report with a 5–0 vote on November 15, 2010.
NOVEMBER OVERSIGHT REPORT
NOVEMBER 16, 2010.—Ordered to be printed
EXECUTIVE SUMMARY*
In the fall of 2010, reports began to surface alleging that compa-
nies servicing $6.4 trillion in American mortgages may have by-
passed legally required steps to foreclose on a home. Employees or
contractors of Bank of America, GMAC Mortgage, and other major
loan servicers testified that they signed, and in some cases
backdated, thousands of documents claiming personal knowledge of
facts about mortgages that they did not actually know to be true.
Allegations of ‘‘robo-signing’’ are deeply disturbing and have
given rise to ongoing federal and state investigations. At this point
the ultimate implications remain unclear. It is possible, however,
that ‘‘robo-signing’’ may have concealed much deeper problems in
the mortgage market that could potentially threaten financial sta-
bility and undermine the government’s efforts to mitigate the fore-
closure crisis. Although it is not yet possible to determine whether
such threats will materialize, the Panel urges Treasury and bank
regulators to take immediate steps to understand and prepare for
the potential risks.
In the best-case scenario, concerns about mortgage documenta-
tion irregularities may prove overblown. In this view, which has
been embraced by the financial industry, a handful of employees
failed to follow procedures in signing foreclosure-related affidavits,
but the facts underlying the affidavits are demonstrably accurate.
Foreclosures could proceed as soon as the invalid affidavits are re-
placed with properly executed paperwork.
The worst-case scenario is considerably grimmer. In this view,
which has been articulated by academics and homeowner advo-
cates, the ‘‘robo-signing’’ of affidavits served to cover up the fact
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2
that loan servicers cannot demonstrate the facts required to con-
duct a lawful foreclosure. In essence, banks may be unable to prove
that they own the mortgage loans they claim to own.
The risk stems from the possibility that the rapid growth of
mortgage securitization outpaced the ability of the legal and finan-
cial system to track mortgage loan ownership. In earlier years,
under the traditional mortgage model, a homeowner borrowed
money from a single bank and then paid back the same bank. In
the rare instances when a bank transferred its rights, the sale was
recorded by hand in the borrower’s county property office. Thus,
the ownership of any individual mortgage could be easily dem-
onstrated.
Nowadays, a single mortgage loan may be sold dozens of times
between various banks across the country. In the view of some
market participants, the sheer speed of the modern mortgage mar-
ket has rendered obsolete the traditional ink-and-paper recordation
process, so the financial industry developed an electronic transfer
process that bypasses county property offices. This electronic proc-
ess has, however, faced legal challenges that could, in an extreme
scenario, call into question the validity of 33 million mortgage
loans.
Further, the financial industry now commonly bundles the rights
to thousands of individual loans into a mortgage-backed security
(MBS). The securitization process is complicated and requires sev-
eral properly executed transfers. If at any point the required legal
steps are not followed to the letter, then the ownership of the mort-
gage loan could fall into question. Homeowner advocates have al-
leged that frequent ‘‘robo-signing’’ of ownership affidavits may have
concealed extensive industry failures to document mortgage loan
transfers properly.
If documentation problems prove to be pervasive and, more im-
portantly, throw into doubt the ownership of not only foreclosed
properties but also pooled mortgages, the consequences could be se-
vere. Clear and uncontested property rights are the foundation of
the housing market. If these rights fall into question, that founda-
tion could collapse. Borrowers may be unable to determine whether
they are sending their monthly payments to the right people.
Judges may block any effort to foreclose, even in cases where bor-
rowers have failed to make regular payments. Multiple banks may
attempt to foreclose upon the same property. Borrowers who have
already suffered foreclosure may seek to regain title to their homes
and force any new owners to move out. Would-be buyers and sellers
could find themselves in limbo, unable to know with any certainty
whether they can safely buy or sell a home. If such problems were
to arise on a large scale, the housing market could experience even
greater disruptions than have already occurred, resulting in signifi-
cant harm to major financial institutions. For example, if a Wall
Street bank were to discover that, due to shoddily executed paper-
work, it still owns millions of defaulted mortgages that it thought
it sold off years ago, it could face billions of dollars in unexpected
losses.
Documentation irregularities could also have major effects on
Treasury’s main foreclosure prevention effort, the Home Affordable
Modification Program (HAMP). Some servicers dealing with Treas-
ury may have no legal right to initiate foreclosures, which may call
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into question their ability to grant modifications or to demand pay-
ments from homeowners. The servicers’ use of ‘‘robo-signing’’ may
also have affected determinations about individual loans; servicers
may have been more willing to foreclose if they were not bearing
the full costs of a properly executed foreclosure. Treasury has so far
not provided reports of any investigation as to whether documenta-
tion problems could undermine HAMP. It should engage in active
efforts to monitor the impact of foreclosure irregularities, and it
should report its findings to Congress and the public.
In addition to documentation concerns, another problem has aris-
en with securitized mortgage loans that could also threaten finan-
cial stability. Investors in mortgage-backed securities typically de-
manded certain assurances about the quality of the loans they pur-
chased: for instance, that the borrowers had certain minimum cred-
it ratings and income, or that their homes had appraised for at
least a minimum value. Allegations have surfaced that banks may
have misrepresented the quality of many loans sold for
securitization. Banks found to have provided misrepresentations
could be required to repurchase any affected mortgages. Because
millions of these mortgages are in default or foreclosure, the result
could be extensive capital losses if such repurchase risk is not ade-
quately reserved.
To put in perspective the potential problem, one investor action
alone could seek to force Bank of America to repurchase and absorb
partial losses on up to $47 billion in troubled loans due to alleged
misrepresentations of loan quality. Bank of America currently has
$230 billion in shareholders’ equity, so if several similar-sized ac-
tions—whether motivated by concerns about underwriting or loan
ownership—were to succeed, the company could suffer disabling
damage to its regulatory capital. It is possible that widespread
challenges along these lines could pose risks to the very financial
stability that the Troubled Asset Relief Program was designed to
protect. Treasury has claimed that based on evidence to date, mort-
gage-related problems currently pose no danger to the financial
system, but in light of the extensive uncertainties in the market
today, Treasury’s assertions appear premature. Treasury should ex-
plain why it sees no danger. Bank regulators should also conduct
new stress tests on Wall Street banks to measure their ability to
deal with a potential crisis.
The Panel emphasizes that mortgage lenders and securitization
servicers should not undertake to foreclose on any homeowner un-
less they are able to do so in full compliance with applicable laws
and their contractual agreements with the homeowner.
The American financial system is in a precarious place. Treas-
ury’s authority to support the financial system through the Trou-
bled Asset Relief Program has expired, and the resolution authority
created by the Dodd-Frank Wall Street Reform and Consumer Pro-
tection Act of 2010 remains untested. The 2009 stress tests that
evaluated the health of the financial system looked only to the end
of 2010, providing little assurance that banks could withstand
sharp losses in the years to come. The housing market and the
broader economy remain troubled and thus vulnerable to future
shocks. In short, even as the government’s response to the financial
crisis is drawing to a close, severe threats remain that have the po-
tential to damage financial stability.
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SECTION ONE:
A. Overview
In the fall of 2010, with the Troubled Asset Relief Program’s
(TARP) authority expiring, reports began to surface of problems
with foreclosure documentation, particularly in states where fore-
closures happen through the courts. GMAC Mortgage, a subsidiary
of current TARP recipient Ally Financial, announced on September
24, 2010 that it had identified irregularities in its foreclosure docu-
ment procedures that raised questions about the validity of fore-
closures on mortgages that it serviced. Similar revelations soon fol-
lowed from Bank of America, a former TARP recipient, and others.
Employees of these companies or their contractors have testified
that they signed, and in some cases backdated, thousands of docu-
ments attesting to personal knowledge of facts about the mortgage
and the property that they did not actually know to be true. Mort-
gage servicers also appeared to be cutting corners in other ways.
According to these banks, their employees were having trouble
keeping up with the crush of foreclosures, but additional training
and employees would generally suffice to get the process in order
again.
At present, the reach of these irregularities is unknown. The
irregularities may be limited to paperwork errors among certain
servicers in certain states; alternatively, they may call into ques-
tion aspects of the securitization process that pooled and sold inter-
ests in innumerable mortgages during the housing boom. Depend-
ing on their extent, the irregularities may affect both Treasury’s
ongoing foreclosure programs and the financial stability that Treas-
ury, under the Emergency Economic Stabilization Act of 2008
(EESA), was tasked with restoring. Further, the mortgage market
faces ongoing risks related to the right of mortgage-backed securi-
ties to force banks to repurchase any loans. Losses stemming from
these repurchases would compound any risks associated with docu-
mentation irregularities.
Under EESA, the Congressional Oversight Panel is charged with
reviewing the current state of the financial markets and the regu-
latory system. The Panel’s oversight interest in foreclosure docu-
mentation irregularities stems from several distinct concerns:
If Severe Disruptions in the Housing Market Materialize, Fi-
nancial Stability and Taxpayer Funds Could Be Imperiled.
If document irregularities prove to be pervasive and, more impor-
tantly, throw into question ownership of not only foreclosed prop-
erties but also pooled mortgages, the result could be significant
harm to financial stability—the very stability that the TARP was
designed to protect. In the worst case scenario, a clear chain of
title—an essential element of a functioning housing market—may
be difficult to establish for properties subject to mortgage loans
that were pooled and securitized. Rating agencies are already cau-
tious in their outlook for the banking sector, and further blows
could have a significant effect. The implications could also be dire
for taxpayers’ recovery of their TARP investments. Treasury still
has $66.8 billion invested in the banking sector generally, and as
the Panel discussed in its July report, ‘‘Small Banks in the Capital
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1
Taxpayers may also be at risk for losses related to Treasury’s investment in AIG. The Maid-
en Lane II and Maiden Lane III vehicles, which the Federal Reserve Bank of New York
(FRBNY) created to hold assets purchased from AIG, hold substantial amounts of residential
mortgage-backed securities (RMBSs), most of which are either sub-prime or Alt-A mortgages
originated during the housing boom. Treasury’s ability to recover the funds it has put into AIG
depends in significant part on FRBNY’s ability to collect on these investments, and uncertainty
associated with the investments could hinder that process.
Purchase Program,’’ the prospects for repayment from smaller
banks are still uncertain and dependent, in great part, on a sector
healthy enough to attract private investment.
1

HAMP May Rely on Uncertain Legal Authority and Inac-
curate Foreclosure Cost Estimates, Potentially Posing a
Risk to Foreclosure Mitigation Efforts. If irregularities in the
foreclosure process reflect deeper failures to document properly
changes of ownership as mortgage loans were securitized, then it
is possible that Treasury is dealing with the wrong parties in the
course of the Home Affordable Modification Program (HAMP). This
could mean that borrowers either received or were denied modifica-
tions improperly. Some servicers dealing with Treasury may have
no legal right to initiate foreclosures, which may call into question
their ability to grant modifications or to demand payments from
homeowners, whether they are part of a foreclosure mitigation pro-
gram or otherwise. The servicers’ tendency to cut corners may also
have affected the determination to modify or foreclose upon indi-
vidual loans. Because the net present value (NPV) model compares
the net present value of the modification to a foreclosure, improper
procedures that cut corners might have affected the foreclosure cost
calculation and thus might have affected the outcome of the NPV
test.
TARP-Recipient Banks May Have Failed to Meet Legal Obli-
gations. Many of the entities implicated in the recent document
irregularities, including Ally Financial, Bank of America, and
JPMorgan Chase, are current or former TARP recipients. Ally Fi-
nancial, notably, remains in TARP and is in possession of $17.2 bil-
lion in taxpayer funds. Bank of America received funds not only
from TARP’s Capital Purchase Program (CPP) but also what Treas-
ury deemed ‘‘exceptional assistance’’ from TARP’s Targeted Invest-
ment Program (TIP). Some of the banks involved were also subject
to the Supervisory Capital Assessment Program (SCAP), also
known as the stress tests: Treasury’s and the Board of Governors
of the Federal Reserve’s (Federal Reserve) efforts to determine the
health of the largest banks under a variety of stressed scenarios.
The Congressional Oversight Panel will continue to monitor
Treasury’s engagement with these ongoing events, not only to pro-
tect the taxpayers’ existing TARP investments and to oversee its
foreclosure mitigation programs, but also to meet the Panel’s statu-
tory mandate to ‘‘review the current state of the financial markets
and the regulatory system.’’
B. Background
In the fall of 2010, a series of revelations about foreclosure docu-
mentation irregularities hit the housing markets. The transfer of a
property’s title from the mortgagor (the homeowner) to the mort-
gagee (typically a bank or a trust) necessary for a successful fore-
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2
These steps depend on whether a state is a judicial foreclosure state or a non-judicial fore-
closure state, as further described below, in footnote 17.
3
If mortgage documentation has errors or misrepresentations, buyers of the mortgage paper
can ‘‘put-back’’ the mortgage to its originator and require them to repurchase the mortgage. For
a more complete discussion of this possibility, see Sections D.1.b and D.2.
Several analysts and experts have speculated on the potential for widespread impact. Morgan
Stanley, Housing Market Insights: Washington, We Have a Problem (Oct. 12, 2010); Amherst
Mortgage Insight, The Affidavit Fiasco—Implications for Investors in Private Label Securities
(Oct. 12, 2010); FBR Capital Markets, Conference Call: Foreclosure Mania: Big Deal or Not?
(Oct. 15, 2010) (hereinafter ‘‘FBR Foreclosure Mania Conference Call’’). In a conference call with
investors, Jamie Dimon, CEO of JPMorgan Chase, speculated that the issue could either be a
‘‘blip’’ or a more extended problem with ‘‘a lot of consequences, most of which will be adverse
on everybody.’’ Cardiff Garcia, JPM on Foreclosures, MERS, Financial Times Alphaville Blog
(Oct. 13, 2010) (online at ftalphaville.ft.com/blog/2010/10/13/369406/jpm-on-foreclosures-mers/)
(hereinafter ‘‘JPM on Foreclosures, MERS’’) (‘‘If you talk about three or four weeks it will be
a blip in the housing market. If it went on for a long period of time, it will have a lot of con-
sequences, most of which will be adverse on everybody.’’).
closure requires a series of steps established by state law.
2
As fur-
ther described below, depositions taken in a variety of cases in
which homeowners were fighting foreclosure actions indicated that
mortgage servicer employees—who were required to have personal
knowledge of the matters to which they were attesting in their affi-
davits—were signing hundreds of these documents a day. Other
documents appeared to have been backdated improperly and inef-
fectively or incorrectly notarized. While these documentation irreg-
ularities may sound minor, they have the potential to throw the
foreclosure system—and possibly the mortgage loan system and
housing market itself—into turmoil. At a minimum, in certain
cases, signers of affidavits appear to have signed documents attest-
ing to information that they did not verify and without a notary
present. If this is the extent of the irregularities, then the issue
may be limited to these signers and the foreclosure proceedings
they were involved in, and in many cases, the irregularities may
potentially be remedied by reviewing the documents more thor-
oughly and then resubmitting them. If, however, the problem is re-
lated not simply to a limited number of foreclosure documents but
also to irregularities in the mortgage origination and pooling proc-
ess, then the impact of the irregularities could be far broader, af-
fecting a vast number of investors in the mortgage-backed securi-
ties (MBS) market, already completed foreclosures, and current
homeowners. This latter scenario could result in extensive litiga-
tion, an extended freeze in the foreclosure market, and significant
stress on bank balance sheets arising from the substantial repur-
chase liability that can arise from mistakes or misrepresentations
in mortgage documents.
3

C. Timeline
After the housing market started to collapse in 2006, the effects
rippled through the financial sector and led to disruptions in the
credit markets in 2008 and 2009. In an economy that had been hit
hard by the financial crisis and soon settled into a deep recession,
the housing market declined, dragging down housing prices and in-
creasing the likelihood of default. This put pressure on a variety
of parties involved in the mortgage market. During the boom, there
were many players involved in the process of lending, securitizing,
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4
For example, it was not uncommon for a commercial bank to perform both lending and serv-
icing functions, and to have established separate lending and servicing arms of its organization.
As discussed later in this report, the securitization process begins with a lender/originator, often
but not always a commercial bank. Next, the mortgage is securitized by an investment bank.
Finally, the mortgage is serviced, often also by a commercial bank or its subsidiary. Even where
the same banks are listed as doing both lending and servicing, they did not necessarily service
only the mortgages they originated. Source: Inside Mortgage Finance.
5
See Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly
Report to Congress, at 157 (Oct. 26, 2010) (online at www.sigtarp.gov/reports/congress/2010/
October2010_Quarterly_Report_to_Congress.pdf) (hereinafter ‘‘October 2010 SIGTARP Report’’).
6
Servicer duties included fielding borrower inquiries, collecting mortgage payments from the
borrowers, and remitting mortgage payments to the trust. See Id. at 157, 164. See also Congres-
sional Oversight Panel, March Oversight Report: Foreclosure Crisis: Working Toward a Solution,
at 40–42 (Mar. 6, 2009) (online at cop.senate.gov/documents/cop-030609-report.pdf) (hereinafter
‘‘March 2009 Oversight Report’’).
7
See March 2009 Oversight Report, supra note 6, at 40.
8
See March 2009 Oversight Report, supra note 6, at 40–42. See also October 2010 SIGTARP
Report, supra note 5, at 158.
9
See October 2010 SIGTARP Report, supra note 5, at 157–158. In the spring of 2009, when
Treasury announced its Making Home Affordable program, the centerpiece of which was HAMP,
servicers took on the additional responsibility of processing all HAMP modifications.
10
See March 2009 Oversight Report, supra note 6, at 39.
11
Mortgages that are more than 90 days past due are concentrated in certain regions and
states of the country, including California, Nevada, Arizona, Florida, and Georgia. See Federal
Reserve Bank of New York, Q3 Credit Conditions (Nov. 8, 2010) (online at www.newyorkfed.org/
creditconditions/). Similarly, foreclosures are concentrated in certain states, including the so-
called ‘‘sand states’’: Arizona, California, Nevada, and Florida. U.S. Department of Housing and
Urban Development, Report to Congress on the Root Causes of the Foreclosure Crisis, at vi (Jan.
2010) (online at www.huduser.org/Publications/PDF/Foreclosure_09.pdf). The Panel’s field hear-
ings in Clark County, Nevada, Prince George’s County, Maryland, and Philadelphia, Pennsyl-
vania, also touched on the subject of high concentrations of foreclosures in those regions. See
Congressional Oversight Panel, Clark County, NV: Ground Zero of the Housing and Financial
Crises (Dec. 16, 2008) (online at cop.senate.gov/hearings/library/hearing-121608-
firsthearing.cfm); Congressional Oversight Panel, COP Hearing: Coping with the Foreclosure
Crisis in Prince George’s County, Maryland (Feb. 27, 2009) (online at cop.senate.gov/hearings/
library/hearing-022709-housing.cfm); Congressional Oversight Panel, Philadelphia Field Hearing
on Mortgage Foreclosures (Sept. 24, 2009) (online at cop.senate.gov/hearings/library/hearing-
092409-philadelphia.cfm).
12
The details of ‘‘robo-signers’’ actions surfaced on the Internet in September 2010, including
video and transcriptions of depositions filed by robo-signers. See, e.g., The Florida Foreclosure
Fraud Weblog, Jeffrey Stephan Affidavits ‘Withdrawn’ by Florida Default Law Group (Sept. 15,
2010) (online at floridaforeclosurefraud.com/2010/09/jeffrey-stephan-affidavits-withdrawn-by-flor-
ida-default-law-group/). Some of this information was made public in court documents. For in-
Continued
and servicing mortgages, and many of these players took on mul-
tiple roles.
4

The initial role of servicers was largely administrative.
5
They
were hired by the MBS investors to handle all back-office functions
for existing loans, and generally acted as intermediaries between
borrowers and MBS investors.
6
However, when the housing bubble
burst, and the number of delinquencies began to rise, the role of
servicers evolved correspondingly.
7
Servicer focus shifted from per-
forming purely administrative tasks to engaging in active loss miti-
gation efforts.
8
Servicers found themselves responsible for proc-
essing all defaults, modifications, short sales, and foreclosures.
9

The servicers themselves have admitted that they were simply not
prepared for the volume of work that the crisis generated.
10
Thus,
many servicers began subcontracting out much of their duties to
so-called ‘‘foreclosure mills,’’ contractors that had significant incen-
tives to move foreclosures along quickly.
Thus, as the boom in the housing market mutated into a boom
in foreclosures,
11
banks rushed to move delinquent borrowers out
of their homes as quickly as possible, leading, apparently, to proce-
dures of which the best that can be said is that they were sloppy
and cursory. Concerns with foreclosure irregularities first arose
when depositions of so-called ‘‘robo-signers’’ came to light.
12
In a
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stance, in an order issued by a state court in Maine on September 24, 2010, the judge noted
that it was undisputed that Jeffrey Stephan had signed an affidavit without reading it and that
he had not been in the presence of a notary when he signed it. Order on Four Pending Motions
at 3, Federal National Mortgage Assoc. v. Nicolle Bradbury, No. BRI–RE–09–65 (Me. Bridgton
D. Ct. Sept. 24, 2010) (online at www.molleurlaw.com/themed/molleurlaw/files/uploads/
9_24_10%20Four%20Motions%20Order.pdf) (hereinafter ‘‘Federal National Mortgage Assoc. v.
Nicolle Bradbury’’).
13
GMAC Mortgage is a subsidiary of Ally Financial. The Panel examined Ally Financial, then
named GMAC, in detail in its March 2010 report. See Congressional Oversight Panel, March
Oversight Report: The Unique Treatment of GMAC Under TARP (Mar. 11, 2010) (online at
cop.senate.gov/documents/cop-031110-report.pdf).
14
Federal National Mortgage Assoc. v. Nicolle Bradbury, supra note 12. There are two pri-
mary concerns with affidavits. First: are the affidavits accurate? For example, even if the home-
owner is indebted, the amount of the indebtedness is a part of the attestation. The amount of
the indebtedness must be accurate because there might be a subsequent deficiency judgment
against the homeowner, which would require the homeowner to cover the remaining amount
owed to the lender. And even if there was no deficiency judgment, an inflated claim would in-
crease the recovery of the mortgage servicer from the foreclosure sale proceeds to the detriment
of other parties in the process. Second, even if the information in the affidavit is correct, it must
be sworn out by someone with personal knowledge of the indebtedness; otherwise it is hearsay
and generally not admissible as evidence. See, e.g., Transcript of Court Proceedings, GMAC
Mortgage, LLC v. Debbie Viscaro, et al., No. 07013084CI (Fla. Cir. Ct. Apr. 7, 2010) (online at
floridaforeclosurefraud.com/wp-content/uploads/2010/04/040710.pdf) (discussing whether affected
affidavits were admissible). See generally Congressional Oversight Panel, Written Testimony of
Katherine Porter, professor of law, University of Iowa College of Law, COP Hearing on TARP
Foreclosure Mitigation Programs (Oct. 27, 2010) (online at cop.senate.gov/documents/testimony-
102710-porter.pdf) (hereinafter ‘‘Written Testimony of Katherine Porter’’).
15
Federal National Mortgage Assoc. v. Nicolle Bradbury, supra note 12. In addition, a Florida
court admonished GMAC for similar problems in 2006. Plaintiff’s Notice of Compliance with this
Court’s Order Dated May 1, 2006, TCIF RE02 v. Leibowitz, No. 162004CA004835XXXXMA
(June 14, 2006) (detailing GMAC’s policies on affidavits filed in foreclosure cases). These actions,
if true, would be inconsistent with the usual documentation requirements necessary for proper
processing of a foreclosure, giving rise to concerns that the foreclosure was not legally sufficient.
See generally Written Testimony of Katherine Porter, supra note 14.
16
Bank of America Corporation, Statement from Bank of America Home Loans (Oct. 8, 2010)
(online at mediaroom.bankofamerica.com/phoenix.zhtml?c=234503&p=irol-
newsArticle&ID=1480657&highlight=) (hereinafter ‘‘Statement from Bank of America Home
Loans’’). At the same time, Bank of America agreed to indemnify Fidelity National Financial,
a title insurer, for losses directly incurred by ‘‘failure to comply with state law or local practice
on both transactions in which foreclosure has already occurred or been initiated and those to
be initiated in the future.’’ See Fidelity National Financial, Fidelity National Financial, Inc., Re-
ports EPS of $0.36 (Oct. 20, 2010) (online at files.shareholder.com/downloads/FNT/
1051799117x0x411089/209d61a9-8a05-454c-90d1-4a78e0a7c4ae/
FNF_News_2010_10_20_Earnings.pdf). As further described below in Section D.2, title insur-
ance is a critical piece of the mortgage market. Generally, title insurance insures against the
possibility that title is encumbered or unclear, and thereby provides crucial certainty in trans-
actions involving real estate. The insurance is retrospective—covering the history of the property
until, but not after the sale, and is issued after a review of the land title records. For a buyer,
title insurance therefore insures against the possibility that a defect in the title that is not ap-
parent from the public records will affect their ownership. Industry sources conversations with
Panel staff (Nov. 9, 2010). A title insurer’s refusal to issue insurance can significantly hamper
the orderly transfer of real estate and interests collateralized by real estate. Bank of America’s
indemnity agreement with Fidelity National Financial shifts the risk of covered losses arising
from the foreclosure irregularities from Fidelity National to Bank of America.
17
Twenty-two states require judicial oversight of foreclosure proceedings. In these judicial
foreclosure states the mortgagee must establish its claim—show that a borrower is in default—
before a judge. In non-judicial states a foreclosure can proceed upon adequate and timely notice
June 7, 2010, deposition, Jeffrey Stephan, who worked for GMAC
Mortgage
13
as a ‘‘limited signing officer,’’ testified that he signed
400 documents each day. In at least some cases, he signed affida-
vits without reading them and without a notary present.
14
He also
testified that in doing so, he acted consistently with GMAC Mort-
gage’s policies.
15
Similarly, faced with revelations that robo-signers
had signed tens of thousands of foreclosure documents without ac-
tually verifying the information in them, Bank of America an-
nounced on October 8, 2010, that it would freeze foreclosure sales
in all 50 states until it could investigate and address the irregular-
ities.
16
GMAC Mortgage took similar action, announcing that while
it would not suspend foreclosures, it had ‘‘temporarily suspended
evictions and post-foreclosure closings’’ in 23 states.
17
In a state-
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to the borrower, as defined by statute. In non-judicial states, a power of sale clause included
in a deed of trust allows a trustee to conduct a non-judicial foreclosure. Non-judicial foreclosures
can proceed more quickly since they do not require adjudication. Mortgage Bankers Association,
Judicial Versus Non-Judicial Foreclosure (Oct. 26, 2010) (online at www.mbaa.org/files/
ResourceCenter/ForeclosureProcess/JudicialVersusNon-JudicialForeclosure.pdf). Typically, states
that rely on mortgages are judicial foreclosure states, while states that rely on deeds of trust
are non-judicial foreclosure states. Standard & Poor’s, Structured Finance Research Week: How
Will the Foreclosure Crisis Affect U.S. Home Prices? (Oct. 21, 2010) (hereinafter ‘‘S&P on Fore-
closure Crisis’’).
18
Ally Financial, Inc., GMAC Mortgage Provides Update on Mortgage Servicing Process (Sept.
24, 2010) (online at media.ally.com/index.php?s=43&item=417).
19
To date, GMAC Mortgage and Bank of America have only resumed foreclosures in judicial
foreclosure states and are still reviewing their procedures in non-judicial foreclosure states.
20
Ally Financial, Inc., GMAC Mortgage Statement on Independent Review and Foreclosure
Sales (Oct. 12, 2010) (online at media.ally.com/index.php?s=43&item=421) (hereinafter ‘‘GMAC
Mortgage Statement on Independent Review and Foreclosure Sales’’).
21
Bank of America Corporation, Statement from Bank of America Home Loans (Oct. 18, 2010)
(online at mediaroom.bankofamerica.com/phoenix.zhtml?c=234503&p=irol-
newsArticle&ID=1483909&highlight=) (hereinafter ‘‘Statement from Bank of America Home
Loans’’).
22
See Written Testimony of Katherine Porter, supra note 14, at 10 (‘‘In the wake of these par-
ties’ longstanding allegations and findings of inappropriate and illegal practices, I am unable
to give weight to recent statements by banks such as Bank of America that only 10 to 25 of
the first several hundred loans that it has reviewed have problems.’’).
23
Wells Fargo & Company, Wells Fargo Provides Update on Foreclosure Affidavits and Mort-
gage Securitizations (Oct. 27, 2010) (online at www.wellsfargo.com/press/2010/
20101027_Mortgage) (hereinafter ‘‘Wells Fargo Update on Affidavits and Mortgage
Securitizations’’).
ment, it referred to the issue as a ‘‘procedural error . . . in certain
affidavits’’ and stated that ‘‘we are confident that the processing er-
rors did not result in any inappropriate foreclosures.’’ GMAC also
announced that the company had taken three remedial steps to ad-
dress the problem: additional education and training for employees,
the release of a ‘‘more robust policy’’ to govern the process, and the
hiring of additional staff to assist with foreclosure processing.
18

These voluntary, privately determined suspensions were brief.
19

On October 12, 2010, GMAC Mortgage released a statement indi-
cating that in cases in which it had initiated a review process for
its foreclosure procedures, it would resume foreclosure proceedings
once any problems had been identified and, where necessary, ad-
dressed. It also noted that it ‘‘found no evidence to date of any in-
appropriate foreclosures.’’
20
On October 18, Bank of America an-
nounced that it had completed its review of irregularities in the 23
states that require judicial review of foreclosure proceedings and
that it would begin processing foreclosure affidavits for 102,000
foreclosure proceedings in those states. It stated that it would re-
view proceedings in the remaining 27 states on a case-by-case basis
and that foreclosure sales in those states would be delayed until
those reviews are complete. It further stated that in all states, it
appeared that the ‘‘basis of our foreclosure decisions is accurate.’’
21

Various commentators, however, have questioned Bank of Amer-
ica’s ability to make such determinations in such a short time-
frame.
22
Then, on October 27, another large bank entered the fray
when Wells Fargo announced that it had uncovered irregularities
in its foreclosure processes and stated that it would submit supple-
mental affidavits in 55,000 foreclosure actions.
23

Meanwhile, as the revelations of irregularities quickly multiplied,
some argued that over and above the banks’ and servicers’ vol-
untary actions, the federal government should impose a nationwide
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24
See, e.g., Office of Senator Harry Reid, Reid Welcomes Bank of America Decision, Calls On
Others To Follow Suit (Oct. 8, 2010) (online at reid.senate.gov/newsroom/
pr_101008_bankofamerica.cfm) (hereinafter ‘‘Reid Welcomes Bank of America Decision’’); Dean
Baker, Foreclosure Moratorium: Cracking Down on Liar Liens, Center for Economic and Policy
Research (Oct. 18, 2010) (online at www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/
foreclosure-moratorium-cracking-down-on-liar-liens) (hereinafter ‘‘Foreclosure Moratorium:
Cracking Down on Liar Liens’’).
25
Shaun Donovan, secretary, U.S. Department of Housing and Urban Development, How We
Can Really Help Families (Oct. 18, 2010) (online at portal.hud.gov/portal/page/portal/HUD/press/
blog/2010/blog2010-10-18).
26
National Association of Attorneys General, 50 States Sign Mortgage Foreclosure Joint State-
ment (Oct. 13, 2010) (online at www.naag.org/joint-statement-of-the-mortgage-foreclosure-
multistate-group.php) (hereinafter ‘‘50 States Sign Mortgage Foreclosure Joint Statement’’).
27
Cases involved suits against Bank of America (as the parent of loan originator Countrywide)
claiming violations of representations and warranties and sought to enforce put-back provisions.
Greenwich Financial Services Distressed Fund 3 L.L.C. vs. Countrywide Financial Corp, et al.,
1:08-cv-11343–RJH (S.D.N.Y. Oct. 15, 2010); Footbridge Limited Trust and OHP Opportunity
Trust vs. Bank of America, CV00367 (S.D.N.Y. Oct 1, 2010).
28
See Stephen R. Buchenroth and Gretchen D. Jeffries, Recent Foreclosure Cases: Lenders Be-
ware (June 2007) (online at www.abanet.org/rppt/publications/ereport/2007/6/
OhioForeclosureCases.pdf); Wells Fargo v. Jordan, 914 N.E.2d 204 (Ohio 2009) (‘‘If plaintiff has
offered no evidence that it owned the note and mortgage when the complaint was filed, it would
not be entitled to judgment as a matter of law.’’); Christopher Lewis Peterson, Foreclosure,
Subprime Mortgage Lending, and the Mortgage Electronic Registration System, University of
Cincinnati Law Review, Vol. 78, No. 4, at 1368–1371 (Summer 2010) (online at papers.ssrn.com/
sol3/papers.cfm?abstract_id=1469749) (hereinafter ‘‘Cincinnati Law Review Paper on Fore-
closure’’); MERSCORP, Inc. v. Romaine, 861 N.E. 2d 81 (N.Y. 2006). Accordingly, a second set
moratorium on foreclosures.
24
Housing and Urban Development
Secretary Shaun Donovan rejected the idea, arguing that ‘‘a na-
tional, blanket moratorium on all foreclosure sales would do far
more harm than good.’’
25
At the same time, on October 13, attor-
neys general from all 50 states
26
announced a bipartisan effort to
look into the possibility that documents or affidavits were improp-
erly submitted in their jurisdictions.
Although the public focus today lies generally on foreclosures, the
possibility of document irregularities in mortgage transactions has
expanded beyond their significance to foreclosure proceedings. Re-
cently, investors have begun to claim that similar irregularities in
origination and pooling of loans should trigger actions against enti-
ties in the mortgage origination, securitization, and servicing in-
dustries.
27

D. Legal Consequences of Document Irregularities
The possible legal consequences of the documentation irregular-
ities described above range from minor, curable title defects for cer-
tain foreclosed homes in certain states to more serious con-
sequences such as the unenforceability of foreclosure claims and
other ownership rights that rely on the ability to establish clear
title to real property, forced put-backs of defective mortgages to
originators, and market upheaval. The severity and likelihood of
these various possible consequences depend on whether the irreg-
ularities are pervasive and when in the process they occurred.
Effective transfers of real estate depend on parties’ being able to
answer seemingly straightforward questions: who owns the prop-
erty? how did they come to own it? can anyone make a competing
claim to it? The irregularities have the potential to make these
seemingly simple questions complex. As a threshold matter, a party
seeking to enforce the rights associated with the mortgage must
have standing in court, meaning that a party must have an inter-
est in the property sufficient that a court will hear their claim and
can provide them with relief.
28
For a mortgage, ‘‘[a] mortgage may
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of problems relates to the chain of title on mortgages and the ability of the foreclosing party
to prove that it has legal standing to foreclose. While these problems are not limited to the
securitization market, they are especially acute for securitized loans because there are more
complex chain of title issues involved.
29
Restatement (Third) of Prop. (Mortgages) § 5.4(c) (1997). Only the proven mortgagee may
maintain a foreclosure action. The requirement that a foreclosure action be brought only by the
actual mortgagee is at the heart of the issues with foreclosure irregularities. If the homeowner
or the court challenges the claim of the party bringing a foreclosure action that it is the mort-
gagee (and was when the foreclosure was filed), then evidentiary issues arise as to whether the
party bringing the foreclosure can in fact prove that it is the mortgagee. The issues involved
are highly complex areas of law, but despite the complexity of these issues, they should not be
dismissed as mere technicalities. Rather, they are legal requirements that must be observed
both as part of due process and as part of the contractual bargain made between borrowers and
lenders.
30
That party must either own the mortgage and the note or be legally empowered to act on
the owner’s behalf. Servicers acting on behalf of a trust or an originator do not own the mort-
gage, but by contract are granted the ability to act on behalf of the trust or the originator. See
Federal Trade Commission, Facts for Consumers (online at www.ftc.gov/bcp/edu/pubs/consumer/
homes/rea10.shtm) (accessed Nov. 12, 2010) (‘‘In today’s market, loans and the rights to service
them often are bought and sold. In many cases, the company that you send your payment to
is not the company that owns your loan.’’). See also October 2010 SIGTARP Report, supra note
5, at 160 (describing clients of servicers).
31
Laws governing the remedies available to a lender foreclosing on a property vary consider-
ably. States also differ markedly in how long it takes the lender to foreclose depending on the
available procedures. In general, claimants can seek to recover loan amounts by foreclosing on
the property securing the debt. If the loan is ‘‘non-recourse,’’ the lender only may foreclose upon
the property, but if the loan is ‘‘recourse,’’ the lender may foreclose upon the property and other
borrower assets. Most states are recourse states. A loan in a recourse state allows a mortgagee
to foreclose upon property securing a promissory note and, if that property is insufficient to dis-
charge the debt, move against the borrower’s other assets. In non-recourse states, recovery of
the loan amount is limited to the loan collateral. Put another way, the lender cannot go after
the borrower’s other assets in a non-recourse state if the property is insufficient to discharge
the debt. It is worth noting that even in recourse states, given the current economic climate,
the mortgagees’ recourse to the borrower’s personal assets may be somewhat illusory since they
may be minimal relative to the costs and delay in pursuing and collecting on a deficiency judg-
ments. See Andra C. Ghent and Marianna Kudlyak, Recourse and Residential Mortgage Default:
Theory and Evidence from U.S. States, Federal Reserve Bank of Richmond Working Paper, No.
09–10, at 1–2 (July 7, 2009) (online at www.fhfa.gov/webfiles/15051/website_ghent.pdf).
32
Christopher Lewis Peterson, associate dean for academic affairs and professor of law, S.J.
Quinney College of Law, University of Utah, conversations with Panel staff (Nov. 8, 2010).
be enforced only by, or in behalf of, a person who is entitled to en-
force the obligation the mortgage secures.’’
29
Thus, the only party
that may enforce the rights associated with the mortgage, with
standing to take action on a mortgage in a court, must be legally
able to act on the mortgage.
30
Accordingly, standing is critical for
a successful foreclosure, because if the party bringing the fore-
closure does not have standing to enforce the rights attached to the
mortgage and the note, that party may not be able to take the
property with clear title that can be passed on to another buyer.
31

Thus, if prior transfers of the mortgage were unsuccessful or im-
proper, subsequent transfers of the property, such as a foreclosure
or even an ordinary sale, could be affected. Further, failure to fore-
close properly—whether because the foreclosing party did not actu-
ally hold the mortgage and the note, or because robo-signing af-
fected the homeowner’s due process rights—means that the prior
homeowner may be able to assert claims against a subsequent
owner of the property.
32
In this way, documentation irregularities
can affect title to a property at a number of stages, as further de-
scribed below.
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33
Black’s Law Dictionary, at 1522 (2004).
34
See Cincinnati Law Review Paper on Foreclosure, supra note 28.
35
There are two documents that need to be transferred as part of the securitization process—
a promissory note and the security instrument (the mortgage or deed of trust). The promissory
note embodies the debt obligation, while the security instrument provides that if the debt is not
repaid, the creditor may sell the designated collateral (the house). Both the note and the mort-
gage need to be properly transferred. Without the note, a mortgage is unenforceable, while with-
out the mortgage, a note is simply an unsecured debt obligation, no different from credit card
debt. See FBR Foreclosure Mania Conference Call, supra note 3. The rules for these transfers
are generally governed by the Uniform Commercial Code (UCC), although one author states that
the application of the UCC to the transfer of the note is not certain. See Dale A. Whitman, How
Negotiability Has Fouled Up the Secondary Mortgage Market, and What to Do About It,
Pepperdine Law Review, Vol. 37, at 758–759 (2010).
States adopt articles of and revisions to the UCC individually, and so there can be variation
among states in the application of the UCC. This report does not attempt to identify all of the
possible iterations. Rather, it describes general and common applications of the UCC to such
transactions.
There are two methods by which a promissory note may be transferred. First, it may be trans-
ferred by ‘‘negotiation,’’ the signing over of individual promissory notes through indorsement, in
the same way that a check can be transferred via indorsement. See UCC §§ 3–201, 3–203. The
pooling and servicing agreements (PSAs) for securitized loans generally contemplate transfer
through negotiation. Typical language in PSAs requires the delivery to the securitization trust
of the notes and the mortgages, indorsed in blank. Alternatively, a promissory note may be
transferred by a sale contract, also governed by whether a state has adopted particular revisions
to the UCC. In many states, in order for a transfer to take place under the relevant portion
of the UCC, there are only three requirements: the buyer of the promissory note must give
value, there must be an authenticated document of sale that describes the promissory note, and
the seller must have rights in the promissory note being sold. UCC § 9–203(a)-(b).
1. Potential Flaws in the Recording and Transfer of Mort-
gages and Violations of Pooling and Servicing Agree-
ments
a. Mortgage Recordation, Perfecting Title, and Trans-
ferring Title
i. Title
The U.S. real property market depends on a seller’s ability to
convey ‘‘clear title’’: an assurance that the purchaser owns the
property free of encumbrances or competing claims.
33
Laws gov-
erning the transfer of real property in the United States were de-
signed to create a public, transparent recordation system that sup-
plies reliable information on ownership interests in property. Each
of the 50 states has laws governing title to land within its legal
boundaries. Every county in the country maintains records of who
owns land there, of transfers of ownership, and of related mort-
gages or deeds of trust. While each state’s laws have unique fea-
tures, their basic requirements are the same, consistent with the
notion that the purpose of the recording system is to establish cer-
tainty regarding property ownership. In order to protect ownership
interests, fully executed, original (commonly referred to as ‘‘wet
ink’’) documents must be recorded in a grantor/grantee index at a
county recording office.
34
In the case of a purchaser or transferee,
a properly recorded deed describing both the property and the par-
ties to the transfer establishes property ownership.
ii. Transfer
In a purchase of a home using a mortgage loan, required docu-
ments include (a) a promissory note establishing the mortgagor’s
personal liability, (b) a mortgage evidencing the security interest in
the underlying collateral, and (c) if the mortgage is transferred,
proper assignments of the mortgage and the note.
35
There are a
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The first two requirements should be easily met in most securitizations; the transfer of the
mortgage loans at each stage of the securitization involves the buyer giving the seller value and
a document of sale (a mortgage purchase and sale agreement or a PSA) that should include a
schedule identifying the promissory notes involved. The third requirement, however, that the
seller must have rights in the promissory note being sold, is more complicated, as it requires
an unbroken chain of title back to the loan’s originator. While the loan sale documents plus their
schedules are evidence of such a chain of title, they cannot establish that the loan was not pre-
viously sold to another party.
Further, this discussion only addresses the validity of transfers between sellers and buyers
of mortgage loans. It does not address the enforceability of those loans against homeowners,
which requires physical possession of the original note. Thus, for both securitized and non-
securitized loans, it is necessary for a party to show that it is entitled to enforce the promissory
note (and therefore generally that it is a holder of the physical original note) in order to com-
plete a foreclosure successfully.
Perhaps more critically, parties are free to contract around the UCC. UCC § 1–302. This raises
the question of whether PSAs for MBS provide for a variance from the UCC by agreement of
the parties. The PSA is the document that provides for the transfer of the mortgage and notes
from the securitization sponsor to the depositor and thence to the trust. The PSA is also the
document that creates the trust. The transfer from the originator to the sponsor is typically gov-
erned by a separate document, although sections of it may be incorporated by reference in the
PSA.
If a PSA is considered a variation by agreement from the UCC, then there is a question of
what the PSA itself requires to transfer the mortgage loans and whether those requirements
have been met. In some cases, PSAs appear to require a complete chain of indorsements on the
notes from originator up to the depositor, with a final indorsement in blank to the trust. A com-
plete chain of indorsements, rather than a single indorsement in blank with the notes trans-
ferred thereafter as bearer paper, is important for establishing the ‘‘bankruptcy remoteness’’ of
the trust assets. A critical part of securitization is to establish that the trust’s assets are bank-
ruptcy remote, meaning that they could not be claimed by the bankruptcy estate of an upstream
transferor of the assets. Without a complete chain of indorsements, it is difficult, if not impos-
sible, to establish that the loans were in fact transferred from originator to sponsor to depositor
to trust, rather than directly from originator or sponsor to the trust. If the transfer were directly
from the originator or sponsor to the trust, the loans could possibly be claimed as part of the
originator’s or sponsor’s bankruptcy estate. The questions about what the transfers required,
therefore, involve both the question as to whether the required transfers actually happened, as
well as whether, if they happened, they were legally sufficient.
number of ways for a mortgage originator to proceed upon entering
into a loan secured by real property. They may keep the loan on
their own books; these are so-called ‘‘whole loans.’’ However, if the
loan is sold in a secondary market—either as a whole loan or in
a securitization process—the loan must be properly transferred to
the purchaser. To be transferred properly, both the loan and ac-
companying documentation must be transferred to the purchaser,
and the transfer must be recorded.
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36
FBR Foreclosure Mania Conference Call, supra note 3.
37
For an overview of REMICs, see Federal National Mortgage Association, Basics of REMICs
(June 16, 2009) (online at www.fanniemae.com/mbs/mbsbasics/remic/index.jhtml). See also Inter-
nal Revenue Service, Final Regulations Relating to Real Estate Mortgage Investment Conduits,
26 CFR § 1 (Aug. 17, 1995) (online at www.irs.gov/pub/irs-regs/td8614.txt). Only the MBS inves-
tors are taxed on their income from the trusts’ payments on the MBS. REMICs are supposed
to be passive entities. Accordingly, with few exceptions, a REMIC may not receive new assets
after 90 days have passed since its creation, or there will be adverse tax consequences. Thus,
if a transfer of a loan was not done correctly in the first place, proper transfer now could endan-
ger the REMIC status. For an overview of residential mortgage-backed securities in general, see
American Securitization Forum, ASF Securitization Institute: Residential Mortgage-Backed Secu-
rities (2006) (online at www.americansecuritization.com/uploadedFiles/RMBS%20Outline.pdf).
38
See Section D.1.a.ii, supra.
iii. Mortgage Securitization Process
FIGURE 1: TRANSFER OF RELEVANT PAPERWORK IN SECURITIZATION PROCESS
36

Securitizations of mortgages require multiple transfers, and, ac-
cordingly, multiple assignments. Mortgages that were securitized
were originated through banks and mortgage brokers—mortgage
originators. Next they were securitized by investment banks—the
sponsors—through the use of special purpose vehicles, trusts that
qualify for Real Estate Mortgage Investment Conduit (REMIC) sta-
tus. These trusts are bankruptcy-remote, tax-exempt vehicles that
pooled the mortgages transferred to them and sold interests in the
income from those mortgages to investors in the form of shares.
The pools were collateralized by the underlying real property, be-
cause a mortgage represents a first-lien security interest on an
asset in the pool—a house.
37
A governing document for
securitizations called a pooling and servicing agreement (PSA) in-
cludes various representations and warranties for the underlying
mortgages. It also describes the responsibilities of the trustee, who
is responsible for holding the recorded mortgage documents, and of
the servicer, who plays an administrative role, collecting and dis-
bursing mortgage and related payments on behalf of the investors
in the MBS.
As described above, in order to convey good title into the trust
and provide the trust with both good title to the collateral and the
income from the mortgages, each transfer in this process required
particular steps.
38
Most PSAs are governed by New York law and
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39
FBR Foreclosure Mania Conference Call, supra note 3.
40
N.Y. Est. Powers & Trusts Law § 7–2.4; FBR Foreclosure Mania Conference Call, supra note
3.
41
FBR Foreclosure Mania Conference Call, supra note 3.
42
Amended Complaint at Exhibit 5, page 13, Deutsche Bank National Trust Company v. Fed-
eral Deposit Insurance Corporation, No. 09–CV–1656 (D.D.C. Sept. 8, 2010) (hereinafter ‘‘Deut-
sche Bank v. Federal Deposit Insurance Corporation’’).
43
See FBR Foreclosure Mania Conference Call, supra note 3.
44
See, e.g., FBR Foreclosure Mania Conference Call, supra note 3.
45
Restatement (Third) of Prop. (Mortgages) § 5.4 cmt. B (1997).
46
Christopher Lewis Peterson, associate dean for academic affairs and professor of law, S.J.
Quinney College of Law, University of Utah, conversations with Panel staff (Nov. 8, 2010).
47
MERS conversations with Panel staff (Nov. 10, 2010). See Christopher Lewis Peterson, Two
Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory, Real Prop-
erty, Probate, and Trust Law Journal (forthcoming) (online at papers.ssrn.com/sol3/pa-
pers.cfm?abstract_id=1684729).
create trusts governed by New York law.
39
New York trust law re-
quires strict compliance with the trust documents; any transaction
by the trust that is in contravention of the trust documents is void,
meaning that the transfer cannot actually take place as a matter
of law.
40
Therefore, if the transfer for the notes and mortgages did
not comply with the PSA, the transfer would be void, and the as-
sets would not have been transferred to the trust. Moreover, in
many cases the assets could not now be transferred to the trust.
41

PSAs generally require that the loans transferred to the trust not
be in default, which would prevent the transfer of any non-per-
forming loans to the trust now.
42
Furthermore, PSAs frequently
have timeliness requirements regarding the transfer in order to en-
sure that the trusts qualify for favored tax treatment.
43

Various commentators have begun to ask whether the poor rec-
ordkeeping and error-filled work exhibited in foreclosure pro-
ceedings, described above, is likely to have marked earlier stages
of the process as well. If so, the effect could be that rights were not
properly transferred during the securitization process such that
title to the mortgage and the note might rest with another party
in the process other than the trust.
44

iv. MERS
In addition to the concerns with the securitization process de-
scribed above, a method adopted by the mortgage securitization in-
dustry to track transfers of mortgage servicing rights has come
under question. A mortgage does not need to be recorded to be en-
forceable as between the mortgagor and the mortgagee or subse-
quent transferee, but unless a mortgage is recorded, it does not
provide the mortgagee or its subsequent transferee with priority
over subsequent mortgagees or lien holders.
45

During the housing boom, multiple rapid transfers of mortgages
to facilitate securitization made recordation of mortgages a more
time-consuming, and expensive process than in the past.
46
To al-
leviate the burden of recording every mortgage assignment, the
mortgage securitization industry created the Mortgage Electronic
Registration Systems, Inc. (MERS), a company that serves as the
mortgagee of record in the county land records and runs a database
that tracks ownership and servicing rights of mortgage loans.
47

MERS created a proxy or online registry that would serve as the
mortgagee of record, eliminating the need to prepare and record
subsequent transfers of servicing interests when they were trans-
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48
MERS conversations with Panel staff (Nov. 10, 2010); John R. Hodge and Laurie Williams,
Mortgage Electronic Registration Systems, Inc.: A Survey of Cases Discussing MERS’ Authority
to Act, Norton Bankruptcy Law Adviser, at 2 (Aug 2010) (hereinafter ‘‘A Survey of Cases Dis-
cussing MERS’ Authority to Act’’).
49
Members pay an annual membership fee and $6.95 for every loan registered, versus ap-
proximately $30 in fees for filing a mortgage assignment at a local county land office.
MERSCORP, Inc., Membership Kit (Oct. 2009) (online at www.mersinc.org/membership/ WinZip/
MERSeRegistryMembershipKit.pdf); Cincinnati Law Review Paper on Foreclosure, supra note
28, at 1368–1371. See also MERSCORP, Inc. v. Romaine, 861 N.E. 2d 81 (N.Y. 2006).
50
MERS conversations with Panel staff (Nov. 10, 2010).
51
Cincinnati Law Review Paper on Foreclosure, supra note 28, at 1362.
52
See A Survey of Cases Discussing MERS’ Authority to Act, supra note 48, at 3.
53
For instance, in a question-and-answer session during a recent earnings call with investors,
Jamie Dimon, CEO and chairman of JPMorgan Chase, said that the firm had stopped using
MERS ‘‘a while back.’’ JPMorgan Chase & Co., Q3 2010 Earnings Call Transcript (Oct. 13, 2010)
(online at www.morningstar.com/earn-0/ earnings_18244835-jp-morgan-chase-co-q3-
2010.aspx.shtml) (hereinafter ‘‘Q3 2010 Earnings Call Transcript’’). See also JPM on Fore-
closures, MERS, supra note 3. This, however, related only to the use of MERS to foreclose.
MERS conversations with Panel staff (Nov. 10, 2010).
54
See generally Cincinnati Law Review Paper on Foreclosure, supra note 28. Cases addressed
questions as to standing and as to whether, by separating the mortgage and the note, the mort-
gage had been rendered invalid (thus invalidating the security interest in the property). See A
Survey of Cases Discussing MERS’ Authority to Act, supra note 48, at 20–21 (‘‘These interpre-
tive problems and inconsistencies have provoked some courts to determine the worst possible
fate for secured loan buyers—that their mortgages were not effectively transferred or even that
the mortgages have been separated from the note and are no longer enforceable. . . . Whether
the MERS construct holds water is being robustly tested in a variety of contexts. Given the per-
vasiveness of MERS, if the construct is not viable, if MERS cannot file foreclosures, and, per-
haps most importantly, cannot even record or execute an assignment of a mortgage, what
then?’’).
55
See, e.g., Mortg. Elec. Registry Sys. v. Azize, 965 So. 2d 151 (Fla. Dist. Ct. App. 2007). See
also A Survey of Cases Discussing MERS’ Authority to Act, supra note 48, at 9.
56
Mortg. Elec. Registry Sys. v. Johnston, No. 420–6–09 Rdcv (Rutland Superior Ct., Vt., Oct.
28, 2009) (determining that MERS did not have standing to initiate the foreclosure because the
note and mortgage had been separated).
ferred from one MERS member to another.
48
In essence, it at-
tempted to create a paperless mortgage recording process overlying
the traditional, paper-intense mortgage tracking system, in which
MERS would have standing to initiate foreclosures.
49

MERS experienced rapid growth during the housing boom. Since
its inception in 1995, 66 million mortgages have been registered in
the MERS system and 33 million MERS-registered loans remain
outstanding.
50
During the summer of 2010, one expert estimated
that MERS was involved in 60 percent of mortgage loans origi-
nated in the United States.
51

Widespread questions about the efficacy of the MERS model did
not arise during the boom, when home prices were escalating and
the incidence of foreclosures was minimal.
52
But as foreclosures
began to increase, and documentation irregularities surfaced in
some cases and raised questions about a wide range of legal issues,
including the legality of foreclosure proceedings in general,
53
some
litigants raised questions about the validity of MERS.
54
There is
limited case law to provide direction, but some state courts have
rendered verdicts on the issue. In Florida, for example, appellate
courts have determined that MERS had standing to bring a fore-
closure proceeding.
55
On the other hand, in Vermont, a court deter-
mined that MERS did not have standing.
56

In the absence of more guidance from state courts, it is difficult
to ascertain the impact of the use of MERS on the foreclosure proc-
ess. The uncertainty is compounded by the fact that the issue is
rooted in state law and lies in the hands of 50 states’ judges and
legislatures. If states adopt the Florida model, then the issue is
likely to have a limited effect. However, if more states adopt the
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57
MERS was used by the most active participants in the securitization market including the
largest banks (for example, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and
Fannie Mae and Freddie Mac), and processed 60 percent of all MBS. See MERSCORP, Inc.,
SunTrust Becomes Third Major Mortgage Provider in Recent Months to Require MERS System
(Mar. 18, 2010) (online at www.mersinc.org/newsroom/press_details.aspx?id=235). According to
MERS, it has acted as the party foreclosing for one in five of the delinquent mortgages on its
system. MERS conversations with Panel staff (Nov. 10, 2010).
58
See S&P on Foreclosure Crisis, supra note 17.
59
Christopher Lewis Peterson, associate dean for academic affairs and professor of law at the
S.J. Quinney College of Law at the University of Utah, conversations with Panel staff (Nov. 8,
2010).
60
This section attempts to provide a general description of put-backs. Put-backs have been
an issue throughout the financial crisis, typically in the context of questions about underwriting
standards. See, e.g., Federal National Mortgage Association, Form 10–K for the Fiscal Year
Ended December 31, 2009, at 9 (Feb. 26, 2010) (online at www.sec.gov/Archives/edgar/data/
310522/000095012310018235/w77413e10vk.htm) (‘‘As delinquencies have increased, we have ac-
cordingly increased our reviews of delinquent loans to uncover loans that do not meet our under-
writing and eligibility requirements. As a result, we have increased the number of demands we
make for lenders to repurchase these loans or compensate us for losses sustained on the loans,
as well as requests for repurchase or compensation for loans for which the mortgage insurer
rescinds coverage.’’). Documentation irregularities may provide an additional basis for put-backs,
although the viability of these put-back claims will depend on a variety of deal-specific issues,
such as the particular representations and warranties that were incorporated into the PSA,
which in turn often are related to whether the MBSs are agency or private-label securities. Al-
though private-label MBS PSAs typically included weaker representations regarding the quality
of the loans and underwriting, they still contain representations regarding proper transfer of
the documents to the trust.
61
Failure to transfer the loans properly would create two sources of liability: one would be
in rendering the owner of the mortgage and the note uncertain, and the other would be a breach
of contract claim under the PSA. For an example of typical language in representations and
warranties contained in PSAs or incorporated by reference from mortgage loan purchase agree-
ments executed by the mortgage originator, see Deutsche Bank v. Federal Deposit Insurance
Corporation, supra note 42 (‘‘. . . and that immediately prior to the transfer and assignment
Continued
Vermont model, then the issue may complicate the ability of var-
ious players in the securitization process to enforce foreclosure
liens.
57
If sufficiently widespread, these complications could have a
substantial effect on the mortgage market, inasmuch as it would
destabilize or delegitimize a system that has been embedded in the
mortgage market and used by multiple participants, both govern-
ment and private. Although it is impossible to say at present what
the ultimate result of litigation on MERS will be, holdings adverse
to MERS could have significant consequences to the market.
If courts do adopt the Vermont view, it is possible that the im-
pact may be mitigated if market participants devise a viable
workaround. For example, according to a report released by Stand-
ard & Poor’s, ‘‘most’’ market participants believe that it may be
possible to solve any MERS-related problems by taking the mort-
gage out of MERS and putting it in the mortgage owner’s name
prior to initiating a foreclosure proceeding.
58
According to one ex-
pert, the odds that the status of MERS will be settled quickly are
low.
59

b. Violations of Representations and Warranties in the
PSA
60

Residential mortgage-backed securities’ PSAs typically contain or
incorporate a variety of representations and warranties. These rep-
resentations and warranties cover such topics as the organization
of the sponsor and depositor, the quality and status of the mort-
gage loans, and the validity of their transfers.
More particularly, PSAs, whose terms are unique to each MBS,
include representations and warranties by the originator or seller
relating to the conveyance of good title,
61
documentation for the
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of the Mortgage Loans to the Trustee, the Depositor was the sole owner and had good title to
each Mortgage Loan, and had full right to transfer and sell each Mortgage Loan to the Trustee
free and clear.’’).
62
See Deutsche Bank v. Federal Deposit Insurance Corporation, supra note 42 (‘‘Each Mort-
gage Note, each Mortgage, each Assignment and any other document required to be delivered
by or on behalf of the Seller under this Agreement or the Pooling and Servicing Agreement to
the Purchaser or any assignee, transferee or designee of the Purchaser for each Mortgage Loan
has been or will be . . . delivered to the Purchaser or any such assignee, transferee or designee.
With respect to each Mortgage Loan, the Seller is in possession of a complete Mortgage File
in compliance with the Pooling and Servicing Agreement . . . The Mortgage Note and the re-
lated Mortgage are genuine, and each is the legal, valid and binding obligation of the Mortgagor
enforceable against the Mortgagor by the mortgagee or its representative in accordance with its
terms, except only as such enforcement may be limited by bankruptcy, insolvency . . . .’’). These
representations and warranties generally state that the documents submitted for loan under-
writing were not falsified and contain no untrue statement of material fact or omit to state a
material fact required to be stated therein and are not misleading and that no error, omission,
misrepresentation, negligence, or fraud occurred in the loan’s origination or insurance.
63
See Deutsche Bank v. Federal Deposit Insurance Corporation, supra note 42 (‘‘Each Mort-
gage Loan was underwritten in accordance with the Seller’s underwriting guidelines as de-
scribed in the Prospectus Supplement as applicable to its credit grade in all material respects.’’).
Many concerns over underwriting standards have surfaced in the wake of the housing boom,
such as lack of adequate documentation, lack of income verification, misrepresentation of income
and job status, and haphazard appraisals. Even before the more recent emergence of the issue
of document irregularities, institutions were pursuing put-back actions to address concerns over
underwriting quality. See Federal National Mortgage Association, Form 10–Q for the Quarterly
Period Ended June 30, 2010, at 95 (Aug. 5, 2010) (online at www.sec.gov/Archives/edgar/data/
310522/000095012310073427/w79360e10vq.htm) (‘‘Our mortgage seller/servicers are obligated to
repurchase loans or foreclosed properties, or reimburse us for losses if the foreclosed property
has been sold, if it is determined that the mortgage loan did not meet our underwriting or eligi-
bility requirements or if mortgage insurers rescind coverage.’’).
64
See Deutsche Bank v. Federal Deposit Insurance Corporation, supra note 42 (‘‘Each Mort-
gage Loan at origination complied in all material respects with applicable local, state and fed-
eral laws, including, without limitation, predatory and abusive lending, usury, equal credit op-
portunity, real estate settlement procedures, truth-in-lending and disclosure laws, and con-
summation of the transactions contemplated hereby, including without limitation the receipt of
interest does not involve the violation of any such laws.’’).
65
See Deutsche Bank v. Federal Deposit Insurance Corporation, supra note 42.
66
For examples of representations and warranties, see New Century Home Equity Loan Trust,
Form 8–K for the Period Ending February 16, 2005, at Ex. 99.2 (Mar. 11, 2005) (online at
www.secinfo.com/dqTm6.zEy.a.htm#hm88).
67
See, e.g., Citigroup, Inc., Form 10–K for the Fiscal Year Ended December 31, 2009, at 131
(Feb. 26, 2010) (online at www.sec.gov/Archives/edgar/data/831001/000120677410000406/
citi_10k.htm) (hereinafter ‘‘Citigroup Form 10–K’’). However, since every deal is different, there
are a number of different methods for extinguishing a repurchase claim that may not necessarily
require the actual repurchasing of the loan. Industry experts conversations with Panel staff
(Nov. 9, 2010).
68
See Citigroup Form 10–K, supra note 67, at 131.
loan,
62
underwriting standards,
63
compliance with applicable law,
64

and delivery of mortgage files,
65
among other things.
66
In addition,
the mortgage files must contain specific loan and mortgage docu-
ments and notification of material breaches of any representations
and warranties.
If any of the representations or warranties are breached, and the
breach materially and adversely affects the value of a loan, which
can be as simple as reducing its market value, the offending loan
is to be ‘‘put-back’’ to the sponsor, meaning that the sponsor is re-
quired to repurchase the loan for the outstanding principal balance
plus any accrued interest.
67

If successfully exercised, these put-back clauses have enormous
value for investors, because they permit the holder of a security
with (at present) little value to attempt to recoup some of the lost
value from the originator (or, if the originator is out of business,
the sponsor or a successor). Put-backs shift credit risk from MBS
investors to MBS sponsors (typically, as noted above, investment
banks): the sponsor now has the defective loan on its balance sheet,
and the trust has cash for the full unpaid principal balance of the
loan plus accrued interest on its balance sheet.
68
This means that
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69
Wells Fargo & Company, Together We’ll Go Far: Wells Fargo & Company Annual Report
2008, at 127 (2009) (online at www.wellsfargo.com/downloads/pdf/invest_relations/
wf2008annualreport.pdf) (‘‘In certain loan sales or securitizations, we provide recourse to the
buyer whereby we are required to repurchase loans at par value plus accrued interest on the
occurrence of certain credit-related events within a certain period of time.’’).
70
Compass Point Research & Trading, LLC, Mortgage Repurchases Part II: Private Label
RMBS Investors Take Aim—Quantifying the Risks (Aug. 17, 2010) (online at api.ning.com/files/
fiCVZyzNTkoAzUdzhSWYNuHv33*Ur5ZYBh3S08zo*phy T79SFi0TOpPG7klHe3h8
RXKKyphNZqqyt ZrXQKbMxv4R3F6fN5dI/ 36431113MortgageFinance
RepurchasesPrivateLabel08172010.pdf).
71
Amherst Mortgage Insight, PMI in Non-Agency Securitizations, at 4 (July 16, 2010) (‘‘PMI
companies have become more assertive in rescinding insurance . . . In fact, since early 2009,
option ARM recoveries have averaged 40%, Alt-A recoveries averaged 45%, prime recoveries
averaged 58%, and subprime recoveries 67%.’’).
72
Securitization trustees do not examine and monitor loan files for representation and war-
ranty violations and generally exercise very little oversight of servicers. Securitization trustees
are not general fiduciaries; so long as there has not been an event of default for the
securitization trust, the trustee has narrowly defined contractual duties, and no others.
Securitization trustees are also paid far too little to fund active monitoring; trustees generally
receive 1 basis point or less on the outstanding principal balance in the trust. In addition,
securitization trustees often receive substantial amounts of business from particular sponsors,
which may provide a disincentive for them to pursue representation and warranty violations vig-
orously against those parties. See Nixon Peabody LLP, Caught in the Cross-fire: Securitization
Trustees and Litigation During the Subprime Crisis (Jan. 29, 2010) (online at
www.nixonpeabody.com/publications_detail3.asp?ID=3131) (discussing the perceived role of the
trustee in mortgage securities litigation).
73
See Section D.2, infra.
74
See Section D.2, infra.
the sponsor may have to increase its risk-based capital and will
bear the risk of future losses on the loan, while the trust receives
100 cents on the dollar for the loan.
69
Not surprisingly, put-back
actions are very fact-specific and can be hotly contested.
70

Servicers do not often pursue representation and warranties vio-
lations. A 2010 study by Amherst Mortgage Securities showed that
while private mortgage insurers were rescinding coverage on a sub-
stantial percentage of the loans they insured because of violations
of very similar representation and warranties, there was very little
put-back activity by servicers, even though one would expect rel-
atively similar rates.
71
One explanation for the apparent lack of
servicer put-back activity may be the possibility of servicer conflicts
of interest. Servicers are often affiliated with securitization spon-
sors and therefore have disincentives to pursue representation and
warranty violations. Trustees have disincentives to remove
servicers because they act as backup servicers and bear the costs
of servicing if the servicer is terminated from the deal. Finally, in-
vestors are poorly situated to monitor servicers. Whereas a
securitization trustee could gain access to individual loan files—but
typically do not
72
—investors cannot review loan files without sub-
stantial collective costs.
73
On the other hand, investor lawsuits
have the potential to be lucrative for lawyers, so it is possible that
some investor groups may take action despite their limited access
to information.
74

2. Possible Legal Consequences of the Document Irregular-
ities to Various Parties
In addition to fraud claims, discussed further below, and claims
arising from whether the loans in the pool met the underwriting
standards required (which is primarily relevant to investors’ rights
of put-back and bank liability), the other primary concern arising
out of document irregularities is the potential failure to convey
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75
Most PSAs are governed by New York trust law and contain provisions that override UCC
Article 9 provisions on secured transactions. This report does not attempt to describe every pos-
sible legal defect that may arise out of the irregularities, particularly given the rapidly devel-
oping nature of the problem, but addresses arguments common to the current discussions. In
addition, the Panel takes no position on whether any of these arguments are valid or likely to
succeed.
clear title to the property and ownership of the mortgage and the
note.
There are two separate but interrelated forms of conveyance that
may be implicated by documentation irregularities: conveyance of
the mortgage and the note, and conveyance of the property secur-
ing the mortgage. The foreclosure documentation irregularities af-
fect conveyance of the property: if the foreclosure was not done cor-
rectly, the bank or a subsequent buyer may not have clear title to
the property. But these foreclosure irregularities may also be fur-
ther compromised by a failure to convey the mortgage and the note
properly earlier in the process. If, during the securitization process,
required documentation was incomplete or improper, then owner-
ship of the mortgage may not have been conveyed to the trust. This
could have implications for the PSA—inasmuch as it would violate
any requirement that the trust own the mortgages and the notes—
as well as call into question the holdings of the trust and the collat-
eral underlying the pools under common law, the UCC, and trust
law.
75
The trust in this situation may be unable to enforce the lien
through foreclosure because only the owner of the mortgage and
the note has the right to foreclose. If the owner of the mortgage is
in dispute, no one may be able to foreclose until ownership is clear-
ly established.
If it is unclear who owns the mortgage, clear title to the property
itself cannot be conveyed. If, for example, the trust were to enforce
the lien and foreclose on the property, a buyer could not be sure
that the purchase of the foreclosed house was proper if the trust
did not have the right to foreclose on the house in the first place.
Similarly, if the house is sold, but it is unclear who owns the mort-
gage and the note and, thus, the debt is not properly discharged
and the lien released, a subsequent buyer may find that there are
other claimants to the property. In this way, the consequences of
foreclosure documentation irregularities converge with the con-
sequences of securitization documentation irregularities: in either
situation, a subsequent buyer or lender may have unclear rights in
the property.
These irregularities may have significant bearing on many of the
participants in the mortgage securitization process:
• Parties to Whom a Mortgage and Note Is Transferred—
If a lien was not ‘‘perfected’’—filed according to appropriate
procedures—participants in the transfer process may no longer
have a first-lien interest in the property and may be unable to
enforce that against third-parties (and, where the property has
little value, particularly in non-recourse jurisdictions, may not
be able to recover any money). Similarly, if the notes and mort-
gages were not properly transferred, then the party that can
enforce the rights attached to the note and the mortgage—
right to receive payment and right to foreclose, among others—
may not be readily identifiable. If a trust does not have proper
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76
The competing claims about MERS can also factor into these issues. If MERS is held not
to be a valid recording system, then mortgages recorded in the name of MERS may not have
first priority. Similarly, if MERS does not have standing to foreclose, it could cast into question
foreclosures done by MERS.
77
It should be noted that while no claims have been made yet based on an alleged breach
of representations and warranties related to the transfer of title, claims have been made based
on allegations of poor underwriting and loan pool quality. See Buckingham Research Group,
Conference Takeaways on Mortgage Repurchase Risk, at 2 (Nov. 4, 2010) (hereinafter ‘‘Bucking-
ham Research Group Conference Takeaways’’). However, there is a possibility that there will
be put-back demands for breaches of representations and warranties relating to mortgage trans-
fers.
78
Because the REMIC status and avoidance of double taxation (trust level and investor level)
is so critical to the economics of securitization deals, the PSAs that govern the securitization
trusts are replete with instructions to servicers and trustees to protect the REMIC status, in-
cluding provisions requiring that the transfers of the mortgage loans occur within a limited time
after the trust’s creation. See, e.g., Agreement Among Deutsche Alt-A Securities, Inc., Depositor,
Wells Fargo Bank, National Association, Master Servicer and Securities Administrator, and
HSBC Bank USA, National Association, Trustee, Pooling and Servicing Agreement (Sept. 1,
2006) (online at www.secinfo.com/d13f21.v1B7.d.htm#1stPage).
79
If a significant number of loan transfers failed to comply with governing PSAs, it would
mean that sizeable losses on mortgages would rest on a handful of large banks, rather than
being spread among MBS investors. Sometimes the securitization sponsor is indemnified by the
originator for any losses the sponsor incurs as a result of the breach of representations and war-
ranties. See Id. at section 10.03. This indemnification is only valuable, however, to the extent
that the originator has sufficient assets to cover the indemnification. Many originators are thin-
ly capitalized and others have ceased operating or filed for bankruptcy. Therefore, in many
cases, any put-back liability is likely to rest on the securitization sponsors. Although these put-
back rights sometimes entitle the trust only to the value of the loan less any payments already
received, plus interest, the value the trust would receive is still greater than the current value
of many of these loans. As a number of originators and sponsors were acquired by other major
financial institutions during 2008–2009, put-back liability has become even more focused on a
relatively small number of systemically important financial institutions. Financial Crisis Inquiry
Commission, Preliminary Staff Report: Securitization and the Mortgage Crisis, at 13 (Apr. 7,
2010) (online at www.fcic.gov/reports/pdfs/2010-0407-Preliminary_Staff_Report_-
_Securitization_and_the_Mortgage_Crisis.pdf) (table showing that five of the top 25 sponsors in
2007 have since been acquired). Overall, recovery is likely to be determined on a deal-by-deal
basis.
ownership to the notes and the mortgage, it is unclear what
assets are actually in the trust, if any.
76

• Sponsors, Servicers, and Trustees—Failure to follow rep-
resentations and warranties found in PSAs can lead to the re-
moval of servicers or trustees and trigger indemnification
rights between the parties.
77
Failure to record mortgages can
result in the trust losing its first-lien priority on the property.
Failure to transfer mortgages and notes properly to the trust
can affect the holdings of the trust. If transfers were not done
correctly in the first place and cannot be corrected, there is a
profound implication for mortgage securitizations: it would
mean that the improperly transferred loans are not trust as-
sets and MBS are in fact not backed by some or all of the
mortgages that are supposed to be backing them. This would
mean that the trusts would have litigation claims against the
securitization sponsors for refunds of the value given by the
trusts to the sponsors (or depositors) as part of the
securitization transaction.
78
If successful, in the most extreme
scenario this would mean that MBS trusts (and thus MBS in-
vestors) could receive complete recoveries on all improperly
transferred mortgages, thereby shifting the losses to the
securitization sponsors.
79
Successful put-backs to these entities
would require them to hold those loans on their books. Even
if the mortgage loans are still valid, enforceable obligations,
the sponsors would (if regulated for capital adequacy) be re-
quired to hold capital against the mortgage loans, and might
have to raise capital. If these banks were unable to raise cap-
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80
As noted above, the servicer does not own the mortgage and the note, but has a contractual
ability to enforce the legal rights associated with the mortgage and the note.
81
The concept of ‘‘bona-fide purchaser for value,’’ which exists in both common and statutory
law, may protect the later buyer. If the later buyer records an interest in the property and had
no notice of the competing claim, that interest in the property will be protected. Industry
sources conversations with Panel staff (Nov. 9, 2010).
82
See Section E.1, infra.
83
The majority of PSAs were created under the laws of New York state. Under New York
law, there are four requirements for creating a trust: (1) a designated beneficiary; (2) a des-
ignated trustee; (3) property sufficiently identified; and (4) and the delivery of the property to
the trustee. Joshua Rosner of Graham Fisher, an investment research firm, has noted that there
may not have always been proper delivery of the property to the trustee. ‘‘In New York it is
not enough to have an intention to deliver the property to the trust, the property must actually
be delivered. So, what defines acceptable delivery? The answer appears to lie with the ‘governing
ital, it might, again, subject them to risks of insolvency and
threaten the system.
• Borrowers/homeowners—Borrowers may have several avail-
able causes of action. They may seek to reclaim foreclosed
properties that have been resold. They may also refuse to pay
the trustee or servicer on the grounds that these parties do not
own or legitimately act on behalf of the owner of the mortgage
or the note.
80
In addition, they may defend themselves against
foreclosure proceedings on the claim that robo-signing irreg-
ularities deprived them of due process.
• Later Purchasers—Potential home-buyers may be concerned
that they are unable to determine definitively whether the
home they wish to purchase was actually conveyed with clear
title, and may be unwilling to rely on title insurance to protect
them.
81
Financial institutions that may have been interested
in buying mortgages or mortgage securities may worry that the
current holder of the mortgage did not actually receive the loan
through a proper transfer.
• Investors—Originators of mortgages destined for mortgage se-
curities execute mortgage loan purchase agreements, incor-
porated into PSAs, that, as mentioned earlier, make represen-
tations and warranties the breach of which can result in put-
back rights requiring that the mortgage originator repurchase
defective mortgages. MBS investors may assert claims regard-
ing issues that arose during the origination and securitization
process. For instance, they may assert that violations of under-
writing standards or faulty appraisals were misrepresentations
and material omissions that violate representations and war-
ranties and may, in some cases where the necessary elements
are established, raise fraud claims.
82
They may also raise
issues about the validity of the REMIC, the bankruptcy-re-
mote, tax-exempt conduit that is central to the mortgage
securitization process. A potential investor claim is that mort-
gage origination violations and title defects prevented a ‘‘true
sale’’ of the mortgages, consistent with Internal Revenue Serv-
ice (IRS) regulations and as required by the New York State
trust law, invalidating the REMIC. Some commentators believe
that inquiries by investors could uncover untimely attempts to
cure the problem by substituting complying property more
than 90 days after formation of the REMIC, a prohibited trans-
action that could cause loss of REMIC status, resulting in the
loss of pass-through taxation status and taxation of income to
the trust and to the investor.
83
Loss of REMIC status would
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instrument,’ the Pooling and Servicing Agreement (PSA). Thus, in order to have proper delivery
the parties to the PSA must do that which the PSA demands to achieve delivery.’’ Joshua
Rosner, note to Panel staff (Nov. 8, 2010). To the extent that a PSA requires that property be
conveyed to the trust within a certain timeframe, such conveyance would be void. N.Y. Estates,
Powers, and Trusts Law § 7–2.4 (McKinney’s 2006).
84
Although title insurers appear to be poised for potential risk, one observer has noted that
title insurance lobbyists and trade groups have instead played down the possible effects of these
legal issues. Christopher Lewis Peterson, professor of law, S.J. Quinney School of Law, Univer-
sity of Utah, conversations with Panel staff (Nov. 8, 2010). Title insurers state that they do not
presently believe that these legal issues will have much effect. Industry sources conversations
with Panel staff (Nov. 10, 2010). Professor Peterson suggested that the insurers may earn suffi-
cient remuneration from various fees to offset any potential risk. On the other hand, title insur-
ers could stand to suffer significant losses if some of the matters presently discussed in the mar-
ket, such as widespread invalidation of MERS, come to pass. It is too soon to say if such events
are likely, but title insurers would be one of the primary parties damaged by such an action.
85
Christopher Lewis Peterson, professor of law, S.J. Quinney School of Law, University of
Utah, conversations with Panel staff (Nov. 8, 2010). If the mortgages were created at different
times, the mortgage created first would take precedence.
provide substantial grounds for widespread put-backs. More-
over, this type of litigation could be extremely lucrative for the
lawyers representing the investors. It may be expected that,
for this type of action, the investors’ counsel would have strong
incentives to litigate forcefully.
• Title Insurance Companies—In the United States, pur-
chasers of real property (i.e., land and/or buildings) typically
purchase title insurance, which provides a payment to the pur-
chaser if a defect in the title or undisclosed lien is discovered
after the sale of the property is complete. Given the potential
legal issues discussed in this section, title insurance companies
could face an increase in claims in the near future. The threat
of such issues may also lead insurers to require additional doc-
umentation before issuing a policy, increasing the costs associ-
ated with buying property.
84

• Junior Lien Holders—Second and third liens are not as com-
monly securitized as first liens; therefore, their holders may
not face the same direct risk as first lien holders. Junior lien
holders may, however, face an indirect risk if the rights of the
first lien holder cannot be properly established. If the property
securing the lien is sold, all senior liens must be paid first. If
the senior liens cannot be paid off because it is impossible to
determine who holds those liens, the junior lien holder may not
be able to claim any of the proceeds of the sale until the iden-
tity of the senior lien holder is settled. On the other hand, doc-
ument irregularities may offer a windfall for some junior liens.
If the first mortgage has not been perfected, the first lien hold-
er loses its priority over any other, perfected liens. Therefore,
if a second lien was properly recorded, it could take priority
over a first lien that was not properly recorded. The majority
of second liens, however, were completed using the same sys-
tem as first liens and therefore face the same potential issues.
Moreover, many mortgages that were created during the hous-
ing boom were created with an 80 percent/20 percent ‘‘piggy-
back’’ structure in which a first and second lien were created
simultaneously and using the same system. If neither lien was
perfected, there may be a question as to which would take pri-
ority over the other.
85

• Local Actions—Despite the state attorneys’ general national
approach to investigating document irregularities, there may
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86
Cincinnati Law Review Paper on Foreclosure, supra note 28, at 1386–1371.
87
Institutional holders of RMBS include pension funds, hedge funds and other asset man-
agers, mutual funds, life insurance companies, and foreign investors. Data provided by Inside
Mortgage Finance (Nov. 12, 2010).
88
See Buckingham Research Group Conference Takeaways, supra note 77, at 2.
89
Also, to the extent that these MBSs have been turned into collateralized debt obligations
(CDOs), the collateral manager overseeing the CDOs may need to weigh actions that pose con-
flicts among the tranche holders because of obligations to act in the best interests of all the
securities classes. Panel staff conversations with industry sources (Nov. 8, 2010).
90
Greenwich Fin. Serv. v. Countrywide Fin. Corp., No. 650474/08 (N.Y. Supp. Oct. 7, 2010);
Footbridge Ltd. Trust and OHP Opportunity Ltd. Trust v. Countrywide Home Loans, Inc., No.
09 CIV 4050 (S.D.N.Y. Sep. 28, 2010).
91
Based on conversations between Panel staff and the company, RMBS Clearing House claims
to represent more than 72 percent of the certificate holders of 2,300 mortgage-backed securities,
be separate state initiatives. Under traditional mortgage re-
cording practices, each time a mortgage is transferred from a
seller to a buyer, the transfer must be recorded and a fee paid
to the local government. Although each fee is not large—typi-
cally around $30—the fees for the rapid transfers inherent in
the mortgage securitization process could easily add up to hun-
dreds of dollars per securitization. The MERS system was in-
tended in part to bypass these fees.
86
Local jurisdictions, de-
prived of mortgage recording tax revenue, may file lawsuits
against originators, servicers, and MERS.
The primary private litigation in this area is likely to come from
investors in MBS. These investors are often institutional investors,
a group that has the resources and expertise to pursue such
claims.
87
A major obstacle to investor lawsuits seeking put-backs
has been a provision in PSAs that limits private investor action in
the case of breaches of representations and warranties to certificate
holders with some minimum percentage of voting rights, often 25
percent.
88
Investors also suffer from a collective-action problem in
trying to achieve these thresholds, not least because they do not
know who the other investors are in a particular deal, and many
investors are reluctant to share information about their holdings.
Furthermore, the interests of junior and senior tranche holders
may not be aligned.
89

When investors do achieve the collective-action threshold, it is
only the first step in a complicated process. For example, if the
trustee declines to declare the servicer in default, then investors
can either bring suit against the trustee to force it to remove the
servicer, attempt to remove the trustee (which often requires a 51
percent voting threshold), or remove the servicer directly (with a
two-thirds voting threshold). It bears emphasis that the collective-
action thresholds required vary from deal to deal. Two recent in-
vestor lawsuits started with a view to enforce put-back provisions
resulted in dismissals based on the plaintiffs’ failure to adhere to
25-percent threshold requirements.
90
The practical effect of such
decisions is that the hurdle of meeting this relatively high thresh-
old of certificate holders can limit investors’ ability to examine the
documents that would support their claims.
Recently, however, investors are beginning to take collective ac-
tion, suggesting that the 25-percent threshold may not be an enor-
mous burden for organized investors. A registry created by RMBS
Clearing House is providing a confidential data bank whose pur-
pose is to identify and organize certificate holders into groups that
can meet threshold requirements.
91
Using the registry data, a law-
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more than 50 percent of holders of 900 mortgage-backed securities, and more than 66 percent
of the holders of 450 mortgage-backed securities representing, in the aggregate, a face amount
of $500 billion, or approximately one-third of the private label mortgage-backed securities mar-
ket. One industry participant likened them to a dating site for investors. RMBS Clearing House
conversations with Panel staff (Oct. 24, 2010).
92
See Deutsche Bank v. Federal Deposit Insurance Corporation, supra note 42.
93
Gibbs & Bruns represents eight institutional investors who collectively hold more than 25
percent of the voting rights in more than $47 billion in Countrywide mortgage-backed securities
issued in 115 offerings in 2006 and 2007. On Oct 20, 2010, FRBNY became a signatory to the
letter.
94
Under the PSA, the trustee is entitled to a satisfactory indemnity prior to allowing such
a process to continue. The trustee for the securities, Bank of New York, did not find the indem-
nity offered acceptable and refused to allow the parties to proceed. The various trustees for
these securities may therefore form an additional barrier between investors and review of the
loan files. For example, Fannie Mae explains in a prospectus for mortgage-backed securities
(REMIC certificates) that, ‘‘We are not required, in our capacity as trustee, to risk our funds
or incur any liability if we do not believe those funds are recoverable or if we do not believe
adequate indemnity exists against a particular risk.’’ See Federal National Mortgage Associa-
tion, Single-Family REMIC Prospectus, at 44 (May 1, 2010) (online at www.efanniemae.com/syn-
dicated/documents/mbs/remicpros/SF_FM_May_1_2010.pdf).
95
Letter from Gibbs & Bruns LLP on behalf of BlackRock Financial Management, Inc. et al.
to Countrywide Home Loans Servicing LP, The Bank of New York, and counsel, Re: Holders’
Notice to Trustee and Master Servicer (Oct. 18, 2010) (hereinafter ‘‘Letter from Gibbs & Bruns
LLP to Countrywide’’). The group including FRBNY alleges generally that the loans in the pools
did not meet the quality required by the PSA and have not been prudently serviced.
96
Jamie Dimon, CEO of JPMorgan Chase, commented during a recent quarterly earnings call
that litigation costs in foreclosure cases will be so large as to become a cost of doing business
and that, in anticipation of such suits JPMorgan Chase has raised its reserves by $1.3 billion.
Transcript provided by SNL Financial (Nov. 3, 2010). See also JPM on Foreclosures, MERS,
supra note 3.
97
Chuck Noski, chief financial officer for Bank of America, stated during an earnings call for
the third quarter of 2010: ‘‘This really gets down to a loan-by-loan determination and we have,
we believe, the resources to deploy against that kind of a review.’’ Bank of America Corporation,
Q3 2010 Earnings Call Transcript (Oct. 19, 2010) (online at www.morningstar.com/earnings/
18372176-bank-of-america-corporation-q3-2010.aspx?pindex=1) (hereinafter ‘‘Bank of America
Q3 2010 Earnings Call Transcript’’).
98
For a discussion of litigation risk, see Section F.2, infra.
suit has been initiated against JPMorgan Chase and the Federal
Deposit Insurance Corporation (FDIC),
92
both of which have as-
sumed liabilities of failed bank Washington Mutual, seeking to en-
force put-backs and document disclosure. Recently, an investor
group composed of eight institutional investors, including the Fed-
eral Reserve Bank of New York (FRBNY), representing more than
25 percent of the voting rights in certain Countrywide MBSs,
93

made a request of securitization trustee Bank of New York to ini-
tiate an investigation of the offerings originated by Countrywide
prior to its acquisition by Bank of America. After Bank of New
York refused to act,
94
the group petitioned Bank of America di-
rectly in an effort to review the loan files in the pool.
95
Some be-
lieve that the difficulty faced by investors in gaining access to the
loan files that support their claims of contractual breaches and the
cost of auditing them will make widespread litigation economically
unrealistic.
96
Even as put-back demands from investors are appear-
ing, unless the investors can review loan documents, they lack the
information to know what level of put-backs should be occurring.
Moreover, at least one bank CEO has stated that his bank will
challenge any determination that underwriting standards were not
met on a loan-by-loan basis, creating further hurdles.
97
At present,
it is unclear what litigation risk these proceedings are likely to
pose for the banks.
98
There is good reason to assume, however, that
the litigation will attract sophisticated parties interested in the
deep pockets of the sponsors.
Given the complexity of the legal issues, the numerous parties
involved, and the relationships between many of them, it is likely
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99
See Section D.1.b, supra.
100
See discussion of collective action thresholds in this section, supra.
101
In its latest filing with the Securities and Exchange Commission (SEC), Citigroup acknowl-
edged that hedge fund Cambridge Place Investment Management, The Charles Schwab Corpora-
tion, the Federal Home Loan Bank of Chicago, and the Federal Home Loan Bank of Indianapolis
have filed actions related to underwriting irregularities in RMBS. See Citigroup, Inc., Form 10–
Q for the Quarterly Period Ended September 30, 2010, at 204 (Nov. 5, 2010) (online at
www.sec.gov/Archives/edgar/data/831001/000104746910009274/a2200785z10-q.htm) (hereinafter
‘‘Citigroup 10–Q for Q2 2010’’). In addition, the hedge fund community has begun coalescing
around their investments in RMBS, forming a lobbying group called the Mortgage Investors Co-
alition. See Senate Committee on Banking, Housing, and Urban Affairs, Written Testimony of
Curtis Glovier, managing director, Fortress Investment Group, Preserving Homeownership:
Progress Needed To Prevent Foreclosures (July 16, 2009) (online at banking.senate.gov/public/
index.cfm?FuseAction=Files.View&FileStore_id=18f542f2-1b61-4486-98d0-c02fc74ea2c5).
102
See MERSCORP, Inc., MERS Shareholders (online at www.mersinc.org/about/
shareholders.aspx) (accessed Nov. 12, 2010) (‘‘Shareholders played a critical role in the develop-
ment of MERS. Through their capital support, MERS was able to fund expenses related to de-
velopment and initial start-up.’’). See also Letter from R.K. Arnold, president and chief executive
officer, MERSCORP, Inc., to Elizabeth M. Murphy, secretary, Securities and Exchange Commis-
sion, Comments on the Commission’s Proposed Rule for Asset-Backed Securities, at Appendix B
(July 30, 2010) (online at www.sec.gov/comments/s7-08-10/s70810-58.pdf) (attaching as an Ap-
pendix letters from both Fannie Mae and Freddie Mac, which include the Fannie Mae statement
that any litigation will be robust, costly, and lengthy. Nonetheless,
it is possible that banks may see a financial advantage to delaying
put-backs through litigation and other procedural hurdles, if only
to slow the pace at which they must be completed and to keep the
loans off of their books a little longer. In addition, as discussed
above, conflicts of interest in the industry may further complicate
an assessment of litigation risk: Servicers, trustees, sponsors, and
originators are often affiliated with each other, meaning that each
has a disincentive to proceed with an action against another lest
it harm its own bottom line.
99
Moreover, there is the possibility
that those who foresee favorable results from such litigation, and
who have the resources and stamina for complex litigation (such as
hedge funds), will purchase affected assets with the intent to par-
ticipate as plaintiffs, intensifying the legal battle further. TARP re-
cipients, of course, were and are at the center of many of these
transactions, and predicting all of the possible litigation to which
they might be subject as a result of the irregularities (known and
suspected) is virtually impossible. It is not unlikely that, on the
heels of highly publicized actions initiated by major financial insti-
tutions and the increasing likelihood that investors can meet the
25 percent threshold requirements for filing lawsuits, sophisticated
institutional investors may become more interested in pursuing liti-
gation or even in investing in MBS in order to position themselves
for lawsuits.
100
Some security holders, such as large endowments
and pension plans, have fiduciary duties to their own investors that
may lead them to try and enforce repurchase rights. In addition,
if investors such as hedge funds that have the resources to support
protracted litigation initiate lawsuits, that could intensify the legal
battles that banks will face.
101
If litigation based on significant doc-
ument irregularities is successful, it may throw the large banks
back into turmoil.
Similarly, Fannie Mae and Freddie Mac may become embroiled
in the controversies. Fannie and Freddie have already been ac-
tively engaged in efforts to put-back nonconforming loans to the
originators/sponsors of the loans they guarantee. But they may also
find themselves on the other side, as targets of litigation. In addi-
tion to being embedded in the entire securitization process, they
are part owners of MERS,
102
which is becoming a litigation target.
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that ‘‘As you are aware, Fannie Mae has been an advocate and strong supporter of the efforts
of MERS since its formation in 1996. The mission of MERS to streamline the mortgage process
through paperless initiatives and data standards is clearly in the best interests of the mortgage
industry, and Fannie Mae supports this mission.’’).
103
See Federal National Mortgage Association, Miscellaneous Servicing Policy Changes, at 3
(Mar. 30, 2010) (Announcement SVC–2010–05) (online at www.efanniemae.com/sf/guides/ssg/
annltrs/pdf/2010/svc1005.pdf) (‘‘Effective with foreclosures referred on or after May 1, 2010,
MERS must not be named as a plaintiff in any foreclosure action, whether judicial or non-judi-
cial, on a mortgage loan owned or securitized by Fannie Mae.’’).
104
On November 2, 2010, Fannie Mae and Freddie Mac terminated their relationships with
a Florida foreclosure attorney David J. Stern, who had processed thousands of evictions on their
behalf and faces allegations by the Florida Attorney General’s office of improper foreclosure
practices including false and misleading documents. See Office of Florida Attorney General Bill
McCollum, Florida Law Firms Subpoenaed Over Foreclosure Filing Practices (Aug. 10, 2010) (on-
line at www.myfloridalegal.com/newsrel.nsf/newsreleases/
2BAC1AF2A61BBA398525777B0051BB30); Office of Florida Attorney General Bill McCollum,
Active Public Consumer-Related Investigation, No. L10–3–1145 (online at
www.myfloridalegal.com/__85256309005085AB.nsf/0/
AD0F010A43782D96852577770067B68D?Open&Highlight=0,david,stern) (accessed Nov. 10,
2010); Nick Timiraos, Fannie, Freddie Cut Ties to Law Firm, Wall Street Journal (Nov. 3, 2010)
(online at online.wsj.com/article/SB10001424052748704462704575590342587988742.html) (‘‘A
spokeswoman for Freddie Mac, Sharon McHale, said it took the rare step on Monday of begin-
ning to remove loan files after an internal review raised ‘concerns about some of the practices
at the Stern firm. She added that Freddie Mac took possession of its files ‘to protect our interest
in those loans as well as those of borrowers.’ ’’).
105
The Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into
conservatorship on September 7, 2008, in order to preserve each company’s assets and to restore
them to sound and solvent condition. Treasury has guaranteed their debts, and FHFA has all
the powers of the management, board, and shareholders of the GSEs. House Financial Services,
Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises, Written
Testimony of Edward J. DeMarco, acting director, Federal Housing Finance Agency, The Future
of Housing Finance: A Progress Update on the GSEs, at 2 (Sept. 15, 2010) (online at
financialservices.house.gov/Media/file/hearings/111/DeMarco091510.pdf). One of the questions
that has arisen is whether there are likely to be differences in the quality of securitization proc-
essing for government-sponsored entity (GSE) MBS compared to private-label MBS. Some indus-
try sources believe that the process underlying GSE securitizations is likely to have been more
rigorous, but it is presently impossible to determine if this is correct, and, accordingly, this re-
port does not attempt to distinguish between GSE and private-label deals. However, if GSE
securitizations prove to have been done improperly, it might result in additional litigation for
the GSEs—either as targets, or as the GSEs try to pursue indemnification rights.
Both Fannie and Freddie have recently ceased allowing MERS to
bring foreclosure actions.
103
Further, Fannie and Freddie used at
least one of the law firms implicated in the irregularities to handle
foreclosures.
104
Given that these two government-supported firms
are perceived as the ultimate ‘‘deep pocket,’’ it is likely that inter-
ested litigants will attempt to find a way to attach liability to
them, which, if successful, could further affect the taxpayers.
105

3. Additional Considerations
The participants described above are by no means the only par-
ties affected by these issues. Lenders may be reluctant to make
new loans on homes that could have title issues. Investors may
likewise be reluctant to invest in mortgages and MBS that may be
affected. Uncertainty about the actions that federal and state gov-
ernments may take to address the documentation issues, how these
actions will affect investment returns, and concerns that these
problems may be widespread in the mortgage industry may also
discourage investors. Until there is more clarity on the legal issues
surrounding title to affected properties, as well as on the extent of
any title transfer issues, it may also become more difficult or ex-
pensive to get title insurance, an essential part of any real estate
transaction. In addition, put-backs of mortgages, damages from
lawsuits, and claims against title companies, mortgage servicers,
and MBS pooling and securitization firms have the potential to
drive these firms out of business. Should these and other compa-
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106
See Standard & Poor’s Global Credit Portal, Ratings Direct, Mortgage Troubles Continue
To Weigh On U.S. Banks (Nov. 4, 2010) (online at www2.standardandpoors.com/spf/pdf/events/
FITcon11410Article5.pdf) (hereinafter ‘‘Standard & Poor’s on the Impact of Mortgage Troubles
on U.S. Banks’’) (discussion of best and worst case scenarios).
107
Hernando de Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails
Everywhere Else, at 5–6, 174 (2000) (‘‘Formal property titles allowed people to move the fruits
of their labor from a small range of validation into that of an expanded market.’’).
108
The few foreclosed homes where a single bank originated the mortgage, serviced it, held
it as a whole loan, and processed the foreclosure documents themselves are very unlikely to be
affected. The effect of the irregularities on other types of loans and homes are, as discussed in
this report, presently very difficult to predict.
109
See, e.g., Agreement Among Deutsche Alt-A Securities, Inc., Depositor, Wells Fargo Bank,
National Association, Master Servicer and Securities Administrator, and HSBC Bank USA, Na-
tional Association, Trustee, Pooling and Servicing Agreement (Sept. 1, 2006) (online at
www.secinfo.com/d13f21.v1B7.d.htm) (‘‘Section 2.03: Repurchase or Substitution of Loans. (a)
Upon discovery or receipt of notice . . . of a breach by the Seller of any representation, warranty
or covenant under the Mortgage Loan Purchase Agreement . . . the Trustee shall enforce the
obligations of the Seller under the Mortgage Loan Purchase Agreement to repurchase such
Loan’’); Trust Agreement Between GS Mortgage Securities Corp., Depositor, and Deutsche Bank
National Trust Company, Trustee, Mortgage Pass-Through Certificates Series 2006–FM1 (Apr.
nies that provide services to the mortgage market either decide to
exit the market or go bankrupt, and no other companies opt to take
their place in the current environment, the housing market would
likely suffer. Even the mere possibility of such losses in the future
could have a chilling effect on the risk tolerance of these firms, and
could dim the housing market expectations of prospective home
buyers and mortgage investors, further reducing housing demand
and raising the cost of mortgages.
106

More generally, however, and as noted below, the efficient func-
tioning of the housing market is highly dependent on the existence
of clear property rights and a level of trust that various market
participants have in each other and in the integrity of the market
system.
107
If the current foreclosure irregularities prove to be wide-
spread, they have the potential to undermine trust in the legit-
imacy of many foreclosures and hence in the legality of title on
many foreclosed properties.
108
In that case, it is possible that buy-
ers will avoid purchasing properties in foreclosure proceedings be-
cause they cannot be sure that they are purchasing a clean title.
Protections in the law, such as those for a bona-fide purchaser for
value, may not ease their anxiety if they are concerned that they
will become embroiled in litigation when prior owners appeal fore-
closure rulings. These concerns would be likely to continue until
the situation is resolved, or at least until the legal issues sur-
rounding title to foreclosed properties have been clarified. Those
buyers who remain will likely face less competition and will offer
very low bids. Even foreclosed homes that have already been sold
are at risk, since homes sold before these documentation issues
came to light cannot be assumed to have a legally provable chain
of title. These homes will therefore likely be difficult to resell, ex-
cept at low prices that attract risk-tolerant buyers.
E. Court Cases and Litigation
The foreclosure documentation irregularities unquestionably
show a system riddled with errors. But the question arises: Were
they merely sloppy mistakes, or were they fraudulent? Differing
answers to this question may not affect certain remedies available
to aggrieved parties—put-backs, for example, are available for both
mistakes and for fraud—but would affect potential damages in a
lawsuit.
109
It is important to note that the various parties who may
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1, 2006) (online at www.secinfo.com/dRSm6.v1Py.c.htm#1stPage) (‘‘Upon discovery or notice of
any breach by the Assignor of any representation, warranty, or covenant under this Assignment
Agreement . . . the Assignee may enforce the Assignor’s obligation hereunder to purchase such
Mortgage Loan from the Assignee.’’).
110
See Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1069 (Fed. Cir. 1998)
(citing W. Prosser, Law of Torts, §§ 100–05 (3d ed. 1964) and 37 C.J.S. Fraud § 3 (1943)).
111
See, e.g., Lynn Y. McKernan, Strict Liability Against Homebuilders for Material Latent De-
fects: It’s Time, Arizona, Arizona Law Review, Vol. 38, at 373, 382 (Spring 1996) (‘‘Although its
recovery options are attractive, common law fraud is generally difficult to prove.’’); Teal E.
Luthy, Assigning Common Law Claims for Fraud, University of Chicago Law Review, Vol. 65,
at 1001, 1002 (Summer 1998) (‘‘Fraud is a difficult claim to prove’’); Jonathan M. Sobel, A Rose
May Not Always Be a Rose: Some General Partnership Interests Should Be Deemed Securities
Under the Federal Securities Acts, Cardozo Law Review, Vol. 15, at 1313, 1318 (Jan. 1994)
(‘‘Common law fraud is inadequate as a remedy because it is often extremely difficult to prove.’’).
112
See Seth Lipner & Lisa A. Catalano, The Tort of Giving Negligent Investment Advice, Uni-
versity of Memphis Law Review, Vol. 39, at 697 n.181 (2009); Jack E. Karns & Jerry G. Hunt,
Can Portfolio Damages Be Established in a Churning Case Where the Plaintiff’s Account Garners
a Profit Rather Than a Loss, Oklahoma City University Law Review, Vol. 24, at 214 (1999).
be able to bring lawsuits may choose different causes of action for
very similar sets of facts depending on standing and a host of other
factors. For example, on the same facts, an investor may try to pur-
sue a civil suit alleging violations of representations and warran-
ties relating to underwriting standards in a PSA instead of pur-
suing a securities fraud case where the burden of proof would be
higher. Put another way, plaintiffs will pursue as many or as few
causes of action as they believe serves their purpose, and one case
does not necessarily preclude another.
1. Fraud Claims
a. Common Law Fraud
Property law is principally a state issue, and the foreclosure
irregularities first surfaced in depositions filed in state courts. Ac-
cordingly, one option for plaintiffs may be to pursue a common law
fraud claim. The bar for proving common law fraud, however, is
fairly high. In order to prove common law fraud, the plaintiff must
establish five elements: (1) That the respondent made a material
statement; (2) that the statement was false; (3) that the respondent
made the statement with the intent to deceive the plaintiff; (4) that
the plaintiff relied on the statement; and (5) that the plaintiff suf-
fered injury as a result of that reliance.
110

Traditionally, in order to prove common law fraud under state
laws, each element detailed above has to be satisfied to the highest
degree of rigor. Each state’s jurisprudence has somewhat different
relevant interpretive provisions, and common law fraud is gen-
erally perceived as a fairly difficult claim to make.
111
In particular,
the requirement of intent has been very difficult to show, since it
requires more than simple negligence.
112

b. Securities Fraud
i. Foreclosure Irregularities
In the wake of the revelations about foreclosure irregularities, a
number of government agencies have gotten involved. The Securi-
ties and Exchange Commission (SEC) is reviewing the mortgage
securitization process and market participants for possible securi-
ties law violations. It has also provided specific disclosure guidance
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113
SEC conversations with Panel staff (Nov. 15, 2010). In addition, the SEC’s Division of Cor-
poration Finance has provided disclosure guidance for the upcoming quarterly reports by af-
fected companies. U.S. Securities and Exchange Commission, Sample Letter Sent to Public Com-
panies on Accounting and Disclosure Issues Related to Potential Risks and Costs Associated With
Mortgage and Foreclosure-Related Activities or Exposures (Oct. 2010) (online at www.sec.gov/
divisions/corpfin/guidance/cfoforeclosure1010.htm) (hereinafter ‘‘Sample SEC Letter on Disclo-
sure Guidelines’’). If the disclosure proves misleading, it could provide the basis for another
cause of action.
114
17 CFR 240.10b–5. It is important to note that other causes of action are available under
the Securities Act of 1933 for registered offerings: Under Section 11, a claim may be made for
a false or misleading statement in the registration statement, and the issuer of the security,
the special purpose vehicle, underwriters, and auditors will all be subject to potential Section
11 liability (with the latter two groups having due diligence defenses). With respect to other
communications made during the registered offering process, misleading statements can give
rise to Section 12(a)(2) liability. See 15 U.S.C. §§ 77k, 77m.
115
See Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341–42 (2005). The SEC can bring en-
forcement claims under a variety of theories, but private litigants typically litigate under Rule
10b–5. See Scott J. Davis, Symposium: The Going-Private Phenomenon: Would Changes in the
Rules for Director Selection and Liability Help Public Companies Gain Some of Private Equity’s
Advantages, University of Chicago Law Review, Vol. 76, at 104 (Winter 2009); Palmer T.
Heenan, et al., Securities Fraud, American Criminal Law Review, Vol. 47, at 1018 (Spring 2010).
116
For an extensive analysis of subprime mortgage-related litigation up to 2008 and potential
legal issues surrounding such litigation, see Jennifer E. Bethel, Allen Ferrel, and Gang Hu, Law
and Economics Issues in Subprime Litigation, Harvard Law School John M. Olin Center For
Law, Economics, and Business Discussion Paper (Mar. 21, 2008) (online at lsr.nellco.org/har-
vard_olin/612) (hereinafter ‘‘Harvard Law School Discussion Paper on Subprime Litigation’’). A
list of class action lawsuits filed up to February 28, 2008 is included in Table 1 of the article,
at 67–69.
117
See, e.g., Peter H. Hamner, The Credit Crisis and Subprime Mortgage Litigation: How
Fraud Without Motive ‘Makes Little Economic Sense’, UPR Business Law Journal, Vol. 1 (2010)
(online at www.uprblj.com/wp/wp-content/uploads/2010/08/1-UPRBLJ-103-Hamner-PH.pdf).
118
A recent update on subprime and credit crisis-related litigation summarizes a number of
cases and analyzes why many of them failed (for example, lack of standing and lack of wrongful
intent). Gibson, Dunn & Crutcher LLP, 2010 Mid-Year Securities Litigation Update (Aug. 9,
2010) (online at gibsondunn.com/Publications/Pages/SecuritiesLitigation2010Mid-
YearUpdate.aspx#_toc268774214). The update also references a report by NERA Economic Con-
sulting on a decrease in securities law filings since 2009. See National Economic Research Asso-
ciates, Inc. Trends 2010 Mid-Year Study: Filings Decline as the Wave of Credit Crisis Cases Sub-
sides, Median Settlement at Record High (July 27, 2010) (online at www.nera.com/67_6813.htm).
to public companies for their quarterly reports.
113
Since many of
the mortgages potentially affected by faulty documentation prac-
tices were put into securitization pools, there is an increased poten-
tial for lawsuits by investors, including securities law claims.
In order for MBS investors to state a securities fraud claim
against investment or commercial bank sponsors under the Securi-
ties Exchange Act of 1934’s Rule 10b–5,
114
the most common pri-
vate litigant cause of action, the investors must prove: (1) A mate-
rial misrepresentation or omission; (2) wrongful intent; (3) connec-
tion to the purchase or sale of the security; (4) reliance by the pur-
chaser on the information; (5) economic loss to the plaintiff; and (6)
causation.
115

To be sure, private investor lawsuits have been ongoing since the
end of 2006 without much success.
116
Some argue that securities
fraud was not at the heart of the financial crisis, and securities
fraud claims are bound to fail because of the typically extensive
disclosure on risks associated with these transactions.
117
A number
of judges seem to agree: some important cases ‘‘suggest judicial
skepticism to claims arising from the mortgage and financial cri-
ses.’’
118
The main hurdle in these securities claims—beyond estab-
lishing that the misrepresentations were so material that without
them the investment would not have been made—is to establish
‘‘loss causation,’’ i.e., that the misrepresentations caused the inves-
tor’s losses directly. Any losses caused by unforeseeable external
factors such as ‘‘changed economic circumstances’’ or ‘‘new indus-
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119
See Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 342–43 (2005).
120
For a more complete discussion of this theory, see Harvard Law School Discussion Paper
on Subprime Litigation, supra note 116, at 42–44.
121
Financial Crisis Inquiry Commission, Written Testimony of Vicki Beal, senior vice presi-
dent, Clayton Holdings, Impact of the Financial Crisis—Sacramento, at 2 (Sept. 23, 2010) (on-
line at www.fcic.gov/hearings/pdfs/2010-0923-Beal.pdf) (hereinafter ‘‘Written Testimony of Vicki
Beal before the FCIC’’).
122
Id. at 2. A sample size of only around 10 percent of the total loans in the pool was low
by historical standards. In the past, sample sizes were between 50 percent and 100 percent. Fi-
nancial Crisis Inquiry Commission, Testimony of Keith Johnson, former president, Clayton
Holdings, Transcript: Impact of the Financial Crisis—Sacramento, at 183 (Sept. 23, 2010) (on-
line at fcic.gov/hearings/pdfs/2010-0923-transcript.pdf) (hereinafter ‘‘Testimony of Keith Johnson
before the FCIC’’). In his letter to the FCIC after Mr. Johnson’s testimony, the current president
of Clayton Holdings, Paul T. Bossidy, contested some of Mr. Johnson’s testimony. Calling the
testimony ‘‘inaccurate,’’ he corrected Mr. Johnson on three points. First, Mr. Johnson testified
during the hearing about meetings he had had with the rating agencies in which he showed
them Clayton’s Exception Tracking reports. Mr. Bossidy stated that Clayton had never disclosed
client data during these meetings and that Clayton had never expressed concerns about the
securitization process or the ratings being issued. Second, Mr. Bossidy cautioned that the excep-
tion tracking data provided to the FCIC was from ‘‘beta’’ reports. These reports contain valid
client-level data, but are not standardized across clients. Different clients have different stand-
ards and guidelines, leading to different exception rates. Thus, the aggregated results do not
form a meaningful basis for comparison between clients and the data cannot be used to draw
conclusions. Finally, Mr. Johnson had stated that Clayton examined a number of prospectuses
to determine if the information from Clayton’s due diligence reports had been included. Mr.
Bossidy clarified that Clayton was not actively reviewing prospectuses but had begun only in
2007 in response to specific questions from regulators. Letter from Paul T. Bossidy, president
and chief executive officer, Clayton Holdings, LLC, to Phil Angelides, chairman, Financial Crisis
Inquiry Commission, Re: September 23, 2010 Sacramento Hearing (Sept. 30, 2010) (online at
fcic.gov/news/pdfs/2010-1014-Clayton-Letter-to-FCIC.pdf) (hereinafter ‘‘Letter from Paul Bossidy
to Phil Angelides’’).
try-specific conditions’’ will not be recoverable.
119
Defendants in
subprime litigation cases are likely to argue that the crash of the
housing market, for example, was just such an unexpected new in-
dustry-specific condition.
120
Losses occurring as a result of the mar-
ket’s crash would be non-recoverable even if there was a material
misrepresentation. It remains to be seen how securities fraud cases
would play out in the context of the current documentation irreg-
ularities.
Of course, the SEC has other tools at its disposal should it choose
to pursue action against any of the financial institutions involved
in potential documentation irregularities. For example, if a formal
SEC investigation finds evidence of wrongdoing, the SEC may
order an administrative hearing to determine responsibility for the
violation and impose sanctions. Administrative proceedings can
only be brought against a person or firm registered with the SEC,
or with respect to a security registered with the SEC. Many times
these actions end with a settlement, but the SEC often seeks to
publish the settlement terms.
ii. Due Diligence Firms
There is also the possibility of distinct claims against the institu-
tions that acted as securitization sponsors for their use of third-
party due diligence firms. Specifically, before purchasing a pool of
loans to securitize, the securitization sponsors, usually banks or in-
vestment firms, hired a third-party due diligence firm to check if
the loans in the pool adhered to the seller’s underwriting guidelines
and complied with federal, state, and local regulatory laws.
121
The
sponsor would select a sample of the total loan pool, typically
around 10 percent,
122
for the due diligence firm to review. The due
diligence firm reviewed the sample on a loan-by-loan basis and cat-
egorized each as not meeting the guidelines, not meeting the guide-
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123
This description is just a summary. For a more complete description of one due diligence
firm’s process, see Financial Crisis Inquiry Commission, Testimony of Vicki Beal, senior vice
president, Clayton Holdings, Transcript: Impact of the Financial Crisis—Sacramento, at 156–
158 (Sept. 23, 2010) (online at fcic.gov/hearings/pdfs/2010-0923-transcript.pdf) (hereinafter ‘‘Tes-
timony of Vicki Beal before the FCIC’’).
124
Financial Crisis Inquiry Commission, All Clayton Trending Reports: 1st Quarter 2006—
2nd Quarter 2007, Impact of the Financial Crisis—Sacramento (Sept. 23, 2010) (online at
www.fcic.gov/hearings/pdfs/2010-0923-Clayton-All-Trending-Report.pdf). Eighteen percent of
sampled loans did not meet guidelines but had compensating factors. Eleven percent of loans
were non-compliant loans, but objections were waived. Seventeen percent of the loans in the
sample were rejected. In his letter to the FCIC noted above, Mr. Bossidy cautioned the FCIC
from relying on aggregated exception information. The exception tracking data provided to the
FCIC was from ‘‘beta’’ reports which contain valid client-level data, but are not standardized
across clients. Different clients use different standards and guidelines, leading to different ex-
ception rates. Letter from Paul Bossidy to Phil Angelides, supra note 122.
125
Testimony of Keith Johnson before the FCIC, supra note 122, at 177–78; Testimony of
Vicki Beal before the FCIC, supra note 123, at 177.
126
Testimony of Keith Johnson before the FCIC, supra note 122, at 183, 210–211.
127
Written Testimony of Vicki Beal before the FCIC, supra note 121, at 3.
128
17 CFR 240.10b5.
129
17 CFR 240.10b5.
130
Written Testimony of Vicki Beal before the FCIC, supra note 121, at 3 (‘‘The work product
produced by Clayton is comprised of reports that include loan-level data reports and loan excep-
tion reports. Such reports are ‘works for hire,’ the property of our clients and provided exclu-
sively to our clients.’’).
131
15 U.S.C. § 77q(a).
lines but having compensating factors, or meeting the guidelines.
Those specific loans that did not meet the guidelines, called excep-
tions, were returned to the sellers unless the securitization spon-
sors waived their objections.
123
One due diligence firm found that,
from the first quarter 2006 to second quarter 2007, only 54 percent
of the loans they sampled met all underwriting guidelines.
124

Rejected loans from the sample were returned to the seller. The
sample, though, was only approximately 10 percent of the loans in
the pool, and the low rate of compliance indicated that there were
likely other non-compliant loans in the pool. The securitization
sponsors did not then require due diligence on a larger sample to
identify non-compliant loans.
125
Instead, some assert that the spon-
sors used the rate of non-compliant loans to negotiate a lower price
for the pool of loans.
126
These loan pools were subsequently sold to
investors but, reports claim, the results of the due diligence were
not disclosed in the prospectuses except for standard language that
there might be underwriting exceptions.
127

This behavior raises at least two potential securities fraud
claims. The first is a Rule 10b–5 violation.
128
Rule 10b–5 prohibits
‘‘omit[ting] to state any material fact necessary to make the state-
ments made, in the light of the circumstances under which they
were made, not misleading.’’
129
If the sponsors used the due dili-
gence reports to negotiate a lower price, the information may have
been material. In addition, the reports were not publicly avail-
able.
130
On the other hand, the courts may find the standard dis-
closures, that there might be underwriting exceptions, to be suffi-
cient disclosure. As yet, the 10b–5 claim is untested in the courts,
and the facts are still unproven.
Another potential claim is based on Section 17 of the Securities
Act of 1933, which makes it unlawful in the ‘‘offer or sale of any
securities . . . to obtain money or property by means of any untrue
statement of a material fact or any omission to state a material
fact necessary in order to make the statements made, in light of
the circumstances under which they were made, not mis-
leading.’’
131
This claim also depends on unproved facts, but if the
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132
Gretchen Morgenson, Raters Ignored Proof of Unsafe Loans, Panel is Told, The New York
Times (Sept. 26, 2010) (online at www.nytimes.com/2010/09/27/business/
27ratings.html?pagewanted=all); Gretchen Morgenson, Seeing vs. Doing, The New York Times
(July 24, 2010) (online at www.nytimes.com/2010/07/25/business/25gret.html?ref=fair_game).
133
Congressional Oversight Panel, Testimony of Guy Cecala, chief executive officer and pub-
lisher, Inside Mortgage Finance Publications, Inc., Transcript: COP Hearing on TARP Fore-
closure Mitigation Programs (Oct. 27, 2010) (publication forthcoming) (online at cop.senate.gov/
hearings/library/hearing-102710-foreclosure.cfm) (hereinafter ‘‘Testimony of Guy Cecala’’).
134
Consumer lawyers conversations with Panel staff (Nov. 9, 2010). Several state class actions
have been filed alleging wrongful foreclosures and fraud on the court, see, e.g., Defendant Wil-
liam Timothy Stacy’s Answer, Affirmative Defenses and Individual and Class Action Counter-
claims, Wells Fargo Bank NA, as Trustee for National City Mortgage Loan Trust 2005–1, Mort-
gage-Backed Certificates, Series 2005–1 vs. William Timothy Stacy, et al., No. 08–CI–120 (Com-
monwealth of Kentucky Bourbon Circuit Court Division 1 Oct. 4, 2010) See also Class Action
Complaint, Geoffrey Huber, Beatriz D’Amico-Souza, and Michael and Tina Unsworth, for them-
selves and all persons similarly situated v. GMAC, LLC, n/k/a Ally Financial, Inc., No. 8:10-
cv-02458–SCB–EAJ (United States District Court Middle District of Florida Tampa Division
Nov. 4, 2010).
135
Consumer lawyers conversations with Panel staff (Nov. 9, 2010).
136
50 States Sign Mortgage Foreclosure Joint Statement, supra note 26.
securitization sponsors used the due diligence reports to negotiate
a lower price for the loan pools, the information is arguably mate-
rial. As such, the sponsors may have violated Section 17 when they
omitted the results of the due diligence reports from the
prospectuses, though the proposition has not yet been ruled on by
a court. Section 17, however, can only be enforced by the SEC, and
not by private litigants.
There are suggestions in the press that authorities are exam-
ining the issue, with several news reports referencing discussions
with investigators or prosecutors.
132

2. Existing and Pending Claims under Various Fraud Theo-
ries
Currently, these issues are being explored at the state level and,
as discussed above, the private investor level. The recent disclo-
sures about robo-signing may provide additional causes of action
and additional arguments for private lawsuits asking for put-backs
of deficient loans. In response to a question at the Panel’s most re-
cent hearing on housing issues, however, one of the witnesses indi-
cated that he was not aware of any successful put-backs for fore-
closure procedure problems alone.
133
According to some consumer
lawyers who are significantly involved in these proceedings, while
it is very unlikely that a national class action lawsuit based on
wrongful foreclosure claims could be successfully filed, it may be
possible on a state-by-state basis.
134
The outcome in these cases is
uncertain, and consumer lawyers said that at this point it would
be difficult to quantify potential losses arising out of these actions
or any similar challenges in individual foreclosure procedures.
135

Various states are proceeding under a variety of theories. As
noted above, on October 13, 2010, all 50 state attorneys general, as
well as state bank and mortgage regulators, announced that they
would pursue a ‘‘bi-partisan multistate group’’ to investigate fore-
closure irregularities.
136
They are working together to investigate
allegations of questionable and potentially fraudulent foreclosure
documentation practices, and may design rules to improve fore-
closure practices. They also may begin individual actions against
some of the implicated institutions. On October 6, 2010, Ohio At-
torney General Richard Cordray filed a suit against GMAC Mort-
gage and its parent Ally Financial, alleging that the companies
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137
Complaint, State of Ohio ex rel. Richard Cordray v. GMAC Mortgage, CI0201006984 (Lucas
Cnty Ohio Ct. Common Pleas Oct. 6, 2010) (online at www.ohioattorneygeneral.gov/
GMACLawsuit). The complaint also named Jeffrey Stephan as a defendant. It was Jeffrey
Stephan’s testimony in a Maine foreclosure case that he signed thousands of affidavits without
verifying their content that ignited the foreclosure documentation scandal.
138
Ally Financial, Inc., GMAC Mortgage Statement on Ohio Lawsuit (Oct. 6, 2010) (online at
media.ally.com/index.php?s=43&item=420).
139
The Ohio attorney general argues that the statements in the foreclosure affidavits were
material and false, and the employees making them were aware that they were false and were
making them anyway to induce Ohio courts and opposing parties to rely upon them, which, in
turn, justifiably did so. He further argues that Ally and GMAC financially benefitted from these
fraudulent practices by completing foreclosures that should not have been allowed to proceed,
and the ‘‘system of justice in Ohio and Ohio borrowers have suffered and are suffering irrep-
arable injury.’’ The Ohio attorney general also argues that Ally and GMAC ‘‘engaged in a pat-
tern and practice of unfair, deceptive and unconscionable acts’’ in violation of the Ohio Con-
sumer Sales Practices Act when their employees signed false affidavits and when they at-
tempted to assign mortgage notes on behalf of MERS. Complaint, State of Ohio ex rel. Richard
Cordray v. GMAC Mortgage, CI0201006984 (Lucas Cnty Ohio Ct. Common Pleas Oct. 6, 2010)
(online at www.ohioattorneygeneral.gov/GMACLawsuit).
140
See Section E.3.
141
See, e.g., Deposition of Xee Moua, Wells Fargo Bank v. John P. Stipek, No. 50 2009 CA
012434XXXXMB AW (Fla. 15th Cir. Ct. Mar. 9, 2010).
142
Congressional Oversight Panel, Written Testimony of Phyllis Caldwell, chief of the Home-
ownership Preservation Office, U.S. Department of the Treasury, COP Hearing on TARP Fore-
closure Mitigation Programs, at 13 (Oct. 27, 2010) (online at cop.senate.gov/documents/testi-
mony-102710-caldwell.pdf) (hereinafter ‘‘Written Testimony of Phyllis Caldwell’’). In addition to
committed common law fraud and violated the Ohio Consumer
Sales Practices Act.
137
In response, GMAC referred to the irreg-
ularities as ‘‘procedural mistakes’’ and maintained that it would de-
fend itself ‘‘vigorously.’’
138
The Ohio state attorney general alleges
that ‘‘GMAC and its employees committed fraud on Ohio con-
sumers and Ohio courts by signing and filing hundreds of false affi-
davits in foreclosure cases.’’ He argues that the defendants’ actions
were both against the Ohio Consumer Sales Practices Act and con-
stituted common law fraud.
139
The attorney general has asked the
court to halt affected foreclosures until defendants remedy their
faulty practices and to require them to submit written procedures
to the attorney general and the court to ensure that no employee
signs documentation without personal knowledge.
Although Ohio is the first state to take action, it would not be
surprising if others follow.
140
Depositions have been taken in var-
ious foreclosure cases around the country that point to questionable
practices by employees at a number of banks.
141
Most of the large
financial institutions that service mortgages maintain that docu-
mentation issues can be fixed relatively easily by re-submitting af-
fidavits where appropriate and that based on their internal reviews
there is no indication that the mortgage market is severely flawed.
Many of the banks that temporarily suspended foreclosures have
now resumed them. However, in their most recent earnings state-
ments, many of these institutions have indicated that they set
aside additional funds for repurchase reserves and potential litiga-
tion costs resulting from the foreclosure documentation irregular-
ities.
In addition to these potential lawsuits, the Administration’s Fi-
nancial Fraud Enforcement Task Force (FFETF) is in the early
stages of an investigation into whether banks and other companies
that submitted flawed paperwork in state foreclosure proceedings
may also have violated federal laws. Treasury’s representative in-
formed the Panel that through Treasury’s Financial Crimes En-
forcement Network (FinCEN) they are actively participating in the
work of the FFETF led by the Department of Justice.
142
Treasury
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their participation in FFETF, Treasury is coordinating efforts with other federal agencies and
regulators, including the Department of Housing and Urban Development (HUD), the Federal
Housing Administration (FHA), the Federal Housing Finance Agency (FHFA), the Federal Re-
serve System, the Office of Thrift Supervision (OTS), the Office of the Comptroller of the Cur-
rency (OCC), the FDIC, the Federal Trade Commission (FTC), and the SEC.
143
Congressional Oversight Panel, Testimony of Phyllis Caldwell, chief of the Homeownership
Preservation Office, U.S. Department of the Treasury, Transcript: COP Hearing on TARP Fore-
closure Mitigation Programs (Oct. 27, 2010) (publication forthcoming) (online at cop.senate.gov/
hearings/library/hearing-102710-foreclosure.cfm) (hereinafter ‘‘Testimony of Phyllis Caldwell’’).
144
For example, the federal perjury statute states ‘‘Whoever—(1) having taken an oath before
a competent tribunal, officer, or person, in any case in which a law of the United States author-
izes an oath to be administered, that he will testify, declare, depose, or certify truly, or that
any written testimony, declaration, deposition, or certificate by him subscribed, is true, willfully
and contrary to such oath states or subscribes any material matter which he does not believe
to be true; or (2) in any declaration, certificate, verification, or statement under penalty of per-
jury as permitted under section 1746 of title 28, United States Code, willfully subscribes as true
any material matter which he does not believe to be true; is guilty of perjury and shall, except
as otherwise expressly provided by law, be fined under this title or imprisoned not more than
five years, or both.’’ 18 U.S.C. § 1621.
145
Black’s Law Dictionary, at 62 (8th ed. 2004).
146
A Florida Law Firm, The Ticktin Law Group, P.A. has taken hundreds of depositions in
which employees or contractors of various banks admitted to not knowing what they were sign-
ing or lying regarding their personal knowledge of information in affidavits. See, e.g., Deposition
of Ismeta Dumanjic, La Salle Bank NA as Trustee for Washington Mutual Asset-Backed Certifi-
cates WMABS Series 2007–HE2 Trust v. Jeanette Attelus, et al., No. CACE 08060378 (Fla. 17th
Cir. Ct. Dec. 8, 2009).
147
For testimony attesting to signing hundreds of affidavits a day, see Deposition of Xee
Moua, at 28–29, Wells Fargo Bank v. John P. Stipek, No. 50 2009 CA 012434XXXXMB AW (Fla.
15th Cir. Ct. Mar. 9, 2010); Deposition of Renee Hertzler, at 25, In re: Patricia L. Starr, No.
09–41903–JBR (D. Mass. Feb. 19, 2010).
148
Bureau of Justice Statistics, Federal Justice Statistics, 2008—Statistical Tables, at Table
4.1 (Nov. 2008) (online at bjs.ojp.usdoj.gov/content/pub/html/fjsst/2008/tables/fjs08st401.pdf).
has otherwise indicated that they are not presently engaged in any
independent investigative efforts.
143
To date, little has been dis-
closed about the investigation.
3. Other Potential Claims
Beyond the various fraud claims, there are also several other po-
tential claims. For example, those who signed false affidavits may
be guilty of perjury. Perjury is the crime of intentionally stating
any fact the witness knows to be false while under oath, either in
oral testimony or in a written declaration.
144
Though the exact def-
inition varies from state to state, perjury is universally prohibited.
Affidavits such as the ones involved in the foreclosure irregularities
are statements made under oath and thus clearly fall within the
scope of the perjury statutes.
145
Moreover, there are reports of
robo-signers admitting in depositions that they knew they were
lying when they signed the affidavits.
146
As a result, it is possible
that these individuals at least are guilty of perjury. Even without
such an explicit admission, it is possible that a court could find
that a robo-signer was intentionally and knowingly lying by signing
hundreds of affidavits a day that attested to personal knowledge of
loan documents.
147
It is important to note, however, that perjury
prosecutions are rare. For example, of the 91,835 federal cases com-
menced in fiscal year 2008, at most, only 342 charged perjury as
the most serious offense.
148
It is thus possible that robo-signers,
though potentially guilty, will not be charged.
By contrast, the state attorneys general are already investigating
whether foreclosure irregularities such as the use of robo-signers
violated state unfair or deceptive acts or practices (UDAP) laws.
Each state has some form of UDAP law, and most generally, they
prohibit practices in consumer transactions that are deemed to be
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149
Shaun K. Ramey and Jennifer M. Miller, State Attorneys General Strong-Arm Mortgage
Lenders, 17 Business Torts Journal 1, at 1 (Fall 2009) (online at www.sirote.com/tyfoon/site/
members/D/6/E/D/0/7/0/4/3/C/file/S%20Ramey/Ramey-Miller_REPRINT.pdf).
150
Carolyn L. Carter, Consumer Protection in the United States: A 50-State Report on Unfair
and Deceptive Acts and Practices Statutes (Feb. 2009) (online at www.nclc.org/images/pdf/udap/
report_50_states.pdf).
151
50 States Sign Mortgage Foreclosure Joint Statement, supra note 26.
152
This list is not a comprehensive list of state actions. States are becoming involved at a
rapid pace, in a variety of ways, and from a variety of levels.
153
New York State Unified Court System, Attorney Affirmation-Required in Residential Fore-
closure Actions (Oct. 20, 2010) (online at www.courts.state.ny.us/attorneys/foreclosures/affirma-
tion.shtml); New York State Unified Court System, Sample Affirmation Document (online at
www.courts.state.ny.us/attorneys/foreclosures/Affirmation-Foreclosure.pdf) (accessed Nov. 12,
2010).
154
Letter from Edmund G. Brown, Jr., attorney general, State of California, to Steve Stein,
SVP channel director, Homeownership Preservation and Partnerships, JPMorgan Chase (Sept.
30, 2010) (online at ag.ca.gov/cms_attachments/press/pdfs/n1996_ jp_morganchase_letter_.pdf).
155
Office of California Attorney General Edmund G. Brown, Jr., Brown Calls on Banks to Halt
Foreclosures In California (Oct. 8, 2010) (online at ag.ca.gov/newsalerts/release.php?id=2000&).
unfair or deceptive.
149
Individual state laws, however, can be as
broad as generally prohibiting deceptive or unfair conduct or as
narrow as prohibiting only a discrete list of practices or exempting
all acts by banks.
150
As a result, whether there has been a UDAP
violation will depend heavily on the particularities of each state’s
law. The state attorneys general, though, are already examining
the matter. In announcing their bipartisan multistate group, the
attorneys general explicitly stated that they ‘‘believe such a process
[robo-signing] may constitute a deceptive act and/or an unfair prac-
tice.’’
151

4. Other State Legal Steps
In addition to the Ohio lawsuit described above and the ongoing
joint investigation, some other state officials have taken concrete
steps to address the foreclosure irregularities, including but not
limited to:
152

• In New York, the court system now requires that those initi-
ating residential foreclosure actions must file a new affirmation to
certify that an appropriate employee has personally reviewed their
documents and papers filed in the case and confirmed both the fac-
tual accuracy of these court filings and the accuracy of the
notarizations contained therein.
153

• In California, a non-judicial foreclosure state, the attorney
general sent a letter to JPMorgan Chase demanding that the firm
stop all foreclosures unless it could demonstrate that all fore-
closures had been conducted in accordance with California law.
154

The attorney general also called on all other lenders to halt fore-
closures unless they can demonstrate compliance with California
law.
155

• In Arizona, which is also a non-judicial foreclosure state, the
attorney general sent letters on October 7, 2010 to several servicers
implicated in the robo-signing scandals to demand a description of
their practices and any remedial actions taken to address potential
paperwork irregularities. The attorney general wrote that if any
employees or agents used any of the questionable practices in con-
nection with conducting a trustee’s sale or a foreclosure in Arizona,
such use would likely constitute a violation of the Arizona Con-
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156
Letter from Terry Goddard, attorney general, State of Arizona, to mortgage servicers, Re:
‘‘Robo-Signing’’ of Foreclosure Documents in Arizona (Oct. 7, 2010) (online at www.azag.gov/
press_releases/oct/2010/Mortgage%20Loan%20Servicer%20Letter.pdf).
157
Brief for Richard Cordray, Ohio attorney general, as Amici Curiae, US Bank, National As-
sociation v. James W. Renfro, No. CV–10–716322 (Cuyahoga Cty Ohio Ct. Common Pleas Oct.
27, 2010); Office of Ohio Attorney General Richard Cordray, Cordray Outlines Fraud in Cleve-
land Foreclosure Case (Oct. 27, 2010) (online at www.ohioattorneygeneral.gov/Briefing-Room/
News-Releases/October-2010/Cordray-Outlines-Fraud-in-Cleveland-Foreclosure-Ca).
158
Letter from Richard Cordray, attorney general, State of Ohio, to Judges, State of Ohio (Oct.
29, 2010).
159
Letter from Richard Cordray, attorney general, State of Ohio, to David Moskowitz, deputy
general counsel, Wells Fargo (Oct. 29, 2010).
160
Office of District of Columbia Attorney General Peter J. Nickles, Statement of Enforcement
Intent Regarding Deceptive Foreclosure Sale Notices (Oct. 27, 2010) (online at newsroom.dc.gov/
show.aspx?agency=occ&section=2&release=
20673&year=2010&file=file.aspx%2frelease%2f20673%2fforeclosure%2520statement.pdf).
161
MERSCORP, Inc., MERS Response to D.C. Attorney General’s Oct. 28, 2010 Statement of
Enforcement (Oct. 28, 2010) (online at www.mersinc.org/news/details.aspx?id=250). The state-
ment emphasizes that ‘‘[w]e will take steps to protect the lawful right to foreclose that the bor-
rower contractually agreed to if the borrower defaults on their mortgage loan.’’ The law firm
K&L Gates has also published a legal analysis critical of the attorney general’s actions. See K&L
Gates LLP, DC AG Seeks to Stop Home Loan Foreclosures Based on Incomplete Legal Analysis,
Mortgage Banking & Consumer Financial Products Alert (Nov. 1, 2010) (online at
www.klgates.com/newsstand/detail.aspx?publication=6737).
162
Office of Connecticut Attorney General Richard Blumenthal, Attorney General Investigating
Defective GMAC/Ally Foreclosure Docs, Demands Halt To Its CT Foreclosures (Sept. 27, 2010)
(online at www.ct.gov/ag/cwp/view.asp?A=2341&Q=466312).
163
Office of Connecticut Attorney General Richard Blumenthal, Attorney General Asks CT
Courts To Freeze Home Foreclosures 60 Days Because of Defective Docs (Oct. 1, 2010)
(www.ct.gov/ag/cwp/view.asp?A=2341&Q=466548).
164
Letter from Judge Barbara M. Quinn, chief court administrator, State of Connecticut Judi-
cial Branch, to Richard Blumenthal, attorney general, State of Connecticut (Oct. 14, 2010).
sumer Fraud Act, and the attorney general would have to take ap-
propriate action.
156

• In Ohio, in addition to his lawsuit against GMAC, the attor-
ney general filed an amicus curiae brief in an individual foreclosure
case asking the court to consider evidence that GMAC committed
fraud that tainted the entire judicial process and to consider sanc-
tioning GMAC.
157
The attorney general also sent a letter to 133
Ohio judges asking them for information on any cases involving the
robo-signer Xee Moua.
158
In addition, he asked Wells Fargo Bank
to vacate any foreclosure judgments in Ohio based on documents
that were signed by robo-signers and to stop the sales of repos-
sessed properties.
159

• In The District of Columbia, Attorney General Peter Nickles
announced on October 27, 2010 that foreclosures cannot proceed in
the District of Columbia unless a mortgage deed and all assign-
ments of the deed are recorded in public land records, and that
foreclosures relying on MERS would not satisfy the requirement.
160

MERS responded the next day by issuing a statement that their
procedures conform to the laws of the District of Columbia and en-
couraged their members to contact them if they experience prob-
lems with their foreclosures.
161

• In Connecticut, the attorney general started investigating
GMAC/Ally and demanded that the company halt all foreclosures.
He also asked the company to provide specific information relating
to its foreclosure practices.
162
In addition, the attorney general
asked the state Judicial Department on October 1, 2010 to freeze
all home foreclosures for 60 days to allow time to institute meas-
ures to assure the integrity of document filings.
163
The Judicial De-
partment refused this request.
164

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165
See, e.g., Federal National Mortgage Assoc. v. Nicolle Bradbury, supra note 12 (requiring
that the plaintiff provide, among other things, the book and page number of the mortgage, as
well as the street address and stating that failure to provide a street address is sufficient to
preclude summary judgment in a foreclosure proceeding).
166
See Section C, supra, discussing strains on servicers.
167
Deposition of Tammie Lou Kapusta, In re: Investigation of Law Offices of David J. Stern,
P.A. (Sept. 22, 2010).
168
Federal National Mortgage Association, Foreclosure Time Frames and Compensatory Fees
for Breach of Servicing Obligations, at 3 (Aug. 31, 2010) (Announcement SVC–2010–12) (online
at www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/svc1012.pdf) (stating that Fannie Mae
might pursue compensatory fees based on ‘‘the length of the delay, and any additional costs that
are directly attributable to the delay.’’).
5. Other Possible Implications: Potential ‘‘Front-End’’ Fraud
and Documentation Irregularities
Until the full scope of the problem is determined, it will be dif-
ficult to assess whether banks, servicers, or borrowers knew of the
irregularities in the market. However, there are several signs that
the problem was at least partially foreseeable. For example, numer-
ous systems had been developed to circumvent the slow, paper-
based property system in the United States. MERS, discussed in
more detail above, represented an attempt to add speed and sim-
plification to the property registration process, which in turn would
allow property to be transferred more quickly and easily. MERS
arose in reaction to a clash: during the boom, originations and
securitizations moved extremely quickly. But the property law sys-
tem that governed the underlying collateral moves slowly, and is
heavily dependent on a variety of steps memorialized on paper and
thus inefficient at processing enormous lending volume. While sys-
tems like MERS appeared to allow the housing market to accel-
erate, the legal standards underpinning the market did not change
substantially.
165
In some respects, the irregularities and the
mounting legal problems in the mortgage system seem to be the
consequence of the banks asking the property law system to do
something that it may be largely unequipped to do: process millions
of foreclosures within a relatively short period of time.
166
The
Panel emphasizes that mortgage lenders and securitization
servicers should not undertake to foreclose on any homeowner un-
less they are able to do so in full compliance with applicable laws
and their contractual agreements with the homeowner. If legal un-
certainty remains, foreclosure should cease with respect to that
homeowner until all matters are objectively resolved and vetted
through competent counsel in each applicable jurisdiction. Satisfac-
tion of applicable legal standards and legal certainty is in the best
interests of homeowners as well as creditors and will enable all
concerned parties to exercise properly their legal and contractual
rights and remedies.
This combination of factors—a demand for speed, the use of sys-
tems designed to streamline a legal regime that was viewed as out-
of-date, and a slow, localized legal system—may have substantially
increased the likelihood that documentation would be insufficient.
As discussed above, some authorities are taking direct aim at
MERS and the validity of its processes. Coupled with business
pressure exerted on law firms
167
and contractors
168
to process rap-
idly foreclosure documents, the system had clear risks of encour-
aging corner-cutting and creating substantial legal difficulties. Fur-
thermore, even if these problems were not foreseeable from the
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169
See, e.g., Hernando de Soto, Toxic Assets Were Hidden Assets, Wall Street Journal (Mar.
25, 2009) (online at online.wsj.com/article/SB123793811398132049.html) (‘‘The real villain is the
lack of trust in the paper on which [subprime mortgages]—and all other assets—are printed.
If we don’t restore trust in paper, the next default—on credit cards or student loans—will trig-
ger another collapse in paper and bring the world economy to its knees.’’).
170
Federal National Mortgage Assoc. v. Nicolle Bradbury, supra note 12 (‘‘The Court is par-
ticularly troubled by the fact that Stephan’s deposition in this case is not the first time that
GMAC’s high-volume and careless approach to affidavit signing has been exposed. . . . The ex-
perience of this case reveals that, despite the Florida Court’s order, GMAC’s flagrant disregard
apparently persists. It is well past time for such practices to end.’’). See also Section C, supra.
It is worth noting that the rights of a bona-fide purchaser for value are affected by whether
the purchaser had notice of a competing claim at the time of purchase. One possible source of
conflict will be what, under these circumstances, constitutes adequate notice. Panel staff con-
versations with industry sources (Nov. 9, 2010).
171
For example, in her testimony submitted to the Congressional Oversight Panel, Julia Gor-
don of the Center for Responsible Lending writes: ‘‘The recent media revelations about ‘‘robo-
signing’’ highlight just one of the many ways in which servicers or their contractors elevate prof-
its over customer service or duties to their clients, the investors. Other abuses include
misapplying payments, force-placing insurance improperly, disregarding requirements to evalu-
ate homeowners for nonforeclosure options, and fabricating documents related to the mortgage’s
ownership or account status.’’ See Congressional Oversight Panel, Written Testimony of Julia
Gordon, senior policy counsel, Center for Responsible Lending, COP Hearing on TARP Fore-
closure Mitigation Programs, at 3 (Oct. 27, 2010) (online at cop.senate.gov/documents/testimony-
102710-gordon.pdf) (hereinafter ‘‘Written Testimony of Julia Gordon’’).
vantage point of the housing boom, the downturn in the housing
market and the foreclosure crisis made them much more likely. In
2008 and 2009, a vast amount of attention was given to the dif-
ficulty of determining liability in the securitization market because
of problems with documentation and transparency.
169
At this time,
servicers could have had notice of the types of documentation prob-
lems that could affect the transfer of mortgage ownership. In some
cases, even when servicers were explicitly made aware of the shod-
dy documentation, they did little to correct the problem. One judge
determined that ‘‘[r]ather than being an isolated or inadvertent in-
stance of misconduct . . . GMAC has persisted in its unlawful doc-
ument signing practices’’ even after it was ordered to correct its
practices.
170

Some observers argue that current irregularities were not only
foreseeable, but that they mask a range of potential irregularities
at the stage in which the mortgages were originated and pooled.
According to that view, current practices simply added to and mag-
nified problems with the prior practices. The legal consequences of
foreclosure irregularities will be magnified if the problems also
plagued originations: after all, foreclosures are still a relatively lim-
ited portion of the market. If all securitizations or performing
whole loans were to be affected, the consequences could be signifi-
cantly greater. At this point, answers as to what exactly is the
source of the problems at the front end and how severe the con-
sequences may be going forward depend to a large degree on who
is evaluating the problem. The Panel describes below the perspec-
tives of various stakeholders in the residential mortgage market.
a. Academics and Advocates for Homeowners
Many lawyers and stakeholders who have worked with borrowers
and servicers on a regular basis over the past few years, primarily
in bankruptcy and foreclosure cases, maintain that documentation
problems, including potentially fraudulent practices, have been per-
vasive and apparent.
171
These actors, including academics who
study the topic, argue that bankruptcy and foreclosure procedures
have been revealing major deficiencies in mortgage servicing and
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172
Written Testimony of Katherine Porter, supra note 14, at 9 (referencing her paper: Kath-
erine M. Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims, Texas Law Review,
Vol. 87 (2008) (Nov. 2008) (online at www.mortgagestudy.org/files/Misbehavior.pdf)). The paper
gives an in-depth analysis of how mortgage servicers frequently do not comply with bankruptcy
law.
173
Written Testimony of Julia Gordon, supra note 171, at 11.
174
Legalprise Inc., Report on Lost Note Affidavits in Broward County, Florida (Oct. 2010).
Legalprise is a Florida legal research firm that uses and analyzes public foreclosure court
records.
175
Written Testimony of Katherine Porter, supra note 14, at 9.
176
Consumer lawyers conversations with Panel staff (Oct. 28, 2010).
177
Consumer lawyers conversations with Panel staff (Nov. 9, 2010).
documentation for quite some time. Professor Katherine M. Porter,
a professor of law who testified at the Panel’s most recent hearing,
wrote: ‘‘The robo-signing scandal should not have been a surprise
to anyone; these problems were being raised in litigation for years
now. Similarly, I released a study in 2007—three years ago—that
showed that mortgage companies who filed claims to be paid in
bankruptcy cases of homeowners did not attach a copy of the note
to 40% of their claims.’’
172
According to this view, the servicing
process was severely flawed, and ‘‘servicers falsify court documents
not just to save time and money, but because they simply have not
kept the accurate records of ownership, payments, and escrow ac-
counts that would enable them to proceed legally.’’
173
In 2008–
2009 over 1,700 lost note affidavits were filed in Broward County,
Florida alone.
174
These affidavits claim that the original note has
been lost or destroyed and cannot be produced in court. It is impor-
tant to recognize, however, that a lost note affidavit may not actu-
ally mean that the note has been lost. In her written testimony to
the Panel, Professor Katherine Porter points out that her study of
lost notes in bankruptcies ‘‘does not prove . . . whether the mort-
gage companies have a copy of the note and refused to produce it
to stymie the consumers’ rights or to cut costs, whether the mort-
gage companies or their predecessors in a securitization lost the
note, or whether someone other than the mortgage company is the
holder/bearer of the note.’’
175

If the lawyers’ and advocates’ assertions of widespread irregular-
ities are correct, it could mean that potentially millions of shoddily
documented mortgages have been pooled improperly into
securitization trusts. Lawyers are using a lack of standing by the
servicers due to ineffective conveyance of ownership of the mort-
gage as a defense in foreclosure cases. Some of these lawyers argue
that the disconnect between what was happening on the ‘‘street
level,’’ i.e., with the origination and documentation of mortgages,
and the transfer requirements in the PSAs, is so huge that no cre-
dence can be given to the banks’ argument that the issues are
merely technical.
176
However, commentators who believe that the
problem is widespread also believe that investors in these
securitization pools, rather than homeowners, may be the best
placed to pursue the cases on a larger scale successfully.
177

b. Servicers and Banks
Since the foreclosure irregularities have surfaced, the banks in-
volved have maintained that the problems are largely procedural
and technical in nature. Banks have temporarily suspended fore-
closures in judicial foreclosure states in particular and looked into
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178
Bank of America Q3 2010 Earnings Call Transcript, supra note 97, at 6.
179
Bank of America Q3 2010 Earnings Call Transcript, supra note 97, at 6.
180
JPMorgan Chase & Co., Financial Results 3Q10, at 15 (Oct. 13, 2010) (online at
files.shareholder.com/downloads/ONE/1051047839x0x409164/e27f1d82-ef74-429e-8ff1-
7d6706634621/3Q10_Earnings_Presentation.pdf) (hereinafter ‘‘JPMorgan Q3 2010 Financial Re-
sults’’) (‘‘Based on our processes and reviews to date, we believe underlying foreclosure decisions
were justified by the facts and circumstances.’’); Wells Fargo Update on Affidavits and Mortgage
Securitizations, supra note 23 (‘‘The issues the company has identified do not relate in any way
to the quality of the customer and loan data; nor does the company believe that any of these
instances led to foreclosures which should not have otherwise occurred.’’).
181
For example, the American Securitization Forum issued a statement questioning the legit-
imacy of concerns raised about securitization practices: ‘‘In the last few days, concerns have
been raised as to whether the standard industry methods of transferring ownership of residen-
tial mortgage loans to securitization trusts are sufficient and appropriate. These concerns are
without merit and our membership is confident that these methods of transfer are sound and
based on a well-established body of law governing a multi-trillion dollar secondary mortgage
market.’’ See American Securitization Forum, ASF Says Mortgage Securitization Legal Struc-
tures & Loan Transfers Are Sound (Oct. 15, 2010) (online at www.americansecuritization.com/
story.aspx?id=4457) (hereinafter ‘‘ASF Statement on Mortgage Securitization Legal Structures
and Loan Transfers’’). ASF will issue a white paper in the coming weeks to elaborate further
on this statement.
182
See Letter from Gibbs & Bruns LLP to Countrywide, supra note 95. As noted above, the
letter predominantly alleges problems with loan quality and violation of prudent servicing obli-
gations. See also Gibbs & Bruns LLP, Institutional Holders of Countrywide-Issued RMBS Issue
Notice of Non-Performance Identifying Alleged Failures by Master Servicer to Perform Covenants
and Agreements in More Than $47 Billion of Countrywide-Issued RMBS (Oct. 18, 2010) (online
Continued
their practices, but they state that they do not view these problems
as fundamental either in the foreclosure area or in the origination
and pooling of mortgages. The CEO of Bank of America, Brian
Moynihan, noted in the company’s most recent earnings call that
Bank of America has resumed foreclosures, but ‘‘it’s going to take
us three or five weeks to get through and actually get all the judi-
cial states taken care of. The teams reviewing data have not found
information which was inaccurate, would affect the frame factors of
the foreclosure; i.e., the customer’s delinquency, etcetera.’’
178
He fo-
cused on the faulty affidavits and argued that ‘‘[they] fixed the affi-
davit signing problem or will be fixed in very short order.’’
179
Many
of the other large banks have issued statements in the same
vein.
180
Most of these banks have either not commented on the
issues around the transfer of ownership of the mortgage or main-
tain that alleged ownership transfer problems are without merit or
exaggerated.
181

c. Investors
As discussed above, securitization investors have been involved
in lawsuits regarding underwriting representations and warranties
for some time. Investors in MBS or collateralized debt obligation
(CDO) transactions have a variety of options to pursue a claim.
Claims alleging violations of representations and warranties have
typically focused on violations of underwriting standards regarding
the underlying loans pooled into the securities. Another option may
be to pursue similar claims relating to violations of representations
and warranties with respect to the transfer of mortgage ownership.
In the wake of the current documentation controversies, it appears
that private investors may become more emboldened to pursue put-
back requests and potentially file lawsuits. For example, and as
discussed above, a group of investors—including FRBNY in its ca-
pacity as owner of RMBS it obtained from American International
Group, Inc. (AIG)—sent a letter to Bank of America as an initial
step to be able to demand access to certain loan files.
182
Direct con-
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42
at www.gibbsbruns.com/files/Uploads/Documents/Press_Release_Gibbs%20&%20Bruns%20
_10_18_10.pdf); Gibbs & Bruns LLP, Countrywide RMBS Initiative (Oct. 20, 2010) (online at
www.gibbsbruns.com/countrywide-rmbs-initiative-10-20-2010/).
183
FRBNY staff conversations with Panel staff (Oct. 26, 2010).
184
For further discussion of these obstacles, see Section D.2. In addition, see description of
PSAs in Section D.1, supra.
185
For example, the investors taking action have to consider costs associated with their litiga-
tion such as indemnifications to be given to trustees when those are directed to initiate a law-
suit on the bondholders’ behalf. Another consideration is that non-participating investors may
also ultimately benefit from legal actions without contributing to the costs.
186
For example, in some PSAs, trustees are not required to investigate any report or, in many
agreements, request put-backs, unless it is requested by 25 percent of investors. See Pooling and
Servicing Agreement by and among J.P. Morgan Acceptance Corporation I, Depositor, et al., at
122 (Apr. 1, 2006) (online at www.scribd.com/doc/31453301/Pooling-Servicing-Agreement-
JPMAC2006-NC1-PSA). Absent that threshold being met, the trustee has discretion to act. For
further discussion, see Section D.2.
187
Amherst Securities Group LP, Conference Call: ‘‘Robosigners, MERS, And The Issues With
Reps and Warrants’’ (Oct. 28, 2010). If the investors wished to act against trustees they believe
are not independent, there are some legal avenues they could pursue. For example, the investors
could remove the trustee using provisions that are typically in PSAs that allow for such a re-
moval. Such provisions, however, often require 51 percent of investors to act. In addition, to the
extent that the trustees are found to be fiduciaries, if the trustee takes a specific action that
the investors believe not to be in their best interest, they may be able to sue the trustee. If
successful, investors could be awarded a number of possible remedies, including damages or re-
moval of the trustee. Greenfield, Stein, & Senior, Fiduciary Removal Proceedings (online at
www.gss-law.com/PracticeAreas/Fiduciary-Removal-Proceedings.asp) (accessed Nov. 12, 2010);
Gary B. Freidman, Relief Against a Fiduciary: SCPA § 2102 Proceedings, NYSBA Trusts and Es-
tates Law Section Newsletter, at 1–2, 4 (Oct. 13, 2003) (online at www.gss-law.com/CM/Articles/
SCPA%202102%20Proceedings%20-%20Revised.pdf) (‘‘The failure of the fiduciary to comply with
a court order directing that the information be supplied can be a basis for contempt under SCPA
§ 606, 607–1 and/or suspension or removal of the fiduciary under SCPA § 711.’’).
188
There are also risks for holders of second lien loans, but these loans are not as directly
impacted by foreclosure irregularities as first-lien mortgages, since most second liens were not
securitized, and are held on the balance sheets of banks and other market participants. As dis-
cussed above, if second liens were perfected and first liens were not, they may actually take
priority. See Section D.2 for further discussion of effects on second lien holders.
An analyst report from January 2010, values securitized second liens only at $32.5 billion of
the $1.053 trillion of the total second liens outstanding. Amherst Securities Group LP, Amherst
Mortgage Insight, 2nd Liens—How Important, at 12 (Jan. 29, 2010).
tact with the bank was initiated because the securitization trustee
(Bank of New York) had refused to comply with the initial request
in accordance with the PSA. FRBNY, as an investor, is on equal
footing with all the other investors, and according to FRBNY’s rep-
resentatives, they view this action and any potential participation
in a future lawsuit as one way to attempt to recover funds for the
taxpayers.
183

While there may be a growing appetite for pursuing such law-
suits, these lawsuits still have to overcome a fair number of obsta-
cles built in to the PSAs,
184
as well as problems inherent in any
legal action that requires joint action by many actors.
185
As a gen-
eral matter, what appears to be a significant problem is that the
operating documents for these transactions generally give signifi-
cant discretion to trustees in exercising their powers,
186
and these
third parties may not be truly independent and willing to look out
for the investors.
187

F. Assessing the Potential Impact on Bank Balance Sheets
1. Introduction
A bank’s exposure to the current turmoil in the residential real
estate market stems from its role as the originator of the initial
mortgage, its role as the issuer of the packaged securities, its role
as the underwriter of the subsequent mortgage trusts to investors,
and/or its role as the servicer of the troubled loan.
188
Through
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At the end of the second quarter of 2010, the four largest U.S. commercial banks—Bank of
America, Citigroup, JPMorgan Chase, and Wells Fargo—reported $433.7 billion in second lien
mortgages while having total equity capital of $548.8 billion. Amherst Securities Group LP data
provided to Panel staff (Sept. 2, 2010); Federal Deposit Insurance Corporation, Statistics of De-
pository Institutions (online at www2.fdic.gov/sdi/) (accessed Nov. 12, 2010). This figure is based
on reporting by the banks, not their holding companies, and therefore may not include all second
liens held by affiliates.
189
FBR Foreclosure Mania Conference Call, supra note 3.
190
See Section F.2 for further discussion on costs stemming from a foreclosure moratorium.
191
However, to the extent that banks hold MBSs originated/issued by non-affiliates, they may
themselves benefit from put-backs.
192
Credit Suisse, U.S. Banks: Mortgage Put-back Losses Appear Manageable for the Large
Banks, at 4 (Oct. 26, 2010) (hereinafter ‘‘Credit Suisse on Mortgage Put-back Losses’’); Deutsche
Bank, Revisiting Putbacks and Securitizations, at 7 (Nov. 1, 2010) (hereinafter ‘‘Deutsche Bank
Revisits Putbacks and Securitizations’’); FBR Capital Markets, Repurchase-Related Losses
Roughly $44B for Industry—Sensationalism Not Warranted (Sept. 20, 2010) (hereinafter ‘‘FBR
on Repurchase-Related Losses’’); Standard & Poor’s on the Impact of Mortgage Troubles on U.S.
Banks, supra note 106.
193
There are other mortgage risks that are difficult to quantify, such as the potential effect
mortgage put-backs may have on holders of interests in CDOs and the banks that serve as
counterparties for synthetic CDOs. A synthetic CDO is a privately negotiated financial instru-
ment that is generally made up of credit default swaps on a referenced pool of fixed-income as-
sets, in these cases often including the mezzanine tranches of RMBSs. Large banks served as
intermediaries for clients wishing to shift risk and therefore structure a synthetic CDO. These
banks packaged and underwrote synthetic CDOs and may have retained a certain amount of
liquidity risk. It is nearly impossible, however, to measure the possible effect of this issue due
to the fact that there is no reliable data that estimates the size of the CDO market, and the
Continued
these various roles in the mortgage market, the banking sector’s
vulnerability to the current turmoil in the market generally encom-
passes improper foreclosures, related concerns regarding title docu-
mentation, and mortgage repurchase risk owing to breaches in rep-
resentations and warranties provided to investors.
Many investment analysts believe that potential costs associated
with bank foreclosure irregularities are manageable, with potential
liabilities representing a limited threat to earnings, rather than
bank capital.
189
Market estimates stemming from foreclosure irreg-
ularities to a potential prolonged foreclosure moratorium range
from $1.5 to $10.0 billion for the entire industry.
190
However, while
the situation remains fluid, the emerging consensus in the market
is that the risk from mortgage put-backs is a potentially bigger
source of instability for the banks.
191
Using calculations based on
current market estimates of investment analysts, the Panel cal-
culates a consensus exposure for the industry of $52 billion. Aside
from the potential for costs to far exceed these market estimates
(or be materially lower), the wild card here is the impact of broader
title documentation concerns across the broader mortgage market.
In any case, the fallout from the foreclosure crisis and ongoing put-
backs to the banks from mortgage investors are likely to continue
to weigh on bank earnings, but are, according to industry analysts,
unlikely to pose a grave threat to bank capital levels.
192

However, there are scenarios whereby wholesale title and legal
documentation problems for the bulk of outstanding mortgages
could create significant instability in the marketplace, leading to
potentially significantly larger effects on the balance sheets of
banks. Under significantly more severe scenarios that would engulf
the broader mortgage market—encompassing widespread legal un-
certainty regarding mortgage loan documentation as well as the
prospect of extensive put-backs impacting agency and private label
mortgages—bank capital levels could conceivably come under re-
newed stress, particularly for the most exposed institutions.
193
It
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fact that counterparty risk in synthetic CDOs is agreed to under a private contract and there-
fore no data is publicly available. Panel staff conversations with industry sources (Nov. 4, 2010).
For general information on the counterparty risk involved in synthetic CDOs, see Michael Gib-
son, Understanding the Risk of Synthetic CDOs (July 2004) (online at www.curacao-law.com/
wp-content/uploads/2008/10/federal-reserve-cdo-analysis-2004.pdf).
194
Board of Governors of the Federal Reserve System, The Supervisory Capital Assessment
Program: Design and Implementation (Apr. 24, 2009) (online at www.federalreserve.gov/
newsevents/press/bcreg/bcreg20090424a1.pdf).
195
See Section D for a discussion on legal considerations of foreclosure document irregular-
ities.
196
Board of Governors of the Federal Reserve System, Statistics & Historical Data: Mortgage
Debt Outstanding (Sept. 2010) (online at www.federalreserve.gov/econresdata/releases/
mortoutstand/current.htm).
197
Id.
is unclear whether severe mortgage scenarios were modeled in the
Federal Reserve’s 2009 stress tests, which, in any event, did not ex-
amine potential adverse scenarios beyond 2010.
194

While the situation is still uncertain, the worst-case scenarios
would have to presuppose at a minimum a systemic breakdown in
documentation standards, the consequences of which would likely
grind the mortgage market to a halt. However, it is important to
note that, so far, many of the experts who have spoken to the ques-
tion (and the banks themselves) believe that securities documenta-
tion concerns are unlikely to trigger meaningful broad-based losses.
These experts state that although put-backs owing to breaches of
representations and warranties will continue to exert a toll on the
banks, it will largely be manageable, with costs covered from ongo-
ing reserves and earnings. Furthermore, as noted in Section D,
there are a considerable number of legal considerations that will
likely lead to losses being spread out over time.
195

Residential U.S. mortgage debt outstanding was $10.6 trillion as
of June 2010.
196
Of this amount, $5.7 trillion is government-spon-
sored enterprise (GSE) or agency-backed paper, $1.4 trillion is pri-
vate label (or non-GSE issued) securities, and $3.5 trillion is non-
securitized debt held on financial institution balance sheets.
197

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198
Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release:
Flow of Funds Accounts of the United States: Data Download Program (Instrument: Home Mort-
gages, Frequency: Annually, L.218) (online at www.federalreserve.gov/datadownload/
Choose.aspx?rel=Z.1) (accessed Nov. 12, 2010).
199
Mortgage Bankers Association, National Delinquency Survey, Q2 2010 (Aug. 26, 2010)
(hereinafter ‘‘MBA National Delinquency Survey, Q2 2010’’). See also Mortgage Bankers Associa-
tion, Delinquencies and Foreclosure Starts Decrease in Latest MBA National Delinquency Survey
(Aug. 26, 2010) (online at www.mbaa.org/NewsandMedia/PressCenter/73799.htm) (hereinafter
‘‘MBA Press Release on Delinquencies and Foreclosure Starts’’).
200
Delinquency rates include loans that are 30 days, 60 days, and 90 days or more past due.
Foreclosure rates include loans in the foreclosure process at the end of each quarter. See Id.
FIGURE 2: RESIDENTIAL (1–4 FAMILY) MORTGAGE DEBT OUTSTANDING, 1985–2009
198

[Dollars in millions]
Industry-wide, 4.6 percent of mortgages are classified as in the
foreclosure process. In addition, 9.4 percent of mortgages are at
least 30 days past due, approximately half of which are more than
90 days past due.
199

FIGURE 3: DELINQUENCY AND FORECLOSURE RATES (2006–2010)
200

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a. Leading Market Participants
Troubled mortgages were largely originated in 2005–2007, when
underwriting standards were most suspect, particularly for
subprime, Alt-A and other loans to low-credit or poorly documented
borrowers. Figure 4 below outlines the largest mortgage originators
during this period, ranked by volume and market share.
FIGURE 4: LARGEST U.S. MORTGAGE ORIGINATORS, 2005–2007
201

[Dollars in billions]
Company Volume
Market
Share
(Percent)
Bank of America .............................................................................................................................. 1,880 22.1
Countrywide Financial ............................................................................................................ 1,362 16.0
Bank of America Mortgage & Affiliates ................................................................................. 518 6.1
Wells Fargo ...................................................................................................................................... 1,324 15.5
Wells Fargo Home Mortgage ................................................................................................... 1,062 12.4
Wachovia Corporation ............................................................................................................. 262 3.1
JPMorgan Chase .............................................................................................................................. 1,151 13.5
Chase Home Finance .............................................................................................................. 566 6.6
Washington Mutual ................................................................................................................. 584 6.9
Citigroup .......................................................................................................................................... 506 5.9
Top Four Aggregate ........................................................................................................................ 4,861 57.0
Total Mortgage Originations (2005–2007) .................................................................................... 8,530
201
Inside Mortgage Finance.
The four largest banks accounted for approximately 60 percent of
all loan originations between 2005 and 2007. Totals for Bank of
America, Wells Fargo, JPMorgan Chase, and Citigroup include vol-
umes originated by companies that these firms subsequently ac-
quired. As Figure 4 indicates, a significant portion of Bank of
America’s mortgage loan portfolio is comprised of loans assumed
upon its acquisition of Countrywide Financial. Similarly, JPMorgan
Chase more than doubled its mortgage loan portfolio with its acqui-
sition of Washington Mutual.
Figure 5, below, details the largest originators of both Alt-A and
subprime loans between 2005 and 2007. The five leading origina-
tors of Alt-A and subprime loans represented approximately 56 per-
cent and 34 percent, respectively, of aggregate issuance volume for
these loan types. Alt-A and subprime loans represented approxi-
mately 30 percent of all mortgages originated from 2005 to 2007.
FIGURE 5: LEADING ORIGINATORS OF SUBPRIME AND ALT-A LOANS, 2005–2007
202

[Dollars in billions]
Company Volume
Market
Share
(Percent)
ALT-A ORIGINATIONS
Countrywide Financial (Bank of America) ....................................................................................... 172 16.2
IndyMac ............................................................................................................................................ 145 13.6
JPMorgan Chase .............................................................................................................................. 102 9.6
Washington Mutual ................................................................................................................. 40 3.8
EMC Mortgage ........................................................................................................................ 38 3.5
Chase Home Financial ............................................................................................................ 25 2.3
GMAC ............................................................................................................................................... 98 9.2
GMAC–RFC .............................................................................................................................. 77 7.3
GMAC Residential Holding ...................................................................................................... 21 1.9
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FIGURE 5: LEADING ORIGINATORS OF SUBPRIME AND ALT-A LOANS, 2005–2007
202
—Continued
[Dollars in billions]
Company Volume
Market
Share
(Percent)
Lehman Brothers
203
........................................................................................................................ 79 7.4
Top Five Aggregate ........................................................................................................................ 596 56.0
Total Alt-A Originations (2005–2007) ............................................................................................ 1,065
SUBPRIME ORIGINATIONS
Ameriquest Mortgage ....................................................................................................................... 112 7.7
New Century ..................................................................................................................................... 109 7.5
Countrywide Financial (Bank of America) ....................................................................................... 102 7.0
JPMorgan Chase .............................................................................................................................. 99 6.8
Washington Mutual ................................................................................................................. 66 4.5
Chase Home Finance .............................................................................................................. 33 2.3
Option One Mortgage ....................................................................................................................... 80 5.5
Top Five Aggregate ........................................................................................................................ 502 34.4
Total Subprime Origination (2005–2007) ...................................................................................... 1,458
202
Inside Mortgage Finance.
203
Includes Alt-A originations from Lehman Brothers subsidiary, Aurora Loan Services, LLC.
As shown in Figure 6, below, the five leading underwriters (pro
forma for acquisitions) of non-agency MBS between 2005 and 2007
accounted for 58 percent of the total underwriting volume for the
period. It is of note that the three firms with the largest under-
writing volumes during this period, Lehman Brothers, Bear
Stearns, and Countrywide Securities, have either failed or been ac-
quired by another company.
FIGURE 6: LEADING UNDERWRITERS OF NON-AGENCY MORTGAGE-BACKED SECURITIES, 2005–
2007
204

[Dollars in billions]
Company Volume
Market
Share
(Percent)
JPMorgan Chase .............................................................................................................................. 593 19.5
JPMorgan Chase ..................................................................................................................... 143 4.7
Bear Stearns ........................................................................................................................... 298 9.8
Washington Mutual ................................................................................................................. 152 5.0
Bank of America .............................................................................................................................. 371 12.2
Merrill Lynch ........................................................................................................................... 94 3.1
Countrywide Securities ........................................................................................................... 277 9.1
Lehman Brothers ............................................................................................................................. 322 10.6
RBS Greenwich Capital ................................................................................................................... 273 9.0
Credit Suisse ................................................................................................................................... 203 6.7
Top Five Aggregate ........................................................................................................................ 1,762 58.0
Total Underwriting Volume (2005–2007) ...................................................................................... 3,044
204
Inside Mortgage Finance.
As noted above, banks either retain or securitize—market condi-
tions permitting—the mortgage loans they originate. In terms of
mortgages retained on bank balance sheets, Figure 7 below lists
banks with the largest mortgage loan books, as well as the con-
centration of foreclosed mortgage loans, ranked by volume and as
a percentage of overall residential mortgage balance sheet assets.
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207
Bank of America is frequently mentioned by analysts as having potentially high exposure,
in part because of its purchase of Countrywide Financial and Merrill Lynch, which was heavily
involved in CDOs, and its assumption of successor liability. During the Panel’s October 27, 2010
hearing, Guy Cecala of Inside Mortgage Finance noted that Bank of America was one of the
FIGURE 7: BANK HOLDING COMPANIES WITH 1–4 FAMILY LOANS IN FORECLOSURE PROCEEDINGS,
JUNE 2010
205

[Dollars in billions]
Company
Total 1–4
Family
Loans
1–4 Family
Loans in
Foreclosure
Percent of 1–4
Family Loans
in Foreclosure
(Percent)
Bank of America ................................................................................. 427.1 18.8 4.4
Wells Fargo ......................................................................................... 370.7 17.6 4.7
JPMorgan Chase .................................................................................. 259.9 19.5 7.5
Citigroup ............................................................................................. 178.4 6.0 3.3
HSBC North America ........................................................................... 72.9 6.6 9.0
U.S. Bancorp ....................................................................................... 58.1 2.5 4.4
PNC Financial Services Group ............................................................ 54.9 2.7 5.0
SunTrust Banks ................................................................................... 47.9 2.4 5.0
Ally Financial (GMAC) ......................................................................... 21.5 2.2 10.2
Fifth Third Bancorp ............................................................................. 21.4 0.7 3.2
Total for All Bank Holding Companies ............................................. 2,152.2 87.7 4.1
205
SNL Financial. These data include revolving or permanent loans secured by real estate as evidenced by mortgages (FHA, FMHA, VA, or
conventional) or other liens (first or junior) secured by 1–4 family residential property.
The leading mortgage servicers are ranked below by loan volume
serviced and market share, including the percentage of the overall
portfolio in foreclosure. During the second quarter of 2010, the 10
largest servicers in the United States were responsible for servicing
67.2 percent of all outstanding residential mortgages.
FIGURE 8: LARGEST U.S. MORTGAGE SERVICERS, JUNE 2010
206

[Dollars in billions]
Company
Servicing
Portfolio
Amount
Percent of
Total Loans
Serviced
Percent of
Portfolio in
Foreclosure
Bank of America ......................................................................................... 2,135 20.1 3.3
Wells Fargo ................................................................................................. 1,812 17.0 2.0
JPMorgan ..................................................................................................... 1,354 12.7 3.6
Citigroup ..................................................................................................... 678 6.4 2.3
Ally Financial (GMAC) ................................................................................. 349 3.3 n/a
U.S. Bancorp ............................................................................................... 190 1.8 n/a
SunTrust Banks ........................................................................................... 176 1.7 4.9
PHH Mortgage ............................................................................................. 156 1.5 1.8
OneWest Bank, CA (IndyMac) ..................................................................... 155 1.5 n/a
PNC Financial Services Group .................................................................... 150 1.4 n/a
10 Largest Mortgage Servicers Aggregate .............................................. 7,155 67.2
Total Residential Mortgages Outstanding ................................................ 10,640
206
As a point of reference, as of June 2010, 63 percent of foreclosures occurred on homes where the loan was either owned or guaranteed
by government investors such as Fannie Mae and Freddie Mac, while the remaining 37 percent of foreclosures were on homes owned by pri-
vate investors. Data on percentage of portfolio in foreclosure unavailable for Ally Financial, U.S. Bancorp, OneWest Bank, and PNC Financial
Services Group. Inside Mortgage Finance.
2. Foreclosure Irregularities: Estimating the Cost to Banks
Assessing the potential financial impact of foreclosure irregular-
ities, including a prolonged foreclosure moratorium, on bank sta-
bility is complicated by the extremely fluid nature of current devel-
opments. For example, after unilaterally halting foreclosure pro-
ceedings, both Bank of America
207
and Ally Financial (GMAC) an-
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few major mortgage lenders to steer away from the subprime market. Upon the bank’s acquisi-
tion of Countrywide in 2008, however, Bank of America became the holder of the largest
subprime mortgage portfolio (in the industry). See Testimony of Guy Cecala, supra note 133.
208
Bank of America Q3 2010 Earnings Call Transcript, supra note 97, at 6 (‘‘On the fore-
closure area . . . we changed and started to reinitiate the foreclosures . . . ’’); GMAC Mortgage
Statement on Independent Review and Foreclosure Sales, supra note 20 (‘‘In addition to the na-
tionwide measures, the review and remediation activities related to cases involving judicial affi-
davits in the 23 states continues and has been underway for approximately two months. As each
of those files is reviewed, and remediated when needed, the foreclosure process resumes. GMAC
Mortgage has found no evidence to date of any inappropriate foreclosures.’’).
209
See Section F.3 for further discussion on potential bank liabilities from securitization title
irregularities and mortgage repurchases or put-backs.
210
In October 2010, the SEC sent a letter to Chief Financial Officers of certain public compa-
nies to remind them of their disclosure obligations relating to the foreclosure documentation
irregularities. See Sample SEC Letter on Disclosure Guidelines, supra note 113. The letter noted
that affected public companies should carefully consider a variety of issues relating to fore-
closure documentation irregularities, including trends, known demands, commitments and other
similar elements that might ‘‘reasonably expect to have a material favorable or unfavorable im-
pact on your results of operations, liquidity, and capital resources.’’ Although the letter notes
a variety of areas that would require disclosure, the quality of disclosure will depend on what
the companies in question are able to determine about the effect of the irregularities on their
operations. Genuine uncertainty will result in less useful disclosure. Once the information is
provided in a report, however, companies have a duty to update it if it becomes inaccurate or
misleading.
211
Bank of America Corporation, 3Q10 Earnings Results, at 10–11 (Oct. 19, 2010) (online at
phx.corporate-ir.net/Exter-
nal.File?item=UGFyZW50SUQ9NjY0MDd8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1); Bank of
America Q3 2010 Earnings Call Transcript, supra note 97, at 6.
212
It was recently reported that Bank of America found errors in 10 to 25 foreclosure cases
out of the first several hundred the bank has examined. Written Testimony of Katherine Porter,
supra note 14, at 10); Jessica Hall & Anand Basu, Bank of America Corp Acknowledged Some
Mistakes in Foreclosure Files as it Begins to Resubmit Documents in 102,000 Cases, the Wall
Street Journal Said, Reuters (Oct. 25, 2010) (online at www.reuters.com/article/
idUSTRE69O04220101025). Bank of America expects increased costs related to irregularities in
its foreclosure affidavit procedures during the fourth quarter of 2010 and into 2011. Costs asso-
ciated with reviewing its foreclosure procedures, revising affidavit filings, and making other
operational changes will likely result in higher noninterest expense, including higher servicing
costs and legal expenses. Furthermore, Bank of America anticipates higher servicing costs over
the long term if it must make changes to its foreclosure process. Finally, the time to complete
foreclosure sales may increase temporarily, which may increase nonperforming loans and serv-
icing advances and may impact the collectability of such advances, as well as the value of the
bank’s mortgage servicing rights. Bank of America Corporation, Form 10–Q for the Quarterly
Continued
nounced their intention to resume foreclosure proceedings in the
wake of internal reviews that did not uncover systemic irregular-
ities, according to both firms.
208
Looking ahead, the chief variables
are the extent and duration of potential foreclosure disruptions or
an outright moratorium, which would impact servicing and fore-
closure costs and housing market prices (and recovery values).
Such scenarios would also likely increase litigation and legal risks,
including potential fines from state attorneys general, as well as
raising questions regarding the extent to which title irregularities
may permeate the system.
209

During recent conference calls for third quarter 2010 earnings
and subsequent investor presentations, the five largest mortgage
servicers addressed questions regarding foreclosure irregularities
and potential liabilities stemming from these issues.
210

• Bank of America
211
—Bank of America initially suspended fore-
closure sales on October 8, 2010 across all 50 states after reviewing
its internal foreclosure procedures. On October 18, 2010, the bank
began amending and re-filing 102,000 foreclosure affidavits in 23
judicial foreclosure states, a process expected to take three to five
weeks to complete. While asserting that it is addressing issues sur-
rounding affidavit signatures, the company claims that it has not
been able to identify any improper foreclosure decisions.
212

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50
Period Ended September 30, 2010, at 95 (Nov. 5, 2010) (online at sec.gov/Archives/edgar/data/
70858/000095012310101545/g24513e10vq.htm).
213
Citigroup, Inc., Transcript: Citi Third Quarter 2010 Earnings Review, at 6–7 (Oct. 18,
2010) (online at www.citigroup.com/citi/fin/data/qer103tr.pdf?ieNocache=128).
214
Citigroup 10–Q for Q2 2010, supra note 101, at 52.
215
JPMorgan Q3 2010 Financial Results, supra note 180, at 14–15; Q3 2010 Earnings Call
Transcript, supra note 53.
JPMorgan Chase anticipates additional costs from implementation of these new procedures,
as well as expenses associated with maintaining foreclosed properties, re-filing documents and
foreclosure cases, or possible declining home prices during foreclosure suspensions. These costs
are dependent on the length of the foreclosure suspension. JPMorgan Chase & Co., Form 10–
Q for the Quarterly Period Ended September 30, 2010, at 93 (Nov. 9, 2010) (online at
www.sec.gov/Archives/edgar/data/19617/000095012310102689/y86142e10vq.htm) (hereinafter
‘‘JPMorgan Chase Form 10–Q’’).
216
JPMorgan Chase Form 10–Q, supra note 215, at 93, 200.
217
JPMorgan Chase & Co., BancAnalysts Association of Boston Conference, Charlie Scharf,
CEO, Retail Financial Services, at 33 (Nov. 4, 2010) (online at files.shareholder.com/downloads/
ONE/967802442x0x415409/c88f9007-6b75-4d7c-abf6-846b90dbc9e3/
BAAB_Presentation_Draft_11-03-10_FINAL_PRINT.pdf) (hereinafter ‘‘JPM Presentation at
BancAnalysts Association of Boston Conference’’).
218
JPMorgan Chase Form 10–Q, supra note 215, at 93.
219
Wells Fargo & Company, 3Q10 Quarterly Supplement, at 26 (Oct. 20, 2010) (online at
www.wellsfargo.com/downloads/pdf/press/3Q10_Quarterly_Supplement.pdf); Wells Fargo & Com-
pany, Q3 2010 Earnings Call Transcript (Oct. 20, 2010) (online at www.morningstar.com/earn-
023/earnings—earnings-call-transcript.aspx/WFC/en-US.shtml).
220
Wells Fargo Update on Affidavits and Mortgage Securitizations, supra note 23.
The company has stated that it could incur significant legal costs if its internal review of its
foreclosure procedures causes the bank to re-execute foreclosure documents, or if foreclosure ac-
tions are challenged by a borrower or overturned by a court. Wells Fargo & Company, Form
10–Q for the Quarterly Period Ended September 30, 2010, at 42–43 (Nov. 5, 2010) (online at
sec.gov/Archives/edgar/data/72971/000095012310101484/f56682e10vq.htm).
221
Ally Financial Inc., 3Q10 Earnings Review, at 10 (Nov. 3, 2010) (online at phx.corporate-
ir.net/Exter-
nal.File?item=UGFyZW50SUQ9MzQ2Nzg3NnxDaGlsZElEPTQwMjMzOHxUeXBlPTI=&t=1).
• Citigroup
213
—Citigroup has not announced plans to halt its
foreclosure proceedings. The bank has nonetheless initiated an in-
ternal review of its foreclosure process due to increased industry-
wide focus on foreclosure processes. It has not identified any issues
regarding its preparation and transfer of foreclosure documents
thus far. However, Citigroup noted in a recent filing that its cur-
rent foreclosure processes and financial condition could be affected
depending on the results of its review or if any industry-wide ad-
verse regulatory or judicial actions are taken on foreclosures.
214

• JPMorgan Chase
215
—Beginning in late September to mid-Oc-
tober 2010, JPMorgan Chase delayed foreclosure sales across 40
states, suspending approximately 127,000 loan files currently in
the foreclosure process.
216
While the company, similar to Bank of
America, has identified issues relating to foreclosure affidavits, it
does not believe that any foreclosure decisions were improper. On
November 4, 2010, JPMorgan Chase stated that it will begin re-
filing foreclosures within a few weeks.
217
The firm also stated in
a recent filing that it is developing new processes to ensure it satis-
fies all procedural requirements related to foreclosures.
218

• Wells Fargo
219
—Wells Fargo expressed confidence in its fore-
closure documentation practices and reiterated that the firm
has no plans to suspend foreclosures. The bank added that an
internal review identified instances where the final affidavit
review and some aspects of the notarization process were not
properly executed. Accordingly, Wells Fargo is submitting sup-
plemental affidavits for approximately 55,000 foreclosures in
23 judicial foreclosure states.
220

• Ally Financial (GMAC)
221
— As of November 3, 2010, GMAC
Mortgage reviewed 9,523 foreclosure affidavits, with review
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222
Ally Financial Inc., Form 10–Q for the Quarterly Period Ended September 30, 2010, at 75–
76 (Nov. 9, 2010) (online at www.sec.gov/Archives/edgar/data/40729/000119312510252419/
d10q.htm).
223
A Credit Suisse research note estimated that Bank of America, JPMorgan Chase, and
Wells Fargo could each face $500 million-$600 million in increased servicing costs and write-
downs on foreclosed homes, assuming a three-month foreclosure delay and associated costs and
write-downs approximating 1 percent per month. An FBR Capital Markets research note esti-
mated $6 billion-$10 billion in potential losses from a three-month foreclosure moratorium
across the entire banking industry. This estimate assumes that there are approximately 2 mil-
lion homes currently in the foreclosure process, and that the costs of a delay on each foreclosed
property is $1,000 per month. Credit Suisse, Mortgage Issues Mount, at 10 (Oct. 15, 2010) (here-
inafter ‘‘Credit Suisse on Mounting Mortgage Issues’’); FBR Foreclosure Mania Conference Call,
supra note 3.
224
FBR Foreclosure Mania Conference Call, supra note 3.
225
Treasury conversations with Panel staff (Oct. 21, 2010).
226
Third Way staff conversations with Panel staff (Oct. 29, 2010).
227
Jason Gold and Anne Kim, The Case Against a Foreclosure Moratorium, Third Way Domes-
tic Policy Memo, at 3–4 (Oct. 20, 2010) (online at content.thirdway.org/publications/342/
Third_Way_Memo_-_The_Case_Against_a_Foreclosure_Moratorium.pdf) (hereinafter ‘‘Third Way
Domestic Policy Memo on the Case Against a Foreclosure Moratorium’’).
pending on an additional 15,500 files. The company noted that
its review to date has not identified any instances of improper
foreclosures. Where appropriate, GMAC re-executed and refiled
affidavits with the courts. GMAC stated that it has modified
its foreclosure process, increased the size of its staff involved
in foreclosures, provided more training, and enlisted a ‘‘special-
ized quality control team’’ to review each case. The company
expects to complete all remaining foreclosure file reviews by
the end of the year. Furthermore, GMAC recently implemented
supplemental procedures for all new foreclosure cases in order
to ensure that affidavits are properly prepared.
222

While a market-wide foreclosure moratorium appears less likely
following comments from the Administration and internal reviews
by the affected banks, state attorneys general have yet to weigh in
on the issue. Market estimates of possible bank losses related to a
foreclosure moratorium have varied considerably, from $1.5 billion
to $10 billion.
223
Industry analysts have noted that a three-month
foreclosure delay could increase servicing costs and losses on fore-
closed properties. In addition, banks could also face added litigation
costs associated with resolving flawed foreclosure procedures.
224

However, these estimates can of course become quickly outdated in
the current environment. As noted, firms that previously sus-
pended foreclosures are now beginning to re-file and re-execute
foreclosure affidavits, and market estimates accounting for shorter
foreclosure moratoriums are currently unavailable.
Although they have not been implicated in the recent news of
foreclosure moratoriums, thousands of small to mid-level banks
also face some risk from foreclosure suspensions if they act as
servicers for larger banks.
225
Generally, small community banks,
as well as credit unions, are more likely to keep mortgage loans on
their books as opposed to selling them in the secondary market.
They primarily use securitization to hedge risk and increase lend-
ing power.
226
Accordingly, foreclosure moratoriums would prevent
small banks and credit unions from working through nonper-
forming loans on their balance sheets, limiting their capacity to
originate new loans.
227
As of June 2010, residential mortgages
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228
Small banks are those with under $1 billion in total assets. Congressional Oversight Panel,
July Oversight Report: Small Banks in the Capital Purchase Program, at 74 (July 14, 2010) (on-
line at cop.senate.gov/documents/cop-071410-report.pdf); SNL Financial. Credit union residential
mortgage loan portfolios include first and second lien mortgages and home equity loans. Credit
Union National Association, U.S. Credit Union Profile: Mid-Year 2010 Summary of Credit Union
Operating Results, at 6 (Sept. 7, 2010) (online at www.cuna.org/research/download/
uscu_profile_2q10.pdf).
229
A deed-in-lieu permits a borrower to transfer their interest in real property to a lender
in order to settle all indebtedness associated with that property. A short sale occurs when a
servicer allows a homeowner to sell the home with the understanding that the proceeds from
the sale may be less than is owed on the mortgage. U.S. Department of the Treasury, Home
Affordable Foreclosure Alternatives (HAFA) Program (online at makinghomeaffordable.gov/
hafa.html) (accessed Nov. 12, 2010).
made up 31 percent of small banks’ loan portfolios and 55 percent
of credit union portfolios.
228

3. Securitization Issues and Mortgage Put-backs
Foreclosure documentation issues highlight other potential—and
to some degree, related—mortgage market risks to the banking sec-
tor. Questions regarding document standards in the foreclosure
process are tangential to broader concerns impacting bank’s rep-
resentations and warranties to mortgage investors, as well as con-
cerns regarding proper legal documentation for securitized loans.
Given the lack of transparency into documentation procedures
and questions as to the capacity of disparate investor groups to
centralize claims against the industry, market estimates of poten-
tial bank liabilities stemming from securitization documentation
issues vary widely.
a. Securitization Title
As discussed above, documentation standards in the foreclosure
process have helped shine a light on potential questions regarding
the ownership of loans sold into securitization without the proper
assignment of title to the trust that sponsors the mortgage securi-
ties. There are at least three points at which the mortgage and the
note must be transferred during the securitization process in order
for the trust to have proper ownership of the mortgage and the
note and thereby the authority to foreclose if necessary. Concerns
that the proper paperwork was not placed in the securitization
trust within the 90-day window stipulated by law have created un-
certainty in MBS markets.
Any lack of clarity regarding the securitization trust’s clear own-
ership of the underlying mortgages creates an atmosphere of uncer-
tainty in the market and a bevy of possible problems. A
securitization trust is not legally capable of taking action on mort-
gages unless it has clear ownership of the mortgages and the notes.
Therefore, possible remedies for loans that are seriously delin-
quent—such as foreclosure, deed-in-lieu, or short sale—would not
be available to the trust.
229
Litigation appears likely from pur-
chasers of MBS who have possible standing against the trusts that
issued the MBS. Claimants will contend that the securitization
trusts created securities that were based on mortgages which they
did not own. Since the nation’s largest banks often created these
securitization trusts or originated the mortgages in the pool, in a
worst-case scenario it is possible that these institutions would be
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230
ASF Statement on Mortgage Securitization Legal Structures and Loan Transfers, supra
note 181. Some observers question whether, even if the procedures in the PSA were legally
sound, they were actually accomplished. Consumer lawyers conversations with Panel staff (Nov.
9, 2010).
231
The non-agency figure includes both residential and commercial mortgage-backed securi-
ties. Securities Industry and Financial Markets Association, US Mortgage-Related Outstanding
(online at www.sifma.org/uploadedFiles/Research/Statistics/StatisticsFiles/SF-US-Mortgage-Re-
lated-Outstanding-SIFMA.xls) (accessed Nov. 12, 2010).
232
Federal National Mortgage Association, Selling Guide: Fannie Mae Single Family, at Chap-
ters A2–2, A2–3 (Mar. 2, 2010) (online at www.efanniemae.com/sf/guides/ssg/sg/pdf/
sg030210.pdf).
233
It is unlikely that earlier vintages will pose a repurchase risk given the relatively more
seasoned nature of these securities.
forced to repurchase the MBS the trusts issued, often at a signifi-
cant loss.
On October 15, 2010, the American Securitization Forum (ASF)
asserted that concerns regarding the legality of loan transfers for
securitization were without merit. The statement asserted that the
ASF’s member law firms found that the ‘‘conventional process for
loan transfers embodied in standard legal documentation for mort-
gage securitizations is adequate and appropriate to transfer owner-
ship of mortgage loans to the securitization trusts in accordance
with applicable law.’’
230

b. Forced Mortgage Repurchases/Put-backs
In the context of the overall $7.6 trillion mortgage securitization
market, approximately $5.5 trillion in MBS were issued by the
GSEs and $2.1 trillion by non-agency issuers.
231
As discussed
above, and distinct from the foreclosure irregularities and
securitization documentation concerns, banks make representations
and warranties regarding the mortgage loans pooled and sold into
GSE and private-label securities. A breach of these representations
or warranties allows the purchaser to require the seller to repur-
chase the specific loan.
While these representations and warranties vary based on the
type of security and customer, triggers that may force put-backs in-
clude undisclosed liabilities, income or employment misrepresenta-
tion, property value falsification, and the mishandling of escrow
funds.
232
Thus far, loans originated in 2005–2008 have the highest
concentration of repurchase demands. Repurchase volumes stem-
ming from older vintages have not had a material effect on the na-
tion’s largest banks, and due to tightened underwriting standards
implemented at the end of 2008, it appears unlikely that loans
originated after 2008 will have a high repurchase rate, although
the enormous uncertainty in the market makes it difficult to pre-
dict repurchases with any degree of precision.
233

There are meaningful distinctions between the capacity of GSEs
and private-label investors to put-back loans to the banks. This
helps explain why the vast majority of put-back requests and suc-
cessful put-backs relate to loans sold to the GSEs. This also helps
estimate the size of the potential risks to the banks from non-agen-
cy put-backs. GSEs benefit from direct access to the banks’ loan
files and lower hurdles for breaches of representations and warran-
ties due to the relatively higher standard of loan underwriting. Pri-
vate label investors, on the other hand, do not have access to loan
files, and instead must aggregate claims to request a review of loan
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234
For further discussion, please see Section D, supra.
235
Wells Fargo & Company, BancAnalysts Association of Boston Conference, at 13 (Nov. 4,
2010) (online at www.wellsfargo.com/downloads/pdf/invest_relations/presents/nov2010/
baab_110410.pdf) (‘‘Repurchase risk is mitigated because approximately half of the
securitizations do not contain typical reps and warranties regarding borrower or other third
party misrepresentations related to the loan, general compliance with underwriting guidelines,
or property valuations’’).
236
JPM Presentation at BancAnalysts Association of Boston Conference, supra note 217, at
24 (‘‘∼70% of loans underlying deals were low doc/no doc loans’’); Bank of America Corporation,
BancAnalysts Association of Boston, at 13 (Nov. 4, 2010) (online at phx.corporate-ir.net/Exter-
nal.File?item=UGFyZW50SUQ9Njg5MDV8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1) (hereinafter
‘‘Bank of America Presentation at BancAnalysts Association of Boston Conference’’) (‘‘Contrac-
tual representations and warranties on these deals are less rigorous than those given to GSEs.
These deals had generally higher LTV ratios, lower FICOs and less loan documentation by pro-
gram design and Disclosure’’).
237
Credit Suisse, Mortgage Put-back Losses Appear Manageable for the Large Banks, at 10
(Oct. 26, 2010).
238
Id. at 10.
240
Loans either owned or guaranteed by the GSEs have performed materially better than
loans owned or securitized by other investors. For example, loans owned or guaranteed by the
GSEs that are classified as seriously delinquent have increased from 3.8 percent in June 2009
to 4.5 percent in June 2010. In comparison, the percentage of loans owned by private investors
that are classified as seriously delinquent has increased from 10.5 percent in June 2009 to 13.1
files.
234
Moreover, and perhaps more importantly, private label se-
curities often lack some of the representations and warranties com-
mon to agency securities. For example, Wells Fargo indicated that
approximately half of its private label securities do not contain all
of the representations and warranties typical of agency securi-
ties.
235
Also, given that private label securities are often composed
of loans to borrowers with minimal to non-existent supporting loan
documentation, many do not contain warranties to protect inves-
tors from borrower fraud.
236

Since the beginning of 2009, the four largest banks incurred
$11.4 billion in repurchase expenses, with the group’s aggregate re-
purchase reserve increasing to $9.9 billion as of the third quarter
2010.
237
Bank of America incurred a total of $4.5 billion in ex-
penses relating to representations and warranties during this pe-
riod—nearly 40 percent of the $11.4 billion total that the top four
banks have reported.
238

FIGURE 9: ESTIMATED REPRESENTATION AND WARRANTIES EXPENSE AND REPURCHASE RESERVES
AT LARGEST BANKS
239

[Dollars in millions]
Estimated Representation and
Warranty Expense
Estimated Ending Repurchase
Reserves
FY 2009 Q1 2010 Q2 2010 Q3 2010 FY 2009 Q1 2010 Q2 2010 Q3 2010
Bank of America ......................... $1,900 $526 $1,248 $872 $3,507 $3,325 $3,939 $4,339
Citigroup ..................................... 526 5 351 358 482 450 727 952
JP Morgan ................................... 940 432 667 1,464 1,705 1,982 2,332 3,332
Wells Fargo ................................. 927 402 382 370 1,033 1,263 1,375 1,331
Total ............................................ $4,293 $1,365 $2,648 $3,064 $6,727 $7,020 $8,373 $9,954
239
Id. at 10.
GSE Put-backs
As of June 2010, 63 percent of foreclosures occurred on homes
where the loan was either owned or guaranteed by government in-
vestors such as Fannie Mae and Freddie Mac, while the remaining
37 percent of foreclosures were on homes owned by private inves-
tors.
240
A large portion of these loans were originated and sold by
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55
percent in June 2010. The same dichotomy is seen in the number of loans in the process of fore-
closure. As of June 2010, 2.3 percent of loans owned or guaranteed by the GSEs were in the
foreclosure process, whereas 8.0 percent of loans owned by private investors were classified as
such. Staff calculations derived from Office of the Comptroller of the Currency and Office of
Thrift Supervision, OCC and OTS Mortgage Metrics Report: Second Quarter 2010, at Tables 9,
10, 11 (Sept. 2010) (online at www.ots.treas.gov/_files/490019.pdf) (hereinafter ‘‘OCC and OTS
Mortgage Metrics Report’’); Foreclosure completion information provided by OCC/OTS in re-
sponse to Panel request.
241
Credit Suisse on Mounting Mortgage Issues, supra note 223.
242
Standard & Poor’s on the Impact of Mortgage Troubles on U.S. Banks, supra note 106, at
2.
243
Bank of America Presentation at BancAnalysts Association of Boston Conference, supra
note 236, at 12.
244
Bank of America Presentation at BancAnalysts Association of Boston Conference, supra
note 236, at 12 (‘‘We estimate we are roughly two-thirds through with GSE claims on 2004–
2008 vintages.’’).
245
JPM Presentation at BancAnalysts Association of Boston Conference, supra note 217, at
22 (‘‘More recent additions to 90 DPD [days past due] have longer histories of payment; we be-
lieve loans going delinquent after 24 months of origination are at lower risk of repurchase.’’).
246
JPM Presentation at BancAnalysts Association of Boston Conference, supra note 217, at
24 (‘‘45% of losses-to-date from loans that paid for 25+ months before delinquency’’); Bank of
America Merrill Lynch, R&W: Investor hurdles mitigate impact; GSE losses peaking (Nov. 8,
2010) (‘‘Delinquency after 2 years of timely payment materially reduces the likelihood of repur-
Continued
the nation’s largest banks. As Figure 10 illustrates, the nation’s
four largest banks sold a total of $3.1 trillion in loans to Fannie
Mae and Freddie Mac from 2005–2008.
FIGURE 10: LOANS SOLD TO FANNIE MAE AND FREDDIE MAC, 2005–2008
241

GSEs have already forced banks to repurchase $12.4 billion in
mortgages.
242
Bank of America, which has the largest loan portfolio
in comparison to its peers, has received a total of $18.0 billion in
representation and warranty claims from the GSEs on 2004–2008
vintages. Of this total, Bank of America has resolved $11.4 billion,
incurring $2.5 billion in associated losses.
243
However, the bank be-
lieves that it has turned the corner in terms of new repurchase re-
quests from the GSEs.
244
Further, the passage of time is appar-
ently on the banks’ side here, as JPMorgan Chase noted that
breaches of representations and warranties generally occur within
24 months of the loan being originated.
245
JPMorgan Chase noted
that delinquencies or foreclosures on loans aged more than two
years generally reflect economic hardship of the borrower.
246

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56
chase from GSEs (or others, for that matter), since the likelihood of default being caused by
origination problems is much lower; instead, default was likely triggered by loss of employment,
decline in home value, and the like.’’).
247
Standard & Poor’s on the Impact of Mortgage Troubles on U.S. Banks, supra note 106, at
4.
248
Standard & Poor’s on the Impact of Mortgage Troubles on U.S. Banks, supra note 106, at
4. (‘‘[W]e believe that the representation and warranties were not standard across all private-
label securities and may have provided differing levels of protection to investors. They do not
appear to have the same basis on which to ask the banks to buy back the loans because the
banks did not, in our view, make similar promises in the representation and warranties.’’).
249
As of June 2010, the OCC/OTS reports that 11.4 percent of the Alt-A and 19.4 percent of
the subprime loans it services are classified as seriously delinquent as compared to an overall
rate of 6.2 percent. OCC and OTS Mortgage Metrics Report, supra note 240. Also, for example,
JPMorgan Chase noted that 41 percent and 32 percent of its private-label subprime and Alt-
A securities, respectively, issued between 2005 and 2008 had been 90 days or more past due
at one point as compared to only 13 percent of its prime mortgages. JPM Presentation at
BancAnalysts Association of Boston Conference, supra note 217, at 24 .
250
Bank of America Presentation at BancAnalysts Association of Boston Conference, supra
note 236.
251
As part of its MBS purchase program, the Federal Reserve currently owns approximately
$1.1 trillion of agency MBS. Due to the nature of the government guarantee attached to agency
MBS, loans that are over 120 days past due are automatically bought back at par by the govern-
ment agencies such as Fannie Mae and Freddie Mac that guaranteed them. Therefore the Fed-
eral Reserve’s $1.1 trillion in MBS holdings do not pose a direct put-back risk to the banking
industry, however, if the loans are bought back by the agency guarantors, these agencies have
the right to take action against the entities that originally sold the loans if there were breaches
Private-Label Put-backs
In comparison with the GSEs, private-label investors do not ben-
efit from the same degree of protection through the representations
and warranties common in the agency PSAs.
247
There were, how-
ever, representations and warranties in private-label securities
that, if violated, could provide an outlet for mortgage put-backs. In
theory, systemic breaches in these securities could prove a bigger
and potentially more problematic exposure, although market ob-
servers have cited logistical impediments to centralizing claims, in
addition to the higher hurdles necessary to put-back securities suc-
cessfully to the banks.
248
Since the majority of subprime and Alt-
A originators folded during the crisis, the bulk of the litigation is
directed at the underwriters and any large, surviving originators.
Thus far, however, subprime and Alt-A repurchase requests have
been slow to materialize. Relative to subprime and Alt-A loans,
jumbo loans to higher-net borrowers—which were in turn sold to
private label investors—have performed substantially better.
249

Bank of America offers a window into the comparatively slow
rate at which private-label securities have been put-back to banks.
Between 2004 and 2008, Bank of America sold approximately $750
billion of loans to parties other than the GSEs.
250
As of October
2010, Bank of America received $3.9 billion in repurchase requests
from private-label and whole-loan investors. To date, Bank of
America has rescinded $1.9 billion in private-label and whole-loan
put-back claims and approved $1.0 billion for repurchase, with an
estimated loss of $600 million.
This level of actual put-back requests highlights the difficulty in
maneuvering the steps necessary to put-back a loan, which begins
with a group of investors in the same security or tranche of a secu-
rity banding together to request access to the underlying loan docu-
ments. For example, the group of investors petitioning for paper-
work relating to $47 billion in Bank of America loans remain a
number of steps away from being in a position to request formally
a put-back.
251
Figure 11, below, illustrates the dollar amount of
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or violations. The Federal Reserve Bank of New York also owns private-label RMBS in its Maid-
en Lane vehicles created under its 13(3) authority.
FRBNY’s holdings of private-label RMBS are concentrated in the Maiden Lane II vehicle cre-
ated as part of the government’s intervention in American International Group (AIG). As of
June 30, 2010, the fair value of private-label RMBS in Maiden Lane II was $14.8 billion. The
sector distribution of Maiden Lane II was 54.6 percent subprime, 30.8 percent Alt-A adjustable
rate mortgage (ARM), 6.8 percent option ARM, and the remainder was classified as ‘‘other.’’ The
$47 billion action that FRBNY joined involves only the private-label RMBS it holds in the Maid-
en Lane vehicles, and is primarily localized within Maiden Lane II. FRBNY staff conversations
with Panel staff (Oct. 26, 2010); Board of Governors of the Federal Reserve System staff con-
versations with Panel staff (Nov. 10, 2010); Board of Governors of the Federal Reserve System,
Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance
Sheet, at 19 (Oct. 2010) (online at www.federalreserve.gov/monetarypolicy/ files/
monthlyclbsreport201010.pdf) (hereinafter ‘‘Federal Reserve Report on Credit and Liquidity Pro-
grams and the Balance Sheet’’); Board of Governors of the Federal Reserve System, Factors Af-
fecting Reserve Balances (H.4.1) (Nov. 12, 2010) (online at www.federalreserve.gov/releases/h41/)
(hereinafter ‘‘Federal Reserve Statistical Release H.4.1’’). For more information on the Federal
Reserve’s section 13(3) authority, please see 12 U.S.C. § 343 (providing that the Federal Reserve
Board ‘‘may authorize any Federal reserve bank . . . to discount . . . notes, drafts, and bills
of exchange’’ for ‘‘any individual, partnership, or corporation’’ if three conditions are met). See
also Congressional Oversight Panel, June Oversight Report: The AIG Rescue, Its Impact on Mar-
kets, and the Government’s Exit Strategy, at 79–83 (June 10, 2010) (online at cop.senate.gov/doc-
uments/cop-061010-report.pdf).
252
There were no sales in 2009. Credit Suisse on Mounting Mortgage Issues, supra note 223.
non-agency loans originated by the nation’s four largest banks be-
tween 2005 and 2008.
FIGURE 11: NON-AGENCY ORIGINATIONS, 2005–2008
252

Put-back Loss Estimates
Losses stemming from mortgage put-backs are viewed as the big-
gest potential liability of the banking sector from the foreclosure
crisis. While it is difficult to quantify the impact this issue may
have on bank balance sheets, a number of analysts have compiled
estimates on potential risks to the sector.
The first step in estimating the industry’s exposure is identifying
the appropriate universe of loans, within the $10.6 trillion mort-
gage debt market. The 2005–2008 period is the starting point for
this analysis. Of the loans originated during this period, $3.7 tril-
lion were sold by banks to the GSEs and $1.5 trillion were sold to
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253
Nomura Equity Research, Private Label Put-Back Concerns are Overdone, Private Investors
Face Hurdles (Nov. 1, 2010) (hereinafter ‘‘Nomura Equity Research on Private Label Put-Back
Concerns’’); Goldman Sachs, Assessing the Mortgage Morass (Oct. 15, 2010) (hereinafter ‘‘Gold-
man Sachs on Assessing the Mortgage Morass’’).
254
Subsequent estimates—loan delinquencies, put-back requests, successful put-backs, and
loss severity—are surveyed from the following research reports: Bernstein Research, Bank Stock
Weekly: Return to Lender? Sizing Rep and Warranty Exposure (Sept. 24, 2010) (hereinafter
‘‘Bernstein Research Report on Sizing Rep and Warranty Exposure’’); Barclays Capital, Focus
on Mortgage Repurchase Risk (Sept. 2, 2010); J.P. Morgan, Putbacks and Foreclosures: Fact vs.
Fiction (Oct. 15, 2010) (hereinafter ‘‘Barclays Capital Research Report on Putbacks and Fore-
closures’’); Goldman Sachs on Assessing the Mortgage Morass, supra note 253; Nomura Equity
Research on Private Label Put-Back Concerns, supra note 253; Citigroup Global Markets, R&W
Losses Manageable, but Non-Agency May be Costly Wildcard (Sept. 26, 2010) (hereinafter
‘‘Citigroup Research Report on Non-Agency Losses’’); Compass Point Research & Trading, LLC,
GSE Mortgage Repurchase Risk Poses Future Headwinds: Quantifying Losses (Mar. 15, 2010);
Deutsche Bank Revisits Putbacks and Securitizations, supra note 192; JPM Presentation at
BancAnalysts Association of Boston Conference, supra note 217, at 26.
255
Four analyst estimates were used for the blended private-label loan losses percentage of
30%: Goldman Sachs—28%, Bernstein Research—25%, Nomura Equity Research—25%, and
Credit Suisse—40%. Goldman Sachs on Assessing the Mortgage Morass, supra note 253;
Nomura Equity Research on Private Label Put-Back Concerns, supra note 253; Bernstein Re-
search Report on Sizing Rep and Warranty Exposure, supra note 254; Credit Suisse on Mort-
gage Put-back Losses, supra note 192.
private label investors.
253
Accordingly, this $5.2 trillion in agency
and non-agency loans and securities sold by the banks during the
2005–2008 period is the starting point for a series of assumptions—
loan delinquencies, put-back requests, successful put-backs, and
loss severity—that ultimately drive estimates of potential bank
losses.
The Panel has averaged published loss estimates from bank ana-
lysts in order to provide a top-level illustration of the cost mortgage
put-backs could inflict on bank balance sheets. The estimate below
represents a baseline sample of five analyst estimates for the GSE
portion and six analyst estimates for the private-label approxima-
tion. Accordingly, realized losses could be significantly higher or
meaningfully lower.
As outlined below, there are numerous assumptions involved in
estimating potential losses from put-backs.
254

• Projected Loan Losses—Delinquent or non-performing mort-
gage loans provide the initial pipeline for potential mortgage
put-backs. Accordingly, estimates of cumulative losses on loans
issued between 2005 and 2008 govern the aggregate put-back
risk of the banks. The blended estimate for GSE loans is 13
percent, and the blended private label estimate is 30 per-
cent.
255

• Gross Put-backs—The next step is projecting what percent-
age of these delinquent or nonperforming loans holders will
choose to put-back to the banks. The average estimate for
gross put-backs for the GSEs is 30 percent, and private label
loans is 24 percent.
• Successful Put-backs—Of these put-back requests, analysts
estimate that 50 percent of GSE loans and 33 percent of pri-
vate label loans are put-back successfully to the banks.
• Severity—The calculation involves the loss severity on loans
that are successfully put-back to the banks (i.e., how much the
banks have to pay to make the aggrieved investors whole). The
blended average severity rate used by analysts for both GSE
and the private label loans is 50 percent.
Using the assumptions outlined above, the estimated loss to the
industry from mortgage put-backs is $52 billion (see Figure 12
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256
This range is comprised of a number of base-case or mid-point estimates for potential
losses across the industry from put-backs: Standard & Poor’s—$43 billion, Deutsche Bank—$43
billion, FBR Capital Markets—$44 billion in potential losses, Citigroup—$50.1 billion, J.P Mor-
gan—$55 billion, Goldman Sachs—$71 billion, Credit Suisse—$65 billion, The Deutsche Bank
estimate is for $31 billion in remaining losses, the $12 billion in realized losses thus far was
added to create a consistent metric. FBR on Repurchase-Related Losses, supra note 192; Credit
Suisse on Mortgage Put-back Losses, supra note 192; Deutsche Bank Revisits Putbacks and
Securitizations, supra note 192; Standard & Poor’s on the Impact of Mortgage Troubles on U.S.
Banks, supra note 106, at 4; Citigroup Research Report on Non-Agency Losses, supra note 254;
Barclays Capital Research Report on Putbacks and Foreclosures, supra note 254; Goldman
Sachs on Assessing the Mortgage Morass, supra note 253.
259
It is worth noting, however, that Bank of America and JPMorgan Chase are the more
meaningful contributors, accounting for approximately 50 percent of the industry’s total pro-
jected losses by analysts. The mid-point of each of these estimates was used to compute the
range. Deutsche Bank Revisits Putbacks and Securitizations, supra note 192, at 7; Credit Suisse
on Mounting Mortgage Issues, supra note 223; FBR on Repurchase-Related Losses, supra note
192.
260
The $11.4 billion in estimated expenses at the top four banks has been since the first quar-
ter of 2009. Credit Suisse on Mortgage Put-back Losses, supra note 192, at 10.
261
Deutsche Bank Revisits Putbacks and Securitizations, supra note 192.
below). This compares to industry-wide estimates of base-case
losses from mortgage put-backs of $43 billion to $65 billion.
256

FIGURE 12: PUT-BACK LOSS ESTIMATES
257

[Dollars in billions]
Agency MBS Private Label MBS
Total
(%) ($) (%) ($)
2005–2008 MBS Sold
258
.......................................................... $3,651 $1,358 $5,009
Projected Loan Losses ............................................................... 13 475 30 407 882
Gross Put-backs (Requests) ..................................................... 30 142 24 98 240
Successful Put-backs ................................................................ 50 71 33 32 103
Put-back Severity ...................................................................... 50 50
Total Put-back Losses ............................................................. $36 $16 $52
257
JPM Presentation at BancAnalysts Association of Boston Conference, supra note 217, at 26.
258
These figures represent the value of the MBS sold either to the GSEs or private-label investors during this period that are still currently
outstanding. Nomura Equity Research on Private Label Put-Back Concerns, supra note 253; Goldman Sachs on Assessing the Mortgage Mo-
rass, supra note 253.
The estimated $52 billion would be borne predominantly by four
firms (Bank of America, JPMorgan Chase, Wells Fargo, and
Citigroup), accounting for the majority of the industry’s total expo-
sure and projected losses.
259
In the aggregate these four banks
have already reserved $9.9 billion for future representations and
warranties expenses, which is in addition to the $11.4 billion in ex-
penses already incurred.
260
Thus, of this potential liability, $21.3
billion has either been previously expensed or reserved for by the
major banks.
261
Given the timing associated with put-back re-
quests and associated accounting recognition, it is not inconceivable
that the major banks could recognize future losses over a 2–3 year
period.
G. Effect of Irregularities and Foreclosure Freezes on
Housing Market
1. Foreclosure Freezes and their Effect on Housing
In previous reports, the Panel has noted the many undesirable
consequences that foreclosures, especially mass foreclosures, have
on individuals, families, neighborhoods, local governments, and the
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262
March 2009 Oversight Report, supra note 6, at 9–11.
263
See, e.g., Written Testimony of Julia Gordon, supra note 171, at 1–2.
264
See, e.g., Statement from Bank of America Home Loans, supra note 21.
265
See, e.g., Office of Maryland Governor Martin O’Malley, Governor Martin O’Malley, Mary-
land Congressional Delegation Request Court Intervention in Halting Foreclosures (Oct. 8, 2010)
(online at www.governor.maryland.gov/pressreleases/101009b.asp).
266
See, e.g., Reid Welcomes Bank of America Decision, supra note 24; Foreclosure Moratorium:
Cracking Down on Liar Liens, supra note 24.
267
March 2009 Oversight Report, supra note 6, at 62–63 (Discussing foreclosure freezes:
‘‘Again, this raises the question of whether the economic efficiency of foreclosures should be
viewed in the context of individual foreclosures or in the context of the macroeconomic impact
of widespread foreclosures. If the former, then caution should be exercised about foreclosure
moratoria and other forms of delay to the extent it prevents efficient foreclosures. But if the
latter is the proper view, then it may well be that some individually efficient foreclosures should
nonetheless be prevented in order to mitigate the macroeconomic impact of mass foreclosures.’’).
268
March 2009 Oversight Report, supra note 6, at 37 (Discussing loan modification programs:
‘‘As an initial matter, however, it must be recognized that some foreclosures are not avoidable
and some workouts may not be economical. This should temper expectations about the scope
of any modification program.’’).
economy as a whole.
262
Additionally, housing experts testifying at
Panel hearings have emphasized that mass foreclosures cause dam-
age to the economy and social fabric of the country.
263
Certainly,
the injection over the past several years of millions of foreclosed-
upon homes into an already weak housing market has had a dele-
terious effect on home prices. These effects are especially relevant
in examining what repercussions foreclosure freezes would have on
the housing market, and the advisability of such freezes.
Questions remain as to how broadly the current foreclosure irreg-
ularities will affect the housing market, and the scale of the losses
involved. The immediate effect of the foreclosure document irreg-
ularities has been to cause many servicers to freeze all foreclosure
processings, although some freezes have been temporary.
264
Some
states have encouraged these foreclosure freezes,
265
and govern-
ment-imposed, blanket freezes on all foreclosures have been under
discussion.
266
The housing market may not be seriously affected by
the current freezes on pending foreclosures, which may actually
cause home prices of unaffected homes to rise. Any foreclosure mor-
atorium that is not accompanied by action to address the under-
lying issues associated with mass foreclosures and the irregular-
ities, however, will add delays but will not provide solutions. Be-
yond the effects of the current freezes, mortgage documentation
irregularities may increase home buyers’ and mortgage investors’
perceptions of risk and damage confidence and trust in the housing
market, all of which may drive down home prices.
In considering the possible effects foreclosure freezes may have
on the housing market, it is important to distinguish, as the Panel
has in previous reports, between the effects these foreclosures and
foreclosure freezes may have on individuals versus effects that are
more systemic or macroeconomic, as these interests may come into
conflict at times.
267
The Panel has also repeatedly acknowledged
that the circumstances surrounding some mortgages make fore-
closure simply unavoidable.
268
Additionally, the current housing
market has, among other difficult problems, a severe oversupply of
housing in relation to current demand, which has fallen substan-
tially since the peak bubble years due to higher unemployment and
other economic hardships. This fundamental supply/demand imbal-
ance has driven down home prices nationwide, but especially in
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269
The oversupply of homes can be clearly seen from ‘‘for sale’’ inventory statistics, which the
Panel has discussed in previous reports. See, e.g., March 2009 Oversight Report, supra note 6,
at 107–108. September 2010 for-sale housing inventory stands at 4.04 million homes, a 10.7
month supply at current sales rates, up from the 3.59 million homes representing an 8.6 month
supply cited in the Panel’s April report on foreclosures. National Association of Realtors, Sep-
tember Existing-Home Sales Show Another Strong Gain (Oct. 25, 2010) (online at
www.realtor.org/press_room/news_releases/2010/10/sept_strong).
270
The Panel has discussed some of the pros and cons of foreclosure freezes in prior reports,
but not in the context of the irregularities. March 2009 Oversight Report, supra note 6, at 61–
63.
271
March 2009 Oversight Report, supra note 6, at 61.
272
See, e.g., March 2009 Oversight Report, supra note 6, at 9–11.
273
John Campbell, Stefano Giglio, and Parag Pathak, Forced Sales and House Prices, at 10,
18, 21, Unpublished manuscript (July 2010) (online at econ-www.mit.edu/files/5694) (‘‘. . . the
typical foreclosure during this period lowered the price of the foreclosed house by $44,000 and
the prices of neighboring houses by a total of $477,000, for a total loss in housing value of
$520,000.’’ and ‘‘Our preferred estimate of the spillover effect suggests that each foreclosure that
takes place 0.05 miles away lowers the price of a house by about 1%.’’).
areas such as Nevada or Florida, where a great many new homes
were constructed.
269

There are numerous arguments both for and against foreclosure
freezes at this time.
270
Freezing foreclosures may allow time for
servicers, state governments, and courts to sort out the irregularity
situation and may avoid illegal or erroneous foreclosures in some
cases. Voluntary, limited freezes may be sensible for particular
servicers. The costs associated with a mandatory foreclosure freeze
may also pressure servicers to resolve frozen foreclosures through
modifications.
271
Further, foreclosure freezes can temporarily re-
duce the number of real estate owned by banks and pre-foreclosure
homes coming to market, reducing excess supply, which can be
beneficial for home prices in the short term. The longer-term con-
sequences of freezes depend on the ultimate solution to the issues
giving rise to the freezes.
In addition, foreclosures have many well-documented negative fi-
nancial and social consequences on families and neighborhoods that
might be mitigated by a foreclosure freeze.
272
Vacant homes can at-
tract thieves and vandals. If not maintained by the lender, prop-
erties foreclosed upon and repossessed by the lender—properties
also known as real-estate owned (REOs), often become eyesores, de-
tracting from the appearance of the neighborhood and reducing
local home values. The drop in the value of neighboring homes has
been corroborated by a recent study. Although the authors found
that the impact of foreclosed homes on each individual neighboring
home is relatively small, these losses can amount to a considerable
total loss in value to the neighborhood. Not surprisingly, the re-
searchers found a more dramatic decline in value for the foreclosed
home itself. The study indicated that foreclosure lowers a home’s
value by an average of 27 percent, much more than other events,
such as personal bankruptcy, that also lead to forced home sales.
The researchers attribute these losses primarily to the urgency
with which lenders dispose of REOs and to damage inflicted on va-
cant, lender-owned homes.
273

In addition to lowering the value of the home itself, a foreclosure
affects the surrounding neighborhood, especially if the home is
clearly marked with a sale sign that says ‘‘foreclosure.’’ A reduction
in price from a foreclosed property can affect the values of sur-
rounding homes if the low price is used as a comparable sale for
valuation purposes. Even if foreclosure sales are excluded as com-
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274
Zillow does not include foreclosure data in its home price estimates; however, a person can
click on a home, including foreclosed homes, and see its sales price.
275
See, e.g., Vicki Bean, Ingrid Gould Ellen, et al., Kids and Foreclosures: New York City
(Sept. 2010) (online at steinhardt.nyu.edu/scmsAdmin/media/users/lah431/Fore-
closures_and_Kids_Policy_Brief_Sept_2010.pdf); Vanesa Estrada Correa, The Housing Downturn
and Racial Inequality, Policy Matters, Vol. 3, No. 2 (Fall 2009) (online at
www.policymatters.ucr.edu/pmatters-vol3-2-housing.pdf).
276
Congressional Oversight Panel, Testimony of Julia Gordon, senior policy council, Center for
Responsible Lending, Transcript: COP Hearing on TARP Foreclosure Mitigation Programs (Oct.
27, 2010) (publication forthcoming) (online at cop.senate.gov/hearings/library/hearing-102710-
foreclosure.cfm) (‘‘African American and Latino families are much more likely than whites to
lose their homes, and we estimate that communities of color will lose over $360 billion worth
of wealth.’’).
277
First American CoreLogic, ‘‘Shadow Housing Inventory’’ Put At 1.7 Million in 3Q According
to First American CoreLogic (Dec. 17, 2009) (online at www.facorelogic.com/uploadedFiles/News-
room/RES_in_the_News/FACL_Shadow_Inventory_121809.pdf); Laurie Goodman, Robert
Hunter, et al., Amherst Securities Group LP, Amherst Mortgage Insight: Housing Overhang/
Shadow Inventory = Enormous Problem, at 1 (Sept. 23, 2009) (online at ma-
trix.millersamuel.com/wp-content/3q09/Amherst%20Mortgage%20Insight%2009232009.pdf).
278
James J. Saccacio, chief executive officer of the online foreclosure marketplace RealtyTrac,
expects that ‘‘if the lenders can resolve the documentation issue quickly, then we would expect
the temporary lull in foreclosure activity to be followed by a parallel spike in activity as many
of the delayed foreclosures move forward in the foreclosure process. However, if the documenta-
tion issue cannot be quickly resolved and expands to more lenders we could see a chilling effect
on the overall housing market as sales of pre-foreclosure and foreclosed properties, which ac-
count for nearly one-third of all sales, dry up and the shadow inventory of distressed properties
grows—causing more uncertainty about home prices.’’ RealtyTrac, Foreclosure Activity Increases
4 Percent in Third Quarter (Oct. 14, 2010) (online at www.realtytrac.com/content/press-releases/
q3-2010-and-september-2010-foreclosure-reports-6108) (hereinafter ‘‘RealtyTrac Press Release on
Foreclosure Activity’’).
parable sales from appraisals, as is often the case, these sale prices
are readily accessible public information. For example, considering
the popularity of real estate sites such as Zillow and Trulia that
show home sale prices, buyers can easily see these low foreclosure
sale prices and are likely to reduce their offers accordingly.
274
Fur-
thermore, as Julia Gordon of the Center for Responsible Lending
and several academic studies observe,
275
minority communities are
disproportionately affected by foreclosures and their con-
sequences.
276
These negative externalities from foreclosures are
borne not by any of the parties to the mortgage, but by the neigh-
bors and the community, who are innocent bystanders.
One of the most common arguments against foreclosure freezes
concerns the effect that freezes could have on shadow inventory—
properties likely to be sold in the near future that are not currently
on the market, and are therefore not counted in supply inventory
statistics. A prolonged freeze on foreclosures without a diminution
in the number of homes in foreclosure would add to the already
substantial problem of shadow inventory. Of course, increased
shadow inventory can be addressed either by foreclosing and sell-
ing the homes, or by creating circumstances that allow current
homeowners to stay in their homes. Although there are no reliable
measures (or definitions) of shadow inventory, estimates range
from 1.7 million to 7 million homes.
277
These homes represent ad-
ditional supply that the market will eventually have to accommo-
date, so long as the homes are not removed from the shadow inven-
tory due to circumstances such as loan modifications or an im-
provement in the financial condition of borrowers.
278

Beyond shadow inventory, foreclosure sales consist of sales of
homes immediately prior to foreclosure and sales of REOs. In the
12 months between September 2009 and August 2010, 4.13 million
existing homes were sold in the United States, approximately 30
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279
National Association of Realtors, Existing-Home Sales Move Up in August (Sept. 23, 2010)
(online at www.realtor.org/press_room/news_releases/2010/09/ehs_move); HOPE Now Alliance,
Appendix—Mortgage Loss Mitigation Statistics: Industry Extrapolations (Monthly for Dec 2008
to Nov 2009) (online at www.hopenow.com/industry-data/
HOPE%20NOW%20National%20Data%20July07%20to%20Nov09%20v2%20(2).pdf); HOPE Now
Alliance, Industry Extrapolations and Metrics (May 2010) (online at www.hopenow.com/industry-
data/HOPE%20NOW%20Data%20Report%20(May)%2006-21-2010.pdf); HOPE Now Alliance, In-
dustry Extrapolations and Metrics (Aug. 2010) (online at hopenow.com/industry-data/
HOPE%20NOW%20Data%20Report%20(August)%2010-05-2010%20v2b.pdf).
280
RealtyTrac Press Release on Foreclosure Activity, supra note 278.
281
MBA National Delinquency Survey, Q2 2010, supra note 199. See also MBA Press Release
on Delinquencies and Foreclosure Starts, supra note 199.
282
Zach Fox, Credit Suisse: $1 Trillion worth of ARMs still face resets, SNL Financial (Feb.
25, 2010). The Panel addressed the impact of interest rate resets in its April 2010 Report on
foreclosures. Congressional Oversight Panel, April Oversight Report: Evaluating Progress of
TARP Foreclosure Mitigation Programs, at 111–115, 123 (Apr. 14, 2010) (online at
cop.senate.gov/documents/cop-041410-report.pdf) (hereinafter ‘‘April 2010 Ovesright Report’’).
283
Fannie Mae and Freddie Mac would be impacted directly by a freeze because they would
have to continue advancing coupon payments to bondholders while not receiving any revenue
from disposal of foreclosed properties, upon which they are already not receiving mortgage pay-
ments. These costs would almost certainly be borne by taxpayers, and depending on the dura-
tion of the freeze and how the housing market responds to it, they could be substantial.
Press reports and Panel staff discussions with industry sources have indicated that, as part
of an effort to restart foreclosures, Fannie Mae and Freddie Mac were until recently negotiating
an indemnification agreement with servicers and title insurers. This would have been along the
lines of the recent agreement between Bank of America and Fidelity National Financial, men-
tioned above in Section C, in which Bank of America agreed to indemnify Fidelity National (a
title insurer) for losses incurred due to servicer errors. However, industry sources stated that
the GSEs had recently cooled to this effort. Industry sources conversations with Panel staff
(Nov. 9, 2010); Nick Timiraos, Fannie, Freddie Seek End to Freeze, Wall Street Journal (Oct.
23, 2010) (online at online.wsj.com/article/
SB10001424052702304354104575568621229952944.html); see also Statement from Bank of
America Home Loans, supra note 16.
284
Third Way Domestic Policy Memo on the Case Against a Foreclosure Moratorium, supra
note 227.
285
See Section F.2, supra.
percent of which were foreclosure sales.
279
Further, lenders are es-
timated to own 290,000 properties as REOs.
280
Currently, approxi-
mately 2 million homes, or 4.6 percent of all mortgaged properties,
are classified as in the foreclosure process. Another 2 million, or 4.5
percent of mortgaged properties, are more than 90 days past
due.
281
The level of foreclosures is, further, expected to rise: more
than $1 trillion in adjustable-rate mortgages are expected to expe-
rience interest rate resets between 2010 and 2012, an event that
is positively correlated with delinquency and foreclosure.
282
Fore-
closure sales therefore represent a very substantial portion of hous-
ing market activity, with many more foreclosures either in the
pipeline or likely to enter the pipeline in the coming years.
Opponents of mandatory foreclosure freezes have also argued
that a widespread freeze would encourage defaults by eliminating
the negative consequences of default; that foreclosure freezes are
bad for mortgage investors (including taxpayers, as owners of the
GSEs)
283
because they reduce investment returns by delaying the
payment of foreclosure sale proceeds; and that they would dis-
proportionately harm smaller banks and credit unions, which are
heavily invested in home mortgages.
284
Further, when smaller
banks and credit unions service loans, payments to investors on
non-performing loans must come from significantly smaller cash
cushions than they do for the largest banks and servicers.
285
James
Lockhart, former regulator of Fannie Mae and Freddie Mac, has
stated that freezes will also extend the time that homes in fore-
closure proceedings will be left vacant, with attendant negative ef-
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286
Bloomberg News, Interview with WL Ross & Co.’s James Lockhart (Oct. 27, 2010) (online
at www.bloomberg.com/video/64040362/).
287
JPMorgan Chase estimates that approximately one-third of the homes upon which it fore-
closes are already vacant by the time the foreclosure process commences. Stephen Meister,
Foreclosuregate is Quickly Spinning Out of Control, RealClearMarkets (Oct. 22, 2010) (online at
www.realclearmarkets.com/articles/2010/10/22/foreclosure-
gate_is_quickly_spinning_out_of_control.html). Similarly, there are reports about a type of stra-
tegic default, commonly known as ‘‘jingle mail,’’ where the delinquent borrower vacates the
home and mails the servicer the keys in the hope that the servicer will accept the act as a deed-
in-lieu-of-foreclosure, or simply to get the foreclosure process over with.
288
David H. Stevens, commissioner, Federal Housing Administration, Remarks at the Mort-
gage Bankers Association Annual Convention, at 7, 20 (Oct. 26, 2010).
fects on the surrounding neighborhood.
286
Such cases would pre-
sumably involve already vacant, foreclosed-upon homes, and homes
with impending or ongoing foreclosure proceedings where the bor-
rower has chosen to vacate early, as occasionally happens.
287

2. Foreclosure Irregularities and the Crisis of Confidence
The apparently widespread nature of the foreclosure irregular-
ities that have come to light has the potential to reduce public
trust substantially in the entire real estate industry, especially in
the legitimacy of important legal documents and the good faith of
other market participants. Under these circumstances, either buy-
ing or lending on a home will appear to be substantially more risky
than before. If buyers suspect that homes, especially foreclosed
homes, may have unknown title and legal problems, they may be
less likely to buy, or at least they may lower their offers to account
for the increased risks. Since foreclosure sales currently account for
such a large portion of market activity, in the absence of solutions
that reduce foreclosures, a reduction in demand for previously fore-
closed-upon properties would have negative effects on the overall
housing market. David Stevens, commissioner of the Federal Hous-
ing Administration, recently noted that the mortgage industry now
faces an ‘‘enormous trust deficit’’ that risks ‘‘scaring’’ off an entire
generation of young people from homeownership.
288

Similar dynamics may impact the availability and cost of mort-
gages as well, as mortgage investors, who provide the capital that
ultimately supports home prices, reassess their perceptions of risk.
The exposure of foreclosure irregularities has raised a host of po-
tential risks for investors, such as the possibility that MBS trusts
may not actually own the underlying loans they claim to own, that
servicers may not be able to foreclose upon delinquent borrowers
and thus recover invested capital, that borrowers who have already
been foreclosed upon may sue, or that other currently unknown li-
ability issues exist. These new risks could cause some mortgage in-
vestors to look for safer alternative investments or to increase their
investment return requirements to compensate for the increased
risks. With wary investors making less capital available for mort-
gages, and reevaluating the risk of residential lending, mortgage
interest rates could rise, in turn decreasing the affordability of
homes and depressing home prices, as the same monthly payment
now supports a smaller mortgage.
Additionally, both the foreclosure freezes and the legal wrangling
between homeowners, servicers, title companies, and investors that
appears inevitable at this point, and in the absence of a solution
to the problem of mass foreclosures could extend the time it will
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289
Cf. The White House, Press Briefing (Oct. 12, 2010) (online at www.whitehouse.gov/the-
press-office/2010/10/12/press-briefing-press-secretary-robert-gibbs-10122010) (‘‘We also have
pointed out, though, that the idea of a national moratorium would impact the recovery in the
housing sector, as anybody that wished to enter into a contract or execute a contract to purchase
a home that had previously been foreclosed on, that process stops. That means houses and
neighborhoods remain empty even if there are buyers ready, willing and able to do so.’’).
290
In prior reports, the Panel has acknowledged that the delays caused by foreclosure freezes
create additional costs for servicers, but also have possibly beneficial effects for borrowers.
March 2009 Oversight Report, supra note 6, at 61–63.
291
Mortgage lenders who make loans on formerly foreclosed homes where the legal ownership
of the property is uncertain due to foreclosure irregularities risk the possibility that other credi-
tors could come forward with competing claims to the collateral.
292
Servicers of GSE mortgages are required to participate in HAMP for their GSE portfolios.
Servicers of non-GSE mortgages may elect to sign a Servicer Participation Agreement in order
to participate in the program. Once an agreement has been signed, the participating servicer
must evaluate all mortgages under HAMP unless the participation contract is terminated. See
Congressional Oversight Panel, October Oversight Report: An Assessment of Foreclosure Mitiga-
tion Efforts After Six Months, at 44–45 (Oct. 9, 2009) (online at cop.senate.gov/documents/cop-
100909-report.pdf).
take for the inventory of homes for sale to be cleared from the sys-
tem, and thus could potentially delay the recovery of the housing
market.
289
Further, general uncertainty about the scope of these
problems and how they will be addressed by market participants
and governments could have a chilling effect on both home sales
and mortgage investment, as people adopt a ‘‘wait and see’’ atti-
tude. On the other hand, some delay could be beneficial in that it
would provide the time necessary to arrive at a more comprehen-
sive solution to the many complex issues involved in, or underlying,
this situation.
290

The recent and developing nature of the foreclosure irregularities
means that predicting their effects, as well as those of any result-
ing foreclosure freezes, on the housing market necessarily involves
a high degree of speculation. Actual housing market movements
will depend on, among other things, the scope and severity of the
foreclosure irregularities, the resolution of various legal issues, gov-
ernment actions, and on the reactions of homeowners, home buy-
ers, servicers, and mortgage investors. It seems clear, however,
that the many unknowns, uncertain solutions, and potential liabil-
ity for fraud greatly add to the risk inherent in owning or lending
on affected homes.
291

H. Impact on HAMP
HAMP is a nationwide mortgage modification program estab-
lished in 2009, using TARP funds, as an answer to the growing
foreclosure problem. HAMP is designed to provide a mortgage
modification to homeowners in those cases in which modification,
from the perspective of the mortgage holder, is an economically
preferable outcome to foreclosure. The program provides financial
incentives to servicers to modify mortgages for homeowners at risk
of default, and incentives for the beneficiaries of these modifica-
tions to stay current on their mortgage payments going forward.
292

Participation in the program by servicers is on a voluntary basis.
Once a servicer is in HAMP, though, if a borrower meets certain
eligibility criteria, participating servicers must run a test, known
as a net present value (NPV) test, to evaluate whether a fore-
closure or a loan modification would yield a higher value. If the
value of the modified mortgage is greater than the potential fore-
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293
Written Testimony of Phyllis Caldwell, supra note 142, at 1.
294
Testimony of Phyllis Caldwell, supra note 143.
295
Treasury conversations with Panel staff (Oct. 21, 2010).
296
Testimony of Phyllis Caldwell, supra note 143 (‘‘KAUFMAN: So you’re not sending anyone
out to actually find out whether they hold the mortgages? . . . [O]r any kind of physical (ph)
follow-up on the fact that there are mortgages out there—do they actually have the mortgages
and they actually have title to the land that they are trying to foreclose on? CALDWELL: At
this point, we are supporting all of the agencies that are doing investigations of those servicers,
including the GSEs, and are monitoring closely, and will take follow-up action when there are
facts that we get from those reviews. KAUFMAN: So . . . Treasury’s not doing anything inde-
pendently to determine that mortgages modified under HAMP have all necessary loan docu-
mentation and a clear chain of title? You’re just taking the word of the people—of the folks at
the banks and financial institutions you’re dealing with that they do have a—they have loan
documentation and a clear chain of title? . . . CALDWELL: . . . I think that . . . it’s an impor-
tant issue and something that . . . at least at this point in time . . . we’re looking at the fore-
closure prevention process separate from the actual foreclosure sale process. And to modify a
mortgage, there is not a need to have clear title. . . . you need information from the note, but
you don’t need a physical note to modify a mortgage.’’). See also Treasury conversations with
Panel staff (Oct. 21, 2010).
297
Testimony of Phyllis Caldwell, supra note 143.
298
Treasury conversations with Panel staff (Oct. 21, 2010).
299
Testimony of Phyllis Caldwell, supra note 143.
closure value, then the servicer must offer the borrower a modifica-
tion.
Treasury asserts that the foreclosure irregularities have no direct
impact on HAMP. With regard to false affidavits, Phyllis Caldwell,
chief of Treasury’s Homeownership Preservation Office, noted that
HAMP is a foreclosure-prevention program and therefore is sepa-
rate from the actual foreclosure sale process. As a result, HAMP
‘‘is not directly affected by ‘robo-signers’ or false affidavits filed
with state courts.’’
293

With regard to the issues around the transfer of ownership of the
mortgage, Ms. Caldwell testified that ‘‘to modify a mortgage, there
is not a need to have clear title.’’
294
In addition, Treasury stated
that it has not reviewed mortgage ownership transfer issues be-
cause the modifications are private contracts between the servicer
and the borrower.
295
Perhaps as a result, Treasury is not doing
anything independently to determine if the mortgages the servicers
in HAMP are modifying have been properly transferred into the
trusts the servicers represent. It is supporting other agencies in
their efforts, but is taking no action on its own.
296
According to Ms.
Caldwell, there is an ‘‘assumption that the servicer is following the
laws. [ . . .] If we learn something after the fact that contradicts
that, we do have the ability to go in and claw back the incen-
tive.’’
297
Treasury echoed this opinion in conversations with Panel
staff.
298

The Panel questions Treasury’s position that HAMP is unaffected
by the foreclosure irregularities. Although it is difficult to assess
the exact consequences of the foreclosure documentation crisis on
HAMP at this point, there are several strong potential links which
Treasury should carefully consider. For example, if trusts have not
properly received ownership of the mortgage, they may not be the
legal owner of the mortgage. If the trust does not own the mort-
gage, the servicer cannot foreclose on it, and HAMP, a foreclosure
prevention program, is paying incentives to parties with no legal
right to foreclose. At present, Treasury has no way to determine if
such payments are being made.
299
Treasury may well be paying in-
centives to servicers that have no right to receive them.
Treasury has justified its relative inaction by noting that if own-
ership of the mortgage has not been properly transferred, the legal
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300
Treasury conversations with Panel staff (Oct. 21, 2010).
301
Treasury conversations with Panel staff (Oct. 21, 2010).
302
Written Testimony of Katherine Porter, supra note 14, at 8.
303
It is unclear what would happen if the true owner were also in HAMP. Under the HAMP
standards, the individual servicer should not matter, and a loan that qualified for a modification
with one servicer should qualify with another. The borrower, however, might have to reapply
for a modification and enter a new trial modification. It is also possible that Treasury could fa-
cilitate the transfer and not require a borrower to reapply.
304
Testimony of Phyllis Caldwell, supra note 143.
305
See Sections D and F, supra.
owner will eventually appear, and at that time, Treasury can claw
back any incentive payments made to the wrong party.
300
Such a
solution, however, may not be feasible. It optimistically assumes
that legal owners will be able to identify clearly the mortgages they
own, despite all of the potential litigation and complex transactions
many mortgages have been part of, and then navigate the bureauc-
racy to bring the matter before Treasury. Inevitably, not all legal
owners will manage this, in which case Treasury will be giving
money to parties that are not entitled to it. Moreover, if this is oc-
curring, even in cases where the legal owners do come forward,
Treasury is essentially providing interest-free loans to the wrong
parties in the meantime. In addition, Treasury’s inactivity may
give rise to a double standard in which borrowers must provide ex-
tensive documentation before benefiting from HAMP, while
servicers are allowed public money without having to prove their
right to foreclose.
In addition, although Treasury maintains that HAMP is unaf-
fected by transfer of mortgage ownership issues because modifica-
tions are private contracts between servicers and borrowers,
301
a
servicer cannot modify a loan unless it is authorized to do so by
the mortgage’s actual owner.
302
If legal owners then begin to come
forward, as Treasury is relying on them to do in order to clarify in-
centive payments, the legal owners will not be bound by the modi-
fications.
303
Abruptly, borrowers would no longer benefit from the
reduced interest rates of a HAMP modification. As a result, the
length of time that a modification provides a borrower to recover
and become current on payment, which Treasury cites as one of
HAMP’s principal successes,
304
would be cut short. Indeed, bor-
rowers may even suffer penalties for not having been paying the
monthly payments required prior to the modification.
Another concern involves how HAMP servicers have been calcu-
lating the costs of foreclosure under the program’s NPV test. Fore-
closures carry significant costs leading up to the acquisition of a
property’s title. If, by cutting corners in the foreclosure process,
servicers were able to lower the cost of foreclosure artificially, their
own internal cost comparison analysis might have differed from the
official NPV analysis. In such instances, servicers would have an
incentive to lose paperwork or otherwise deny modifications that
they would be compelled to make under the program standards.
Conversely, foreclosure irregularities could have the perverse ef-
fect of encouraging servicers to modify more loans through HAMP.
If foreclosure irregularities lead to additional litigation and delays
in foreclosure proceedings, they will increase the costs of fore-
closure.
305
Treasury may then update the HAMP NPV model to re-
flect these new realities. With the costs of foreclosure higher, the
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NPV model will find more modifications to be NPV-positive, result-
ing in more HAMP modifications.
I. Conclusion
Allegations of documentation irregularities remain in flux, and
their consequences remain uncertain. The best-case scenario, a pos-
sibility embraced by the financial services industry, is that current
concerns over foreclosure irregularities are overblown, reflecting
mere clerical errors that can and will be resolved quickly. If this
view proves correct, then the irregularities might be fixed with lit-
tle to no impact on HAMP or financial stability.
The worst-case scenario, a possibility predominantly articulated
by homeowners and plaintiffs’ lawyers, is considerably grimmer. In
this view, the irregularities reflect extensive misbehavior on the
part of banks and loan servicers that extends throughout the entire
securitization process. Such problems could throw into question the
enforceability of legal rights related to ownership of many loans
that have been pooled and securitized. Given that 4.2 million home-
owners are currently in default and facing potential foreclosure, in-
cluding 729,000 who have been rejected from HAMP, the implica-
tions for the foreclosure market alone would be immense. Much
larger, of course, would be the implications of such irregularities
for the broader market in MBS, which totals $7.6 trillion in value.
Losses related to documentation issues could be compounded by
losses related to MBS investors exercising put-back rights due to
poor underwriting of securitized loans.
Several investigations of irregularities are now underway, includ-
ing a review by the 50 states’ attorneys general; an investigation
by the Federal Fraud Enforcement Task Force; an effort to review
documentation for certain Countrywide loans led by PIMCO,
BlackRock, and FRBNY; and numerous other inquiries by private
investors. These and similar efforts may ultimately uncover the full
extent of irregularities in mortgage loan originations, transfers,
and foreclosures, but the final picture may not emerge for some
time if these actions founder in protracted litigation.
In the meantime, the Panel raises several concerns that policy-
makers should carefully consider as these issues evolve.
Treasury Should Monitor Closely the Impact of Fore-
closure Irregularities. Treasury so far has expressed relatively
little concern that foreclosure irregularities could reflect deeper
problems that would pose a threat to financial stability. According
to Phyllis Caldwell, Chief of the Homeownership Preservation Of-
fice for Treasury, ‘‘We’re very closely monitoring any litigation risk
to see if there is any systemic threat, but at this point, there’s no
indication that there is [any threat].’’ This statement appears pre-
mature. Potential threats are by definition those that have not yet
fully materialized, but their risks remain real. Despite assurances
by banks and Treasury to the contrary, great uncertainty remains
as to whether the stability of banks and the housing market might
be at risk if the legal underpinnings of the real estate market
should come into question. Treasury should closely monitor these
issues as they develop, both for the sake of its foreclosure mitiga-
tion programs and for the overall health of the banking system,
and Treasury should report its findings to the public and to Con-
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gress. Further, Treasury should develop contingency plans to pre-
pare for the potential worst-case scenario.
Treasury and the Federal Reserve Should Stress Test
Banks to Evaluate Their Ability to Weather a Crisis Related
to Mortgage Irregularities. The potential for further instability
among the largest banks raises the specter of another acute crisis
like the one that hit the markets in the autumn of 2008. If inves-
tors come to doubt the entire process underlying securitizations,
they may grow unwilling to lend money to even the largest banks
without implicit or explicit assurances that taxpayers will bear any
losses. Further, banks could, in the worst-case scenario, suffer se-
vere direct capital losses due to put-backs. Bank of America holds
$230.5 billion in equity, yet the PIMCO and FRBNY action alone
could ultimately seek up to $47 billion in put-backs. If several simi-
lar-sized actions were to succeed, Bank of America could suffer a
major dent in its regulatory capital. In effect, a bank forced to ac-
cept put-backs would be required to buy back troubled mortgage
loans that in many cases had already defaulted or had been poorly
underwritten. As the Panel has noted in the past, some major
banks have had extensive exposure to troubled mortgage-related
assets. Widespread put-backs could destabilize financial institu-
tions that remain exposed and could lead to a precarious situation
for those that were emerging from the crisis. Further, banks and
loan servicers could be vulnerable to state-based class-action law-
suits initiated by homeowners who claim to have suffered improper
foreclosures. Even the prospect of such losses could damage a
bank’s stock price or its ability to raise capital.
The Panel has recommended in the past that, when policymakers
are faced with uncertain economic or financial conditions, they
should employ ‘‘stress tests’’ as part of the regular bank super-
visory process to identify possible outcomes and to measure the
robustness of the financial system. Treasury and the Federal Re-
serve last conducted comprehensive stress tests in 2009, but be-
cause those tests predated the current concerns about documenta-
tion irregularities and projected banks’ capitalization only through
the end of 2010, they offer limited reassurance that major banks
could survive further shocks in the months and years to come. Fed-
eral banking regulators should re-run stress tests on the largest
banks and on at least a sampling of smaller institutions, using re-
alistic macroeconomic and housing price projections and stringent
assumptions about realistic worst-case scenario bank losses. Any
assumptions about the ultimate costs of documentation irregular-
ities would be necessarily speculative and the contours of the prob-
lem are still murky. Stress tests may therefore need to account for
a wide range of possibilities and acknowledge their own limitations.
Such testing, however, would nonetheless illuminate the robustness
of the financial system and help prepare for a worst-case scenario.
Policymakers Should Evaluate System-Wide Consequences
of Documentation Irregularities. As disturbing as the potential
implications of documentation irregularities may be for ‘‘too big to
fail’’ banks, the consequences would not be limited to the largest
banks in the market. Among other concerns:
• Fannie Mae and Freddie Mac Present Significant Risks.
Already Fannie Mae and Freddie Mac play an enormous role
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in the market for MBS. If investors develop new concerns
about the safety of the MBS market, then Fannie and
Freddie—backed by their government guarantee—could be
forced to maintain or even expand their dominant role for
years to come. Because the American people ultimately stand
behind every guarantee made by these companies, the result
could be greater and prolonged financial risk to taxpayers.
• Homeowners May Lose Confidence in the Housing Mar-
ket. Buyers and sellers, in foreclosure or otherwise, may find
themselves unable to know with any certainty whether they
can safely buy or safely sell a home. Widespread loss of con-
fidence in clear ownership of mortgage loans would throw fur-
ther sand in the gears of the already troubled housing mar-
ket—especially since 31 percent of the homes currently on the
market are foreclosure sales, which may already have under-
gone an improper legal process.
• Public Faith in Due Process Could Suffer. If the public
gains the impression that the government is providing conces-
sions to large banks in order to ensure the smooth processing
of foreclosures, the people’s fundamental faith in due process
could suffer.
In short, actions by some of the largest financial institutions may
have the potential to threaten the still-fragile economy. The risk is
uncertain, but the danger is significant enough that Treasury and
all other government agencies with a role to play in the mortgage
market must focus on preventing another such shock.
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306
See Appendix I of this report, infra.
SECTION TWO: CORRESPONDENCE WITH TREASURY
The Panel’s Chairman, Senator Ted Kaufman, sent a letter on
behalf of the Panel on November 1, 2010 to Patricia Geoghegan,
the Special Master for TARP Executive Compensation under
EESA.
306
The letter presents a series of questions to the Special
Master, requesting additional information and data following the
Panel’s October 21, 2010 hearing on TARP and executive com-
pensation.
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SECTION THREE: TARP UPDATES SINCE LAST REPORT
A. GM To Repurchase AIFP Preferred Stock
On October 27, 2010, Treasury accepted an offer by General Mo-
tors Company (New GM) to repurchase 83.9 million shares of New
GM’s Series A preferred stock at $25.50 per share provided that
the company’s proposed initial public offering (IPO) is completed.
These preferred shares were issued, along with 60.8 percent of the
company’s common stock, in July 2009 in exchange for extin-
guishing the debtor-in-possession loan extended to General Motors
Corporation (Old GM). The repurchase price represents 102 percent
of the liquidation preference. After the IPO is completed, New GM
will repurchase the Series A preferred shares on the first dividend
payment date of the preferred stock. Following this transaction,
Treasury’s total return from New GM through debt repayments,
the preferred stock repurchase, and interest and dividends will
total $9.5 billion.
B. AIG: AIA Initial Public Offering and ALICO Sale
As part of its plan to repay the federal government’s outstanding
investments, AIG completed an IPO for AIA Group Limited (AIA)
and sold American Life Insurance Company (ALICO) to MetLife,
Inc. The AIA IPO raised $20.5 billion in cash proceeds and the
ALICO sale generated $16.2 billion in total proceeds. Of this
amount, $7.2 billion represents cash proceeds. The $36.7 billion in
aggregate proceeds will be used to pay down the outstanding bal-
ance on the revolving credit facility from FRBNY.
C. Sales of Citigroup Common Stock
On October 19, 2010, Treasury began a fourth period of sales for
1.5 billion shares of Citigroup common stock. Treasury received 7.7
billion common shares in July 2009 in exchange for its initial $25
billion investment in the company under the CPP. As of October
29, 2010, Treasury has sold 4.1 billion shares (approximately fifty
percent of its stake) for $16.4 billion in gross proceeds. Of this
amount, approximately $13.4 billion represents a repayment for
Citigroup’s CPP funding, while the remaining $3 billion represents
a net profit for taxpayers. Morgan Stanley will act as Treasury’s
sales agent for the fourth selling period, which will end on Decem-
ber 31, 2010 or upon the sale of the full allotment of 1.5 billion
shares.
D. Legacy Securities Public-Private Investments Program
Quarterly Report
On October 20, 2010, Treasury released its fourth quarterly re-
port on the Legacy Securities Public-Private Investments Program
(PPIP). This program is intended to support market functioning
and facilitate price discovery in MBS markets through equity and
debt capital commitments in eight public-private investment funds
(PPIFs). As of September 30, 2010, the purchasing power of these
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307
The total purchasing power published in the PPIP quarterly report does not include the
purchasing power within UST/TCW Senior Mortgage Services Fund, L.P., which was wound up
and liquidated on January 4, 2010. See endnote xlvi, infra, for details on the liquidation of this
fund. U.S. Department of the Treasury, Legacy Securities Public-Private Investment Program,
at 3 (Oct. 20, 2010) (online at financialstability.gov/docs/External%20Report%20-%2009-
10%20vFinal.pdf).
308
Bureau of Economic Analysis, Table 1.1.6.: Real Gross Domestic Product, Chained Dollars
(online at www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=6&Freq=Qtr&FirstYear=
2008&LastYear=2010) (hereinafter ‘‘Bureau of Economic Analysis Table 1.1.6’’) (accessed Nov.
3, 2010). Until the year-over-year decrease from 2007 to 2008, nominal GDP had not decreased
on an annual basis since 1949. Bureau of Economic Analysis, Table 1.1.5.: Gross Domestic Prod-
uct (online at www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5&Freq=Qtr&First
Year=2008&LastYear=2010) (accessed Nov. 3, 2010).
309
The Economics and Statistics Administration within the U.S. Department of Commerce es-
timated that the spending associated with the 2010 Census would peak in the second quarter
of 2010 and could boost annualized nominal and real GDP growth by 0.1 percent in the first
quarter of 2010 and 0.2 percent in the second quarter of 2010. As the boost from the Census
is a one-time occurrence, continuing increases in private investment and personal consumption
expenditures as well as in exports will be needed to sustain the resumption of growth that has
occurred in the U.S. economy over the past year. It was expected that the drop in 2010 Census
spending would then reduce GDP growth by similar amounts in Q3 and Q4 2010. Economics
and Statistics Administration, U.S. Department of Commerce, The Impact of the 2010 Census
Operations on Jobs and Economic Growth, at 8 (online at www.esa.doc.gov/02182010.pdf).
funds totaled $29.4 billion.
307
Of this amount, $7.4 billion rep-
resents equity commitments from private-sector fund managers
and investors and $22.1 billion represents both debt and equity
commitments from Treasury. The total market value of securities
held by participating PPIFs was approximately $19.3 billion, with
82 percent of investments concentrated in non-agency RMBS and
18 percent in commercial mortgage-backed securities (CMBS).
To date, cumulative gross unrealized equity gains for both Treas-
ury and private investors total $1.5 billion. The net internal rate
of return for each PPIF is currently between 19.3 percent and 52.0
percent.
E. Metrics
Each month, the Panel’s report highlights a number of metrics
that the Panel and others, including Treasury, the Government Ac-
countability Office (GAO), Special Inspector General for the Trou-
bled Asset Relief Program (SIGTARP), and the Financial Stability
Oversight Board, consider useful in assessing the effectiveness of
the Administration’s efforts to restore financial stability and accom-
plish the goals of EESA. This section discusses changes that have
occurred in several indicators since the release of the Panel’s Octo-
ber 2010 report.
1. Macroeconomic Indices
The post-crisis rate of real GDP growth quarter-over-quarter
peaked at an annual rate of 5 percent in the fourth quarter of
2009, but the rate has decreased during 2010. Real GDP increased
at an annualized rate of 2.0 percent in the third quarter of 2010,
increasing from 1.7 percent in the second quarter of 2010.
308
The
third quarter growth rate was unaffected by the spike in employ-
ment resulting from the 2010 U.S. Census.
309
The year-over-year
increase from third quarter 2009 to third quarter 2010 was 3.1 per-
cent, from 12.9 billion to 13.3 billion dollars.
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310
Bureau of Economic Analysis Table 1.1.6, supra note 308 (accessed Nov. 3, 2010).
311
It is important to note that the measures of unemployment and underemployment do not
include people who have stopped actively looking for work altogether. While the Bureau of Labor
Statistics (BLS) does not have a distinct metric for ‘‘underemployment,’’ the U–6 category of
Table A–15 ‘‘Alternative Measures of Labor Underutilization’’ is used here as a proxy. BLS de-
fines this measure as: ‘‘Total unemployed, plus all persons marginally attached to the labor
force, plus total employed part time for economic reasons, as a percent of the civilian labor force
plus all persons marginally attached to the labor force.’’ U.S. Department of Labor, International
Comparisons of Annual Labor Force Statistics (online at www.bls.gov/webapps/legacy/
cpsatab15.htm) (accessed Nov. 3, 2010).
FIGURE 13: REAL GDP
310

Since the Panel’s October report, underemployment has in-
creased from 16.7 percent to 17.1 percent, while unemployment has
remained constant. Median duration of unemployment has in-
creased by half a week.
FIGURE 14: UNEMPLOYMENT, UNDEREMPLOYMENT, AND MEDIAN DURATION OF
UNEMPLOYMENT
311

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312
Federal Reserve Bank of St. Louis, Series STLFSI: Business/Fiscal: Other Economic Indi-
cators (Instrument: St. Louis Financial Stress Index, Frequency: Weekly) (online at re-
search.stlouisfed.org/fred2/series/STLFSI) (accessed Nov. 3, 2010). The index includes 18 weekly
data series, beginning in December 1993 to the present. The series are: effective federal funds
rate, 2-year Treasury, 10-year Treasury, 30-year Treasury, Baa-rated corporate, Merrill Lynch
High Yield Corporate Master II Index, Merrill Lynch Asset-Backed Master BBB-rated, 10-year
Treasury minus 3-month Treasury, Corporate Baa-rated bond minus 10-year Treasury, Merrill
Lynch High Yield Corporate Master II Index minus 10-year Treasury, 3-month LIBOR-OIS
spread, 3-month TED spread, 3-month commercial paper minus 3-month Treasury, the J.P. Mor-
gan Emerging Markets Bond Index Plus, Chicago Board Options Exchange Market Volatility
Index, Merrill Lynch Bond Market Volatility Index (1-month), 10-year nominal Treasury yield
minus 10-year Treasury Inflation Protected Security yield, and Vanguard Financials Exchange-
Traded Fund (equities). The index is constructed using principal components analysis after the
data series are de-meaned and divided by their respective standard deviations to make them
comparable units. The standard deviation of the index is set to 1. For more details on the con-
struction of this index, see Federal Reserve Bank of St. Louis, National Economic Trends Appen-
dix: The St. Louis Fed’s Financial Stress Index (Jan. 2010) (online at research.stlouisfed.org/pub-
lications/net/NETJan2010Appendix.pdf).
2. Financial Indices
a. Overview
Since the Panel’s October report, the St. Louis Financial Stress
Index, a proxy for financial stress in the U.S. economy, has contin-
ued its downward trend, decreasing by a quarter.
312
The index has
fallen by over half since the post-crisis peak in June 2010. The re-
cent trend in the index suggests that financial stress continues
moving toward its long-run norm. The index has decreased by more
than three standard deviations since October 2008, the month
when the TARP was initiated.
FIGURE 15: ST. LOUIS FEDERAL RESERVE FINANCIAL STRESS INDEX
Stock market volatility has decreased recently. The Chicago
Board Options Exchange Volatility Index (VIX) has fallen by more
than half since the post-crisis peak in May 2010 and has fallen 7
percent since the Panel’s October report. However, volatility is still
40 percent higher than its post-crisis low on April 12, 2010.
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313
Data accessed through Bloomberg data service on November 3, 2010. The CBOE VIX is
a key measure of market expectations of near-term volatility. Chicago Board Options Exchange,
The CBOE Volatility Index—VIX, 2009 (online at www.cboe.com/micro/vix/vixwhite.pdf)
(accessed Nov. 3, 2010).
314
Data accessed through Bloomberg data service on November 3, 2010.
317
Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release
H.15: Selected Interest Rates: Historical Data (Instrument: Conventional Mortgages, Frequency:
Weekly) (online at www.federalreserve.gov/releases/h15/data/Weekly_Thursday/
H15_MORTG_NA.txt) (hereinafter ‘‘Federal Reserve Statistical Release H.15’’) (accessed Nov. 3,
2010).
FIGURE 16: CHICAGO BOARD OPTIONS EXCHANGE VOLATILITY INDEX
313

b. Interest Rates, Spreads, and Issuance
As of November 3, 2010, the 3-month and 1-month London Inter-
bank Offer Rates (LIBOR), the prices at which banks lend and bor-
row from each other, were 0.29 and 0.25, respectively.
314
Rates
have fallen by nearly half since post-crisis highs in June 2010 and
have remained nearly constant since the Panel’s October report.
Over the longer term, however, interest rates remain extremely low
relative to pre-crisis levels, indicating both efforts of central banks
and institutions’ perceptions of reduced risk in lending to other
banks.
FIGURE 17: 3-MONTH AND 1-MONTH LIBOR RATES (AS OF NOVEMBER 3, 2010)
Indicator
Current Rates
(as of 11/3/2010)
Percent Change from Data
Available at Time of Last
Report (10/4/2010)
3-Month LIBOR
315
............................................................... 0.29 (1.6)
1-Month LIBOR
316
............................................................... 0.25 (1.2)
315
Data accessed through Bloomberg data service on November 3, 2010.
316
Data accessed through Bloomberg data service on November 3, 2010.
Since the Panel’s October report, interest rate spreads have de-
creased slightly. Thirty-year mortgage interest rates have de-
creased very slightly and 10-year Treasury bond yields have in-
creased very slightly. The conventional mortgage spread, which
measures the 30-year mortgage rate over 10-year Treasury bond
yields, has decreased slightly since late September.
317

The TED spread serves as an indicator for perceived risk in the
financial markets. While it has increased by about three basis
points since the Panel’s October report, the spread is still currently
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318
Federal Reserve Bank of Minneapolis, Measuring Perceived Risk—The TED Spread (Dec.
2008) (online at www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4120).
319
Data accessed through Bloomberg data service on November 3, 2010.
320
Data accessed through Bloomberg data service on November 3, 2010.
321
Data accessed through Bloomberg data service on November 3, 2010.
lower than pre-crisis levels.
318
The LIBOR–OIS spread reflects the
health of the banking system. While it increased over threefold
from early April to July, it has been falling since mid-July and is
now averaging pre-crisis levels.
319
LIBOR–OIS remained fairly con-
stant since the Panel’s October report. Decreases in the LIBOR–
OIS spread and the TED spread suggest that hesitation among
banks to lend to counterparties has receded.
FIGURE 18: TED SPREAD
320

FIGURE 19: LIBOR–OIS SPREAD
321

The interest rate spread for AA asset-backed commercial paper,
which is considered mid-investment grade, has fallen by more than
a tenth since the Panel’s October report. The interest rate spread
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on A2/P2 commercial paper, a lower grade investment than AA
asset-backed commercial paper, has fallen by nearly 11 percent
since the Panel’s October report. This indicates healthier fund-
raising conditions for corporations.
FIGURE 20: INTEREST RATE SPREADS
Indicator
Current Spread
(as of 11/1/2010)
Percent Change
Since Last Report
(9/30/2010)
Conventional mortgage rate spread
322
.................................................. 1.56 (13.3)
TED Spread (basis points) ...................................................................... 15.59 20.0
Overnight AA asset-backed commercial paper interest rate spread
323
0.07 (11.2)
Overnight A2/P2 nonfinancial commercial paper interest rate
spread
324
............................................................................................ 0.14 (11.0)
322
Federal Reserve Statistical Release H.15, supra note 317 (accessed Nov. 3, 2010); Board of Governors of the Federal Reserve System,
Federal Reserve Statistical Release H.15: Selected Interest Rates: Historical Data (Instrument: U.S. Government Securities/Treasury Constant
Maturities/Nominal 10-Year, Frequency: Weekly) (online at www.federalreserve.gov/releases/h15/data/Weekly_Friday_/H15_TCMNOM_Y10.txt)
(accessed Nov. 3, 2010).
323
Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data
Download Program (Instrument: AA Asset-Backed Discount Rate, Frequency: Daily) (online at
www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed Nov. 3, 2010); Board of Governors of the Federal Reserve System, Federal
Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data Download Program (Instrument: AA Nonfinancial Discount Rate,
Frequency: Daily) (online at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed Nov. 3, 2010). In order to provide a more
complete comparison, this metric utilizes the average of the interest rate spread for the last five days of the month.
324
Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release: Commercial Paper Rates and Outstandings: Data
Download Program (Instrument: A2/P2 Nonfinancial Discount Rate, Frequency: Daily) (online at
www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed Nov. 3, 2010). In order to provide a more complete comparison, this met-
ric utilizes the average of the interest rate spread for the last five days of the month.
The spread between Moody’s Baa Corporate Bond Yield Index
and 30-year constant maturity U.S. Treasury Bond yields doubled
from late April to mid-June 2010. Spreads have trended down since
mid-June highs and have fallen over 6 percent since the Panel’s
October report. This spread indicates the difference in perceived
risk between corporate and government bonds, and a declining
spread could indicate waning concerns about the riskiness of cor-
porate bonds.
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325
Federal Reserve Bank of St. Louis, Series DGS30: Selected Interest Rates (Instrument: 30-
Year Treasury Constant Maturity Rate, Frequency: Daily) (online at research.stlouisfed.org/
fred2/) (hereinafter ‘‘Federal Reserve Bank of St. Louis Series DGS30’’) (accessed Nov. 3, 2010).
Corporate Baa rate data accessed through Bloomberg data service on November 3, 2010.
326
Securities Industry and Financial Markets Association, U.S. Corporate Bond Issuance (on-
line at www.sifma.org/uploadedFiles/Research/Statistics/StatisticsFiles/Corporate-US-Corporate-
Issuance-SIFMA.xls) (accessed Nov. 3, 2010).
327
For the purposes of its analysis, the Panel uses four categories based on bank asset sizes:
Large banks (those with over $100 billion in assets), medium banks (those with between $10
billion and $100 billion in assets), smaller banks (those with between $1 billion and $10 billion
in assets), and smallest banks (those with less than $1 billion in assets).
FIGURE 21: MOODY’S BAA CORPORATE BOND INDEX AND 30-YEAR U.S. TREASURY
YIELD
325

Corporate bond market issuance data corroborate this analysis,
with investment grade issuance increasing over 50 percent between
August and September 2010.
326

c. Condition of the Banks
Since the Panel’s last report, 10 additional banks have failed,
with an approximate total asset value of $4.2 billion. With 139 fail-
ures from January through October 2010, the year-to-date rate has
nearly reached 140, the level for all of calendar year 2009. In gen-
eral, banks failing in 2009 and 2010 have been small- and medium-
sized institutions;
327
while they are failing in high numbers, their
aggregate asset size has been relatively small.
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328
The disparity between the number of and total assets of failed banks in 2008 is driven pri-
marily by the failure of Washington Mutual Bank, which held $307 billion in assets. The 2010
year-to-date percentage of bank failures includes failures through August. The total number of
FDIC-insured institutions as of March 31, 2010 is 7,932 commercial banks and savings institu-
tions. As of November 12, 2010, there have been 143 institutions that failed. Federal Deposit
Insurance Corporation, Failures and Assistance Transactions (online at www2.fdic.gov/hsob/
SelectRpt.asp?EntryTyp=30) (accessed Nov. 12, 2010). Asset totals have been adjusted for defla-
tion into 2005 dollars using the GDP implicit price deflator. The quarterly values were averaged
into a yearly value. Federal Reserve Bank of St. Louis Series DGS30, supra note 325 (accessed
Nov. 3, 2010).
329
RealtyTrac Press Release on Foreclosure Activity, supra note 278.
330
Hardest-hit cities are defined as those in California, Florida, Nevada, and Arizona. Chi-
cago, Houston, and Seattle posted the largest increases in foreclosure activity. RealtyTrac, Third
Quarter Foreclosure Activity Up in 65 Percent of U.S. Metro Areas But Down in Hardest-Hit Cit-
ies (Oct. 28, 2010) (online at www.realtytrac.com/content/press-releases/third-quarter-fore-
closure-activity-up-in-65-percent-of-us-metro-areas-but-down-in-hardest-hit-cities-6127).
331
Sales of new homes in May 2010 were 276,000, the lowest rate since 1963. It should be
noted that this number likely reflects a shifting of sales from May to April prompted by the
April expiration of tax credits designed to boost home sales. U.S. Census Bureau and U.S. De-
partment of Housing and Urban Development, New Residential Sales in June 2010 (July 26,
2010) (online at www.census.gov/const/newressales.pdf); U.S. Census Bureau, New Residential
Sales—New One-Family Houses Sold (online at www.census.gov/ftp/pub/const/sold_cust.xls)
(accessed Nov. 3, 2010).
332
The most recent data available is for July 2010. See Standard and Poor’s, S&P/Case-
Shiller Home Price Indices (Instrument: Case-Shiller 20-City Composite Seasonally Adjusted,
Frequency: Monthly) (online at www.standardandpoors.com/indices/sp-case-shiller-home-price-in-
FIGURE 22: BANK FAILURES AS A PERCENTAGE OF TOTAL BANKS AND BANK FAILURES
BY TOTAL ASSETS (1990–2010)
328

3. Housing Indices
Foreclosure actions, which consist of default notices, scheduled
auctions, and bank repossessions, increased 2.5 percent in Sep-
tember to 347,420. This metric is over 24 percent above the fore-
closure action level at the time of the EESA enactment.
329
While
the hardest hit states still account for 19 out of 20 of the highest
metro foreclosure rates, foreclosure activity grew less in the hard-
est-hit cities than in other states.
330
Sales of new homes increased
to 307,000, but remain low.
331
The Case-Shiller Composite 20-City
Composite decreased very slightly, while the FHFA Housing Price
Index increased very slightly in August 2010. The Case-Shiller and
FHFA indices are 6 percent and 5 percent, respectively, below their
levels of October 2008.
332

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dices/en/us/?indexId=spusa-cashpidff- -p-us- - - -) (hereinafter ‘‘S&P/Case-Shiller Home Price Indi-
ces’’) (accessed Nov. 3, 2010); Federal Housing Finance Agency, U.S. and Census Division
Monthly Purchase Only Index (Instrument: USA, Seasonally Adjusted) (online at www.fhfa.gov/
Default.aspx?Page=87) (hereinafter ‘‘U.S. and Census Division Monthly Purchase Only Index’’)
(accessed Nov. 3, 2010). S&P has cautioned that the seasonal adjustment is probably being dis-
torted by irregular factors. These factors could include distressed sales and the various govern-
ment programs. See Standard and Poor’s, S&P/Case-Shiller Home Price Indices and Seasonal
Adjustment, S&P Indices: Index Analysis (Apr. 2010). For a discussion of the differences be-
tween the Case-Shiller Index and the FHFA Index, see April 2010 Ovesright Report, supra note
282, at 98.
333
A Metropolitan Statistical Area is defined as a core area containing a substantial popu-
lation nucleus, together with adjacent communities having a high degree of economic and social
integration with the core. U.S. Census Bureau, About Metropolitan and Micropolitan Statistical
Areas (online at www.census.gov/population/www/metroareas/aboutmetro.html) (accessed Nov. 3,
2010).
334
Data accessed through Bloomberg data service on November 3, 2010. The Case-Shiller Fu-
tures contract is traded on the CME and is settled to the Case-Shiller Index two months after
the previous calendar quarter. For example, the February contract will be settled against the
spot value of the S&P Case-Shiller Home Price Index values representing the fourth calendar
quarter of the previous year, which is released in February one day after the settlement of the
contract. Note that most close observers believe that the accuracy of these futures contracts as
forecasts diminishes the farther out one looks.
Additionally, Case-Shiller futures prices indicate a market expec-
tation that home-price values for the major Metropolitan Statistical
Areas
333
(MSAs) will hold constant through 2011.
334
These futures
are cash-settled to a weighted composite index of U.S. housing
prices in the top ten MSAs, as well as to those specific markets.
They are used to hedge by businesses whose profits and losses are
related to any area of the housing industry, and to balance port-
folios by businesses seeking exposure to an uncorrelated asset
class. As such, futures prices are a composite indicator of market
information known to date and can be used to indicate market ex-
pectations for home prices.
FIGURE 23: HOUSING INDICATORS
Indicator
Most Recent
Monthly Data
Percent Change
from Data Available
at Time of Last
Report
Percent
Change Since
October 2008
Monthly foreclosure actions
335
...................................... 347,420 2 .5 24 .3
S&P/Case-Shiller Composite 20 Index
336
...................... 146 .99 (0 .3) (5 .9)
FHFA Housing Price Index
337
......................................... 192 .83 0 .4 (4 .5)
335
RealtyTrac, Foreclosures (online at www.realtytrac.com/home/) (accessed Nov. 3, 2010). The most recent data available is for September
2010.
336
S&P/Case-Shiller Home Price Indices, supra note 332 (accessed Nov. 3, 2010). The most recent data available is for August 2010.
337
U.S. and Census Division Monthly Purchase Only Index, supra note 332 (accessed Nov. 3, 2010). The most recent data available is for
August 2010.
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338
All data normalized to 100 at January 2000. Futures data accessed through Bloomberg
data service on November 3, 2010. S&P/Case-Shiller Home Price Indices, supra note 332
(accessed Nov. 3, 2010).
339
U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report
as of September 30, 2010 (Oct. 11, 2010) (online at financialstability.gov/docs/dividends-interest-
reports/September%202010%20Dividends%20&%20Interest%20Report.pdf) (hereinafter ‘‘Treas-
ury Cumulative Dividends, Interest and Distributions Report); U.S. Department of the Treasury,
Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010 (Nov.
2, 2010) (online at financialstability.gov/docs/transaction-reports/10-4-
10%20Transactions%20Report%20as%20of%209-30-10.pdf) (hereinafter ‘‘Treasury Transactions
Report’’).
340
The original $700 billion TARP ceiling was reduced by $1.26 billion as part of the Helping
Families Save Their Homes Act of 2009. 12 U.S.C. § 5225(a)–(b); Helping Families Save Their
Homes Act of 2009, Pub. L. No. 111–22 § 40. On June 30, 2010, the House-Senate Conference
Committee agreed to reduce the amount authorized under the TARP from $700 billion to $475
billion as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act that was
signed into law on July 21, 2010. See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Pub. L. No. 111–203 (2010); The White House, Remarks by the President at Signing of
Dodd-Frank Wall Street Reform and Consumer Protection Act (July 21, 2010) (online at
www.whitehouse.gov/the-press-office/remarks-president-signing-dodd-frank-wall-street-reform-
and-consumer-protection-act).
FIGURE 24: CASE-SHILLER HOME PRICE INDEX AND FUTURES VALUES
338

F. Financial Update
Each month, the Panel summarizes the resources that the fed-
eral government has committed to the rescue and recovery of the
financial system. The following financial update provides: (1) An
updated accounting of the TARP, including a tally of dividend in-
come, repayments, and warrant dispositions that the program has
received as of September 30, 2010; and (2) an updated accounting
of the full federal resource commitment as of October 27, 2010.
1. The TARP
a. Program Updates
339

Treasury’s spending authority under the TARP officially expired
on October 3, 2010. Though it can no longer make new funding
commitments, Treasury can continue to provide funding for pro-
grams for which it has existing contracts and previous commit-
ments. To date, $395.1 billion has been spent under the TARP’s
$475 billion ceiling.
340
Of the total amount disbursed, $209.5 bil-
lion has been repaid. Treasury has also incurred $6.1 billion in
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341
For its CPP investments in privately held financial institutions, Treasury also received
warrants to purchase additional shares of preferred stock, which it exercised immediately. Simi-
larly, Treasury also received warrants to purchase additional subordinated debt that were also
immediately exercised along with its CPP investments in subchapter S corporations. Treasury
Transactions Report, supra note 339, at 14.
342
U.S. Department of the Treasury, Capital Purchase Program (Oct. 3, 2010) (online at
www.financialstability.gov/roadtostability/capitalpurchaseprogram.html).
343
U.S. Department of the Treasury, Targeted Investment Program (Oct. 3, 2010) (online at
www.financialstability.gov/roadtostability/targetedinvestmentprogram.html).
344
Treasury Cumulative Dividends, Interest and Distributions Report, supra note 339; Treas-
ury Transactions Report, supra note 339. Treasury also received an additional $1.2 billion in
participation fees from its Guarantee Program for Money Market Funds. U.S. Department of
the Treasury, Treasury Announces Expiration of Guarantee Program for Money Market Funds
(Sept. 18, 2009) (online at www.ustreas.gov/press/releases/tg293.htm).
losses associated with its CPP and Automotive Industry Financing
Program (AIFP) investments. A significant portion of the $179.7
billion in TARP funds currently outstanding includes Treasury’s in-
vestments in AIG and assistance provided to the automotive indus-
try.
CPP Repayments
As of October 29, 2010, 112 of the 707 banks that participated
in the CPP have fully redeemed their preferred shares either
through capital repayment or exchanges for investments under the
Community Development Capital Initiative (CDCI). During the
month of October, Treasury received a $12 million full repayment
from 1st Constitution Bancorp, and a $100 million partial repay-
ment from Webster Financial Corporation. A total of $152.9 billion
has been repaid under the program, leaving $49.5 billion in funds
currently outstanding.
b. Income: Dividends, Interest, and Warrant Sales
In conjunction with its preferred stock investments under the
CPP and TIP, Treasury generally received warrants to purchase
common equity.
341
As of October 29, 2010, 45 institutions have re-
purchased their warrants from Treasury at an agreed upon price.
Treasury has also sold warrants for 15 other institutions at auc-
tion. To date, income from warrant dispositions have totaled $8.1
billion.
In addition to warrant proceeds, Treasury also receives dividend
payments on the preferred shares that it holds under the CPP, 5
percent per annum for the first five years and 9 percent per annum
thereafter.
342
For preferred shares issued under the TIP, Treasury
received a dividend of 8 percent per annum.
343
In total, Treasury
has received approximately $25.7 billion in net income from war-
rant repurchases, dividends, interest payments, and other proceeds
deriving from TARP investments (after deducting losses).
344
For
further information on TARP profit and loss, see Figure 26.
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c. TARP Accounting
FIGURE 25: TARP ACCOUNTING (AS OF OCTOBER 29, 2010)
[Dollars in billions]
Program
Maximum
Amount
Allotted
Actual
Funding
Total
Repayments/
Reduced
Exposure
Total
Losses
Funding
Currently
Outstanding
Funding
Available
Capital Purchase Program
(CPP) ................................ $204.9 $204.9
ii
$(152 .9)
iii
$(2 .6) $49 .5 $0
Targeted Investment Pro-
gram (TIP) ........................ 40.0 40.0 (40 .0) 0 0 0
Asset Guarantee Program
(AGP) ................................ 5.0
iv
5.0
v
(5 .0) 0 0 0
AIG Investment Program
(AIGIP) .............................. 69.8
vi
47.5 0 0 47 .5 22 .3
Auto Industry Financing Pro-
gram (AIFP) ...................... 81.3 81.3 (10 .8)
vii
(3 .5)
viii
67 .1 0
Auto Supplier Support Pro-
gram (ASSP)
ix
................. 0.4 0.4 (0 .4) 0 0 0
Term Asset-Backed Securi-
ties Loan Facility (TALF) ..
x
4.3
xi
0.1 0 0 0 .1 4 .2
Public-Private Investment
Program (PPIP)
xii
............ 22.4
xiii
14.2
xiv
(0 .4) 0 13 .8 8 .2
SBA 7(a) Securities Purchase 0.4
xv
0.4 0 0 0 .4
xvi
0
Home Affordable Modifica-
tion Program (HAMP) ....... 29.9 0.6 0 0 0 .6 29 .3
Hardest Hit Fund (HHF) ........
xvii
7.6
xviii
0.1 0 0 0 .1 7 .5
FHA Refinance Program ....... 8.1
xix
0.1 0 0 0 .1 8 .0
Community Development
Capital Initiative (CDCI) .. 0.8
xx
0.6 0 0 0 .6 0
Total ..................................... $475.0 $395.1 $(209 .5) $(6 .1) $179 .7 $79 .5
i
Figures affected by rounding. Unless otherwise noted, data in this table are from the following source: U.S. Department of the Treasury,
Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
ii
Total amount repaid under CPP includes $13.4 billion Treasury received as part of its sales of Citigroup common stock. As of October 29,
2010, Treasury had sold 4.1 billion Citigroup common shares for $16.4 billion in gross proceeds. Treasury has received $3 billion in net profit
from the sale of Citigroup common stock. In June 2009, Treasury exchanged $25 billion in Citigroup preferred stock for 7.7 billion shares of
the company’s common stock at $3.25 per share. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the
Period Ending October 29, 2010, at 13–15 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf); U.S. Department of the Treas-
ury, Troubled Asset Relief Program: Two-Year Retrospective, at 25 (Oct. 2010) (online at
www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
Total CPP repayments also include amounts repaid by institutions that exchanged their CPP investments for investments under the CDCI,
as well as proceeds earned from the sale of preferred stock and warrants issued by South Financial Group, Inc. and TIB Financial Corp.
iii
On the TARP Transactions Report, Treasury has classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pa-
cific Coast National Bancorp ($4.1 million), as losses. In addition, Treasury sold its preferred ownership interests, along with warrants, in
South Financial Group, Inc. and TIB Financial Corp. to non-TARP participating institutions. These shares were sold at prices below the value
of the original CPP investment. Therefore, Treasury’s net current CPP investment is $49.5 billion due to the $2.6 billion in losses thus far.
U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010, at 13–14 (Nov.
2, 2010) (online at financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
iv
The $5 billion AGP guarantee for Citigroup was unused since Treasury was not required to make any guarantee payments during the life
of the program. U.S. Department of the Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 31 (Oct. 2010) (online at
www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
v
Although this $5 billion is no longer exposed as part of the AGP, Treasury did not receive a repayment in the same sense as with other
investments. Treasury did receive other income as consideration for the guarantee, which is not a repayment and is accounted for in Figure
26.
vi
AIG has completely utilized the $40 billion that was made available on November 25, 2008, in exchange for the company’s preferred
stock. It has also drawn down $7.5 billion of the $29.8 billion made available on April 17, 2009. This figure does not include $1.6 billion in
accumulated but unpaid dividends owed by AIG to Treasury due to the restructuring of Treasury’s investment from cumulative preferred shares
to non-cumulative shares. AIG expects to draw down up to $22 billion in outstanding funds from the TARP as part of its plan to repay the
revolving credit facility provided by the Federal Reserve Bank of New York. American International Group, Inc., Form 10–Q for the Fiscal Year
Ended September 30, 2010, at 119 (Nov. 5, 2010) (online at sec.gov/Archives/edgar/data/5272/000104746910009269/a2200724z10-q.htm);
American International Group, Inc., AIG Announces Plan To Repay U.S. Government (Sept. 30, 2010) (online at
www.aigcorporate.com/newsroom/2010_September/AIGAnnouncesPlantoRepay30Sept2010.pdf); U.S. Department of the Treasury, Troubled Asset
Relief Program Transactions Report for the Period Ending October 29, 2010, at 21 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
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vii
On May 14, 2010, Treasury accepted a $1.9 billion settlement payment for its $3.5 billion loan to Chrysler Holding. The payment rep-
resented a $1.6 billion loss from the termination of the debt obligation. U.S. Department of the Treasury, Chrysler Financial Parent Company
Repays $1.9 Billion in Settlement of Original Chrysler Loan (May 17, 2010) (online at www.financialstability.gov/latest/pr_05172010c.html).
Also, following the bankruptcy proceedings for Old Chrysler, which extinguished the $1.9 billion debtor-in-possession (DIP) loan provided to Old
Chrysler, Treasury retained the right to recover the proceeds from the liquidation of specified collateral. To date, Treasury has collected $40.2
million in proceeds from the sale of collateral, and it does not expect a significant recovery from the liquidation proceeds. Treasury includes
these proceeds as part of the $10.8 billion repaid under the AIFP. U.S. Department of the Treasury, Troubled Assets Relief Program Monthly
105(a) Report—September 2010 (Oct. 12, 2010) (online at financialstability.gov/docs/105CongressionalReports/September 105(a) re-
port_FINAL.pdf); Treasury conversations with Panel staff (Aug. 19, 2010); U.S. Department of the Treasury, Troubled Asset Relief Program
Transactions Report for the Period Ending October 29, 2010, at 18 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
viii
On the TARP Transactions Report, the $1.9 billion Chrysler debtor-in-possession loan, which was extinguished April 30, 2010, was de-
ducted from Treasury’s AIFP investment amount. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the
Period Ending October 29, 2010, at 18 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf). See note vii, supra, for details
on losses from Treasury’s investment in Chrysler.
ix
On April 5, 2010, Treasury terminated its commitment to lend to the GM SPV under the ASSP. On April 7, 2010, it terminated its com-
mitment to lend to the Chrysler SPV. In total, Treasury received $413 million in repayments from loans provided by this program ($290 million
from the GM SPV and $123 million from the Chrysler SPV). Further, Treasury received $101 million in proceeds from additional notes associ-
ated with this program. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29,
2010, at 19 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
x
For the TALF program, one dollar of TARP funds was committed for every $10 of funds obligated by the Federal Reserve. The program
was intended to be a $200 billion initiative, and the TARP was responsible for the first $20 billion in loan-losses, if any were incurred. The
loan was incrementally funded. When the program closed in June 2010, a total of $43 billion in loans was outstanding under the TALF pro-
gram, and the TARP’s commitments constituted $4.3 billion. The Federal Reserve Board of Governors agreed that it was appropriate for Treas-
ury to reduce TALF credit protection from TARP to $4.3 billion. Board of Governors of the Federal Reserve System, Federal Reserve Announces
Agreement With the Treasury Department Regarding a Reduction of Credit Protection Provided for the Term Asset-Backed Securities Loan Facil-
ity (TALF) (July 20, 2010) (online at www.federalreserve.gov/newsevents/press/monetary/20100720a.htm).
xi
As of October 27, 2010, Treasury had provided $105 million to TALF LLC. This total includes accrued payable interest. Federal Reserve
Bank of New York, Factors Affecting Reserve Balances (H.4.1) (Oct. 28, 2010) (online at www.federalreserve.gov/releases/h41/20101028/).
xii
As of September 30, 2010, the total value of securities held by the PPIP managers was $19.3 billion. Non-agency Residential
Mortgage-Backed Securities represented 82 percent of the total; CMBS represented the balance. U.S. Department of the Treasury, Legacy Secu-
rities Public-Private Investment Program, Program Update—Quarter Ended September 30, 2010, at 4 (Oct. 20, 2010) (online at
financialstability.gov/docs/External%20Report%20-%2009-10%20vFinal.pdf).
xiii
U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report—September 2010, at 6 (Oct. 12, 2010) (online
at financialstability.gov/docs/105CongressionalReports/September 105(a) report_FINAL.pdf).
xiv
As of October 29, 2010, Treasury has received $428 million in capital repayments from two PPIP fund managers. U.S. Department of the
Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010, at 23 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
xv
As of October 29, 2010, Treasury’s purchases under the SBA 7(a) Securities Purchase Program totaled $324.9 million. U.S. Department of
the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010, at 22 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
xvi
Treasury will not make additional purchases pursuant to the expiration of its purchasing authority under EESA. U.S. Department of the
Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 43 (Oct. 2010) (online at
www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
xvii
As part of its revisions to TARP allocations upon enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Treas-
ury allocated an additional $2 billion in TARP funds to mortgage assistance for unemployed borrowers through the Hardest Hit Fund (HHF).
U.S. Department of the Treasury, Obama Administration Announces Additional Support for Targeted Foreclosure-Prevention Programs to Help
Homeowners Struggling With Unemployment (Aug. 11, 2010) (online at www.ustreas.gov/press/releases/tg823.htm). Another $3.5 billion was al-
located among the 18 states and the District of Columbia currently participating in HHF. The amount each state received during this round of
funding is proportional to its population. U.S. Department of the Treasury, Troubled Asset Relief Program: Two Year Retrospective, at 72 (Oct.
2010) (online at www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
xviii
As of November 10, 2010, a total of $63.6 million has been disbursed to seven state Housing Finance Agencies (HFAs). Data provided
by Treasury staff (Nov. 10, 2010).
xix
This figure represents the amount Treasury disbursed to fund the advance purchase account of the letter of credit issued under the FHA
Short Refinance Program. Data provided by Treasury staff (Nov. 10, 2010).
xx
Seventy-three Community Development Financial Institutions (CDFIs) entered the CDCI in September. Among these institutions, 17 banks
exchanged their CPP investments for an equivalent investment amount under the CDCI. U.S. Department of the Treasury, Troubled Asset Relief
Program Transactions Report for the Period Ending October 29, 2010, at 1–13, 16–17 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf). Treasury closed the program
on September 30, 2010, after investing $570 million in 84 CDFIs. U.S. Department of the Treasury, Treasury Announces Special Financial Sta-
bilization Initiative Investments of $570 Million in 84 Community Development Financial Institutions in Underserved Areas (Sept. 30, 2010)
(online at financialstability.gov/latest/pr_09302010b.html).
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FIGURE 26: TARP PROFIT AND LOSS
[Dollars in millions]
TARP
Initiative
xxi
Dividends
xxii
(as of
9/30/2010)
Interest
xxiii
(as of
9/30/2010)
Warrant
Disposition
Proceeds
xxiv
(as of
10/29/2010)
Other
Proceeds
(as of
9/30/2010)
Losses
xxv
(as of
10/29/2010)
Total
Total ......................... $16,721 $1,052 $8,160 $5,833 ($6,034) $25,732
CPP ........................... 9,859 49 6,904
xxvi
3,015 (2,576) 17,250
TIP ............................. 3,004 – 1,256 – – 4,260
AIFP ...........................
xxvii
3,418 931 –
xxviii
15 (3,458) 906
ASSP ......................... – 15 –
xxix
101 – 116
AGP ........................... 440 – –
xxx
2,246 – 2,686
PPIP .......................... – 56 –
xxxi
180 – 236
SBA 7(a) ................... – 1 – – – 1
Bank of America
Guarantee ............. – – –
xxxii
276 – 276
xxi
AIG is not listed on this table because no profit or loss has been recorded to date for AIG. Its missed dividends were capitalized as
part of the issuance of Series E preferred shares and are not considered to be outstanding. Treasury currently holds non-cumulative preferred
shares, meaning AIG is not penalized for non-payment. Therefore, no profit or loss has been realized on Treasury’s AIG investment to date.
xxii
U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of September 30, 2010 (Oct. 12, 2010) (on-
line at financialstability.gov/docs/dividends-interest-reports/September%202010%20Dividends%20&%20Interest%20Report.pdf).
xxiii
U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of September 30, 2010 (Oct. 12, 2010)
(online at financialstability.gov/docs/dividends-interest-reports/September%202010%20Dividends%20&%20Interest%20Report.pdf).
xxiv
U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010 (Nov. 2,
2010) (online at financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
xxv
In the TARP Transactions Report, Treasury classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific
Coast National Bancorp ($4.1 million), as losses. Treasury has also sold its preferred ownership interests and warrants from South Financial
Group, Inc. and TIB Financial Corp. This represents a $241.7 million loss on its CPP investments in these two banks. Two TARP recipients,
UCBH Holdings, Inc. ($298.7 million) and a banking subsidiary of Midwest Banc Holdings, Inc. ($89.4 million), are currently in bankruptcy
proceedings. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010 (Nov.
2, 2010) (online at financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf). Finally,
Sonoma Valley Bancorp, which received $8.7 million in CPP funding, was placed into receivership on August 20, 2010. Federal Deposit Insur-
ance Corporation, Westamerica Bank, San Rafael, California, Assumes All of the Deposits of Sonoma Valley Bank, Sonoma, California (Aug. 20,
2010) (online at www.fdic.gov/news/news/press/2010/pr10196.html).
xxvi
This figure represents net proceeds to Treasury from the sale of Citigroup common stock to date. For details on Treasury’s sales of
Citigroup common stock, see note ii, supra. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period
Ending October 29, 2010, at 15 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf); U.S. Department of the Treas-
ury, Troubled Asset Relief Program: Two-Year Retrospective, at 25 (Oct. 2010) (online at
www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
xxvii
This figure includes $815 million in dividends from GMAC preferred stock, trust preferred securities, and mandatory convertible pre-
ferred shares. The dividend total also includes a $748.6 million senior unsecured note from Treasury’s investment in General Motors. Data
provided by Treasury.
xxviii
Treasury received proceeds from an additional note connected with the loan made to Chrysler Financial on January 16, 2009. U.S. De-
partment of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010, at 18 (Nov. 2, 2010)
(online at financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
xxix
This represents the total proceeds from additional notes connected with Treasury’s investments in GM Supplier Receivables LLC and
Chrysler Receivables SPV LLC. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending Octo-
ber 29, 2010, at 19 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
xxx
As a fee for taking a second-loss position of up to $5 billion on a $301 billion pool of ring-fenced Citigroup assets as part of the
AGP, Treasury received $4.03 billion in Citigroup preferred stock and warrants. Treasury exchanged these preferred stocks for trust preferred
securities in June 2009. Following the early termination of the guarantee in December 2009, Treasury cancelled $1.8 billion of the trust pre-
ferred securities, leaving Treasury with $2.23 billion in Citigroup trust preferred securities. On September 30, 2010, Treasury sold these securi-
ties for $2.25 billion in total proceeds. At the end of Citigroup’s participation in the FDIC’s TLGP, the FDIC may transfer $800 million of
$3.02 billion in Citigroup Trust Preferred Securities it received in consideration for its role in the AGP to Treasury. U.S. Department of the
Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010, at 20 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf); U.S. Department of the Treas-
ury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Citigroup Inc., Termination Agreement, at 1
(Dec. 23, 2009) (online at
www.financialstability.gov/docs/Citi%20AGP%20Termination%20Agreement%20-%20Fully%20Executed%20Version.pdf); U.S. Department of the
Treasury, Treasury Announces Further Sales of Citigroup Securities and Cumulative Return to Taxpayers of $41.6 Billion (Sept. 30, 2010) (on-
line at financialstability.gov/latest/pr_09302010c.html); Federal Deposit Insurance Corporation, 2009 Annual Report, at 87 (June 30, 2010) (on-
line at www.fdic.gov/about/strategic/report/2009annualreport/AR09final.pdf).
xxxi
As of September 30, 2010, Treasury has earned $159.1 million in membership interest distributions from the PPIP. Additionally, Treas-
ury has earned $20.6 million in total proceeds following the termination of the TCW fund. See U.S. Department of the Treasury, Cumulative
Dividends, Interest and Distributions Report as of September 30, 2010, at 14 (Oct. 12, 2010) (online at
financialstability.gov/docs/dividends-interest-reports/September%202010%20Dividends%20&%20Interest%20Report.pdf); U.S. Department of the
Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010, at 23 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
xxxii
Although Treasury, the Federal Reserve, and the FDIC negotiated with Bank of America regarding a similar guarantee, the parties
never reached an agreement. In September 2009, Bank of America agreed to pay each of the prospective guarantors a fee as though the
guarantee had been in place during the negotiations period. This agreement resulted in payments of $276 million to Treasury, $57 million to
the Federal Reserve, and $92 million to the FDIC. U.S. Department of the Treasury, Board of Governors of the Federal Reserve System, Federal
Deposit Insurance Corporation, and Bank of America Corporation, Termination Agreement, at 1–2 (Sept. 21, 2009) (online at
www.financialstability.gov/docs/AGP/BofA%20-%20Termination%20Agreement%20-%20executed.pdf).
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345
Treasury Cumulative Dividends, Interest and Distributions Report, supra note 339, at 20.
346
Does not include banks with missed dividend payments that have either repaid all delin-
quent dividends, exited TARP, gone into receivership, or filed for bankruptcy.
347
Includes institutions that have either (a) fully repaid their CPP investment and exited the
program or (b) entered bankruptcy or its subsidiary was placed into receivership. Treasury Cu-
mulative Dividends, Interest and Distributions Report, supra note 339, at 20.
348
U.S. Department of the Treasury, Frequently Asked Questions Capital Purchase Program
(CPP): Related to Missed Dividend (or Interest) Payments and Director Nomination (online at
www.financialstability.gov/docs/CPP/CPP%20Directors%20FAQs.pdf) (accessed Nov. 12, 2010).
d. CPP Unpaid Dividend and Interest Payments
345

As of September 30, 2010, 120 institutions have at least one divi-
dend payment on preferred stock issued under CPP outstanding.
346

Among these institutions, 95 are not current on cumulative divi-
dends, amounting to $114.8 million in missed payments. Another
25 banks have not paid $8 million in non-cumulative dividends. Of
the $49.5 billion currently outstanding in CPP funding, Treasury’s
investments in banks with non-current dividend payments total
$3.5 billion. A majority of the banks that remain delinquent on div-
idend payments have under $1 billion in total assets on their bal-
ance sheets. Also, there are 21 institutions that no longer have out-
standing unpaid dividends, after previously deferring their quar-
terly payments.
347

Six banks have failed to make six dividend payments, while one
bank has missed all seven quarterly payments. These institutions
have received a total of $207.1 million in CPP funding. Under the
terms of the CPP, after a bank fails to pay dividends for six peri-
ods, Treasury has the right to elect two individuals to the com-
pany’s board of directors.
348
Figure 27 below provides further de-
tails on the distribution and the number of institutions that have
missed dividend payments.
In addition, eight CPP participants have missed at least one in-
terest payment, representing $3.6 million in cumulative unpaid in-
terest payments. Treasury’s total investments in these non-public
institutions represent less than $1 billion in CPP funding.
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350
Calculation of the internal rate of return (IRR) also includes CPP investments in public
institutions not repaid in full (for reasons such as acquisition by another institution) in the
Transaction Report, e.g., The South Financial Group and TIB Financial Corporation. The Panel’s
total IRR calculation now includes CPP investments in public institutions recorded as a loss on
the TARP Transaction Report due to bankruptcy, e.g., CIT Group Inc. Going forward, the Panel
will continue to include losses due to bankruptcy when Treasury determines any associated con-
tingent value rights have expired without value. When excluding CIT Group from the calcula-
tion, the resulting IRR is 10.4 percent. Treasury Transactions Report, supra note 339.
FIGURE 27: CPP MISSED DIVIDEND PAYMENTS (AS OF SEPTEMBER 30, 2010)
349

Number of Missed Payments 1 2 3 4 5 6 7 Total
Cumulative Dividends
Number of Banks, by asset size 29 19 17 17 10 3 0 95
Under $1B .......................... 20 15 12 11 5 1 0 64
$1B–$10B .......................... 8 4 4 6 5 2 0 29
Over $10B .......................... 1 0 1 0 0 0 0 2
Non-Cumulative Dividends
Number of Banks, by asset size 2 5 6 3 5 3 1 25
Under $1B .......................... 1 5 5 3 5 3 1 23
$1B–$10B .......................... 1 0 1 0 0 0 0 2
Over $10B .......................... 0 0 0 0 0 0 0 0
Total Missed Payments ............. .............. .............. .............. .............. .............. .............. .............. 120
349
Treasury Cumulative Dividends, Interest and Distributions Report, supra note 339, at 17–20. Data on total bank assets compiled using
SNL Financial data service. (accessed Nov. 3, 2010).
e. Rate of Return
As of November 4, 2010, the average internal rate of return for
all public financial institutions that participated in the CPP and
fully repaid the U.S. government (including preferred shares, divi-
dends, and warrants) remained at 8.4 percent, as no institutions
exited the program in October.
350
The internal rate of return is the
annualized effective compounded return rate that can be earned on
invested capital.
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f. Warrant Disposition
FIGURE 28: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS WHO HAVE FULLY
REPAID CPP FUNDS (AS OF NOVEMBER 4, 2010)
Institution
Investment
Date
Warrant
Repurchase
Date
Warrant
Repurchase/
Sale Amount
Panel’s Best
Valuation
Estimate at
Disposition
Date
Price/
Esti-
mate
Ratio
IRR
(Percent)
Old National Bancorp ..................... 12/12/2008 5/8/2009 $1,200,000 $2,150,000 0 .558 9 .3
Iberiabank Corporation ................... 12/5/2008 5/20/2009 1,200,000 2,010,000 0 .597 9 .4
Firstmerit Corporation ..................... 1/9/2009 5/27/2009 5,025,000 4,260,000 1 .180 20 .3
Sun Bancorp, Inc ............................ 1/9/2009 5/27/2009 2,100,000 5,580,000 0 .376 15 .3
Independent Bank Corp. ................. 1/9/2009 5/27/2009 2,200,000 3,870,000 0 .568 15 .6
Alliance Financial Corporation ........ 12/19/2008 6/17/2009 900,000 1,580,000 0 .570 13 .8
First Niagara Financial Group ........ 11/21/2008 6/24/2009 2,700,000 3,050,000 0 .885 8 .0
Berkshire Hills Bancorp, Inc. .......... 12/19/2008 6/24/2009 1,040,000 1,620,000 0 .642 11 .3
Somerset Hills Bancorp .................. 1/16/2009 6/24/2009 275,000 580,000 0 .474 16 .6
SCBT Financial Corporation ............ 1/16/2009 6/24/2009 1,400,000 2,290,000 0 .611 11 .7
HF Financial Corp. .......................... 11/21/2008 6/30/2009 650,000 1,240,000 0 .524 10 .1
State Street ..................................... 10/28/2008 7/8/2009 60,000,000 54,200,000 1 .107 9 .9
U.S. Bancorp ................................... 11/14/2008 7/15/2009 139,000,000 135,100,000 1 .029 8 .7
The Goldman Sachs Group, Inc. ..... 10/28/2008 7/22/2009 1,100,000,000 1,128,400,000 0 .975 22 .8
BB&T Corp. ..................................... 11/14/2008 7/22/2009 67,010,402 68,200,000 0 .983 8 .7
American Express Company ............ 1/9/2009 7/29/2009 340,000,000 391,200,000 0 .869 29 .5
Bank of New York Mellon Corp ....... 10/28/2008 8/5/2009 136,000,000 155,700,000 0 .873 12 .3
Morgan Stanley ............................... 10/28/2008 8/12/2009 950,000,000 1,039,800,000 0 .914 20 .2
Northern Trust Corporation ............. 11/14/2008 8/26/2009 87,000,000 89,800,000 0 .969 14 .5
Old Line Bancshares Inc. ............... 12/5/2008 9/2/2009 225,000 500,000 0 .450 10 .4
Bancorp Rhode Island, Inc. ............ 12/19/2008 9/30/2009 1,400,000 1,400,000 1 .000 12 .6
Centerstate Banks of Florida Inc. .. 11/21/2008 10/28/2009 212,000 220,000 0 .964 5 .9
Manhattan Bancorp ........................ 12/5/2008 10/14/2009 63,364 140,000 0 .453 9 .8
CVB Financial Corp ......................... 12/5/2008 10/28/2009 1,307,000 3,522,198 0 .371 6 .4
Bank of the Ozarks ......................... 12/12/2008 11/24/2009 2,650,000 3,500,000 0 .757 9 .0
Capital One Financial ..................... 11/14/2008 12/3/2009 148,731,030 232,000,000 0 .641 12 .0
JPMorgan Chase & Co. ................... 10/28/2008 12/10/2009 950,318,243 1,006,587,697 0 .944 10 .9
CIT Group Inc. ................................. 12/31/2008 – – 562,541 – (97 .2)
TCF Financial Corp ......................... 1/16/2009 12/16/2009 9,599,964 11,825,830 0 .812 11 .0
LSB Corporation .............................. 12/12/2008 12/16/2009 560,000 535,202 1 .046 9 .0
Wainwright Bank & Trust Company 12/19/2008 12/16/2009 568,700 1,071,494 0 .531 7 .8
Wesbanco Bank, Inc. ...................... 12/5/2008 12/23/2009 950,000 2,387,617 0 .398 6 .7
Union First Market Bankshares Cor-
poration (Union Bankshares Cor-
poration) ..................................... 12/19/2008 12/23/2009 450,000 1,130,418 0 .398 5 .8
Trustmark Corporation .................... 11/21/2008 12/30/2009 10,000,000 11,573,699 0 .864 9 .4
Flushing Financial Corporation ....... 12/19/2008 12/30/2009 900,000 2,861,919 0 .314 6 .5
OceanFirst Financial Corporation ... 1/16/2009 2/3/2010 430,797 279,359 1 .542 6 .2
Monarch Financial Holdings, Inc. ... 12/19/2008 2/10/2010 260,000 623,434 0 .417 6 .7
Bank of America ............................. 10/28/2008
351

1/9/2009
352

1/14/2009
353

3/3/2010 1,566,210,714 1,006,416,684 1 .533 6 .5
Washington Federal Inc./Wash-
ington Federal Savings & Loan
Association ................................. 11/14/2008 3/9/2010 15,623,222 10,166,404 1 .537 18 .6
Signature Bank ............................... 12/12/2008 3/10/2010 11,320,751 11,458,577 0 .988 32 .4
Texas Capital Bancshares, Inc. ...... 1/16/2009 3/11/2010 6,709,061 8,316,604 0 .807 30 .1
Umpqua Holdings Corp. .................. 11/14/2008 3/31/2010 4,500,000 5,162,400 0 .872 6 .6
City National Corporation ............... 11/21/2008 4/7/2010 18,500,000 24,376,448 0 .759 8 .5
First Litchfield Financial Corpora-
tion ............................................. 12/12/2008 4/7/2010 1,488,046 1,863,158 0 .799 15 .9
PNC Financial Services Group Inc. 12/31/2008 4/29/2010 324,195,686 346,800,388 0 .935 8 .7
Comerica Inc. .................................. 11/14/2008 5/4/2010 183,673,472 276,426,071 0 .664 10 .8
Valley National Bancorp ................. 11/14/2008 5/18/2010 5,571,592 5,955,884 0 .935 8 .3
Wells Fargo Bank ............................ 10/28/2008 5/20/2010 849,014,998 1,064,247,725 0 .798 7 .8
First Financial Bancorp .................. 12/23/2008 6/2/2010 3,116,284 3,051,431 1 .021 8 .2
Sterling Bancshares, Inc./Sterling
Bank ........................................... 12/12/2008 6/9/2010 3,007,891 5,287,665 0 .569 10 .8
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FIGURE 28: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS WHO HAVE FULLY
REPAID CPP FUNDS (AS OF NOVEMBER 4, 2010)—Continued
Institution
Investment
Date
Warrant
Repurchase
Date
Warrant
Repurchase/
Sale Amount
Panel’s Best
Valuation
Estimate at
Disposition
Date
Price/
Esti-
mate
Ratio
IRR
(Percent)
SVB Financial Group ....................... 12/12/2008 6/16/2010 6,820,000 7,884,633 0 .865 7 .7
Discover Financial Services ............ 3/13/2009 7/7/2010 172,000,000 166,182,652 1 .035 17 .1
Bar Harbor Bancshares .................. 1/16/2009 7/28/2010 250,000 518,511 0 .482 6 .2
Citizens & Northern Corporation ..... 1/16/2009 8/4/2010 400,000 468,164 0 .854 5 .9
Columbia Banking System, Inc. ..... 11/21/2008 8/11/2010 3,301,647 3,291,329 1 .003 7 .3
Hartford Financial Services Group,
Inc. .............................................. 6/26/2009 9/21/2010 713,687,430 472,221,996 1 .511 30 .3
Lincoln National Corporation .......... 7/10/2009 9/16/2010 216,620,887 181,431,183 1 .194 27 .1
Fulton Financial Corporation .......... 12/23/2008 9/8/2010 10,800,000 15,616,013 0 .692 6 .7
The Bancorp, Inc./The Bancorp
Bank ........................................... 12/12/2008 9/8/2010 4,753,985 9,947,683 0 .478 12 .8
South Financial Group, Inc./Caro-
lina First Bank ........................... 12/5/2008 9/30/2010 400,000 1,164,486 0 .343 (34 .2)
TIB Financial Corp/TIB Bank .......... 12/5/2008 9/30/2010 40,000 235,757 0 .170 (38 .0)
Total ................................................ $8,148,332,166 $7,999,843,254 1 .019 8 .4
351
Investment date for Bank of America in CPP.
352
Investment date for Merrill Lynch in CPP.
353
Investment date for Bank of America in TIP.
FIGURE 29: VALUATION OF CURRENT HOLDINGS OF WARRANTS (AS OF NOVEMBER 4, 2010)
[Dollars in millions]
Financial Institutions with
Warrants Outstanding
Warrant Valuation
Low
Estimate
High
Estimate
Best
Estimate
Citigroup, Inc.
354
........................................................................................ $71.57 $1,479.30 $206.88
SunTrust Banks, Inc. .................................................................................. 17.34 356.98 123.78
Regions Financial Corporation .................................................................... 5.94 172.60 63.27
Fifth Third Bancorp ..................................................................................... 96.96 390.18 170.52
KeyCorp ....................................................................................................... 20.90 158.08 64.62
AIG ............................................................................................................... 419.89 2,062.45 909.42
All Other Banks ........................................................................................... 379.97 1,210.32 812.63
Total ............................................................................................................ $1,012.57 $5,829.91 $2,351.12
354
Includes warrants issued under CPP, AGP, and TIP.
2. Federal Financial Stability Efforts
a. Federal Reserve and FDIC Programs
In addition to the direct expenditures Treasury has undertaken
through the TARP, the federal government has engaged in a much
broader program directed at stabilizing the U.S. financial system.
Many of these initiatives explicitly augment funds allocated by
Treasury under specific TARP initiatives, such as FDIC and Fed-
eral Reserve asset guarantees for Citigroup, or operate in tandem
with Treasury programs, such as the interaction between PPIP and
TALF. Other programs, like the Federal Reserve’s extension of
credit through its Section 13(3) facilities and special purpose vehi-
cles (SPVs) and the FDIC’s Temporary Liquidity Guarantee Pro-
gram (TLGP), operate independently of the TARP.
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355
Congressional Oversight Panel, November Oversight Report: Guarantees and Contingent
Payments in TARP and Related Programs, at 36 (Nov. 6, 2009) (online at cop.senate.gov/docu-
ments/cop-110609-report.pdf).
356
National Credit Union Administration, Corporate System Resolution: Corporate Credit
Unions Frequently Asked Questions (FAQs), at 1 (online at www.ncua.gov/Resources/
CorporateCU/CSR/CSR-6.pdf).
357
National Credit Union Administration, Corporate System Resolution: National Credit
Union Administration Virtual Town Hall, at 14 (Sept. 27, 2010) (online at www.ncua.gov/Re-
sources/CorporateCU/CSR/10-0927WebinarSlides.pdf); National Credit Union Administration,
Fact Sheet: Corporate Credit Union Conservatorships (Sept. 14, 2010) (online at www.ncua.gov/
Resources/CorporateCU/CSR/CSR-14.pdf).
b. Total Financial Stability Resources
Beginning in its April 2009 report, the Panel broadly classified
the resources that the federal government has devoted to stabi-
lizing the economy through myriad new programs and initiatives as
outlays, loans, or guarantees. With the reductions in funding for
certain TARP programs, the Panel calculates the total value of
these resources to be over $2.5 trillion. However, this would trans-
late into the ultimate ‘‘cost’’ of the stabilization effort only if: (1) as-
sets do not appreciate; (2) no dividends are received, no warrants
are exercised, and no TARP funds are repaid; (3) all loans default
and are written off; and (4) all guarantees are exercised and subse-
quently written off.
With respect to the FDIC and Federal Reserve programs, the
risk of loss varies significantly across the programs considered
here, as do the mechanisms providing protection for the taxpayer
against such risk. As discussed in the Panel’s November 2009 re-
port, the FDIC assesses a premium of up to 100 basis points on
TLGP debt guarantees.
355
In contrast, the Federal Reserve’s liquid-
ity programs are generally available only to borrowers with good
credit, and the loans are over-collateralized and with recourse to
other assets of the borrower. If the assets securing a Federal Re-
serve loan realize a decline in value greater than the ‘‘haircut,’’ the
Federal Reserve is able to demand more collateral from the bor-
rower. Similarly, should a borrower default on a recourse loan, the
Federal Reserve can turn to the borrower’s other assets to make
the Federal Reserve whole. In this way, the risk to the taxpayer
on recourse loans only materializes if the borrower enters bank-
ruptcy.
c. Credit Union Assistance
Apart from the assistance credit unions have received through
the CDCI, the National Credit Union Administration (NCUA), the
federal agency charged with regulating federal credit unions
(FCUs), has also made efforts to stabilize the corporate credit union
(CCU) system. Corporate credit unions provide correspondent serv-
ices, as well as liquidity and investment services to retail (or con-
sumer) credit unions.
356
Since March 2009, the NCUA has placed
five CCUs into conservatorship due to their exposure to underper-
forming private-label MBS. The NCUA estimates that these five in-
stitutions, which have $72 billion in assets and provide services for
4,600 retail credit unions, hold more than 90 percent of the MBS
in the corporate credit union system.
357

To assist in the NCUA’s stabilization efforts, the Temporary Cor-
porate Credit Union Stabilization Fund (‘‘Stabilization Fund’’) was
created to help cover costs associated with CCU conservatorships
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358
National Credit Union Administration, Board Action Memorandum (June 15, 2010) (online
at www.ncua.gov/GenInfo/BoardandAction/DraftBoardActions/2010/Jun/
Item6aBAMSFAssessmentJune2010(1%20billion)FINAL.pdf).
359
National Credit Union Administration, Remarks as Prepared for Delivery by Board Member
Gigi Hyland at Grand Hyatt Washington (Sept. 20, 2010) (online at www.ncua.gov/GenInfo/
Members/Hyland/Speeches/10-0920HylandNAFCUCongrCaucus.pdf).
360
U.S. Department of the Treasury, FY2011 Budget in Brief, at 138 (Feb. 2010) (online at
www.treas.gov/offices/management/budget/budgetinbrief/fy2011/FY%202011%20BIB%20(2).pdf).
361
U.S. Department of the Treasury, MBS Purchase Program: Portfolio by Month (online at
www.financialstability.gov/docs/October%202010%20Portfolio%20by%20month.pdf) (accessed
Nov. 12, 2010). Treasury has received $65.7 billion in principal repayments and $14.3 billion
in interest payments from these securities. See U.S. Department of the Treasury, MBS Purchase
Program Principal and Interest Received (online at www.financialstability.gov/docs/
October%202010%20MBS%20Principal%20and%20Interest%20Monthly%20Breakout.pdf)
(accessed Nov. 12, 2010).
362
Federal Reserve Report on Credit and Liquidity Programs and the Balance Sheet, supra
note 251, at 5.
363
Federal Reserve Report on Credit and Liquidity Programs and the Balance Sheet, supra
note 251, at 5.
364
Federal Reserve Statistical Release H.4.1, supra note 251.
365
Board of Governors of the Federal Reserve System, Press Release—FOMC Statement (Nov.
3, 2010) (online at www.federalreserve.gov/newsevents/press/monetary/20101103a.htm); Federal
Reserve Bank of New York, Statement Regarding Purchases of Treasury Securities (Nov. 3, 2010)
(online at www.federalreserve.gov/newsevents/press/monetary/monetary20101103a1.pdf).
366
On August 10, 2010, the Federal Reserve began reinvesting principal payments on agency
debt and agency MBS holdings in longer-term Treasury securities in order to keep the amount
of their securities holdings in their System Open Market Account portfolio at their then-current
level. Board of Governors of the Federal Reserve System, FOMC Statement (Aug. 10, 2010) (on-
line at www.federalreserve.gov/newsevents/press/monetary/20100810a.htm).
and liquidations. The Stabilization Fund was established on May
20, 2009, as part of the Helping Families Save Their Homes Act
of 2009, and allows the NCUA to borrow up to $6 billion from
Treasury on a revolving basis.
358
The NCUA had drawn a total of
$1.5 billion from the Stabilization Fund, and repaid the balance at
the end of September.
359

d. Mortgage Purchase Programs
On September 7, 2008, Treasury announced the GSE Mortgage
Backed Securities Purchase Program. The Housing and Economic
Recovery Act of 2008 provided Treasury with the authority to pur-
chase MBS guaranteed by GSEs through December 31, 2009.
Treasury purchased approximately $225 billion in GSE MBS by the
time its authority expired.
360
As of October 2010, there was ap-
proximately $154.6 billion in MBS still outstanding under this pro-
gram.
361

In March 2009, the Federal Reserve authorized purchases of
$1.25 trillion MBS guaranteed by Fannie Mae, Freddie Mac, and
Ginnie Mae, and $200 billion of agency debt securities from Fannie
Mae, Freddie Mac, and the Federal Home Loan Banks.
362
The in-
tended purchase amount for agency debt securities was subse-
quently decreased to $175 billion.
363
All purchasing activity was
completed on March 31, 2010. As of November 10, the Federal Re-
serve held $1.05 trillion of agency MBS and $150 billion of agency
debt.
364

e. Federal Reserve Treasury Securities Purchases
365

On November 3, 2010, the Federal Open Market Committee
(FOMC) announced that it has directed FRBNY to begin pur-
chasing an additional $600 billion in longer-term Treasury securi-
ties. In addition, FRBNY will reinvest $250 billion to $350 billion
in principal payments from agency debt and agency MBS in Treas-
ury securities.
366
The additional purchases and reinvestments will
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367
Federal Reserve Bank of New York, FAQs: Purchases of Longer-term Treasury Securities
(Nov. 3, 2010) (online at www.newyorkfed.org/markets/lttreas_faq.html).
368
Federal Reserve Statistical Release H.4.1, supra note 251.
be conducted through the end of the second quarter 2011, meaning
the pace of purchases will be approximately $110 billion per month.
In order to facilitate these purchases, FRBNY will temporarily lift
its System Open Market Account per-issue limit, which prohibits
the Federal Reserve’s holdings of an individual security from sur-
passing 35 percent of the outstanding amount.
367
As of November
10, 2010, the Federal Reserve held $853 billion in Treasury securi-
ties.
368

FIGURE 30: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF OCTOBER 27,
2010)
xxxiii
[Dollars in billions]
Program
Treasury
(TARP)
Federal
Reserve
FDIC Total
Total ............................................................................... $475 $1,378.0 $690.9 $2,544.0
Outlays
xxxiv
.......................................................... 232.2 1,226.8 188.9 1,648.0
Loans ..................................................................... 23.4 151.2 0 174.6
Guarantees
xxxv
.................................................... 4.3 0 502 506.3
Repaid and Unavailable TARP Funds ................... 215.1 0 0 215.1
AIG
xxxvi
......................................................................... 69.8 83.1 0 152.9
Outlays ..................................................................
xxxvii
69.8
xxxviii
26.1 0 95.9
Loans ..................................................................... 0
xxxix
57.1 0 57.1
Guarantees ............................................................ 0 0 0 0
Citigroup ........................................................................ 11.6 0 0 11.6
Outlays ..................................................................
xl
11.6 0 0 11.6
Loans ..................................................................... 0 0 0 0
Guarantees ............................................................ 0 0 0 0
Capital Purchase Program (Other) .............................. 37.8 0 0 37.8
Outlays ..................................................................
xli
37.8 0 0 37.8
Loans ..................................................................... 0 0 0 0
Guarantees ............................................................ 0 0 0 0
Capital Assistance Program ......................................... N/A 0 0
xlii
N/A
TALF ................................................................................ 4.3 38.7 0 43.0
Outlays .................................................................. 0 0 0 0
Loans ..................................................................... 0
xliv
38.7 0 38.7
Guarantees ............................................................
xliii
4.3 0 0 4.3
PPIP (Loans)
xlv
............................................................ 0 0 0 0
Outlays .................................................................. 0 0 0 0
Loans ..................................................................... 0 0 0 0
Guarantees ............................................................ 0 0 0 0
PPIP (Securities) ...........................................................
xlvi
22.4 0 0 22.4
Outlays .................................................................. 7.5 0 0 7.5
Loans ..................................................................... 14.9 0 0 14.9
Guarantees ............................................................ 0 0 0 0
Making Home Affordable Program/Foreclosure Miti-
gation ........................................................................ 45.6 0 0 45.6
Outlays ..................................................................
xlvii
45.6 0 0 45.6
Loans ..................................................................... 0 0 0 0
Guarantees ............................................................ 0 0 0 0
Automotive Industry Financing Program .....................
xlviii
67.1 0 0 67.1
Outlays .................................................................. 59.0 0 0 59.0
Loans ..................................................................... 8.1 0 0 8.1
Guarantees ............................................................ 0 0 0 0
Automotive Supplier Support Program ........................ 0.4 0 0 0.4
Outlays .................................................................. 0 0 0 0
Loans .....................................................................
xlix
0.4 0 0 0.4
Guarantees ............................................................ 0 0 0 0
SBA 7(a) Securities Purchase ...................................... 0.36 0 0 0.36
Outlays .................................................................. 0.36 0 0 0.36
Loans ..................................................................... 0 0 0 0
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FIGURE 30: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF OCTOBER 27,
2010)
xxxiii
—Continued
[Dollars in billions]
Program
Treasury
(TARP)
Federal
Reserve
FDIC Total
Guarantees ............................................................ 0 0 0 0
Community Development Capital Initiative .................
li
0.57 0 0 0.57
Outlays .................................................................. 0 0 0 0
Loans ..................................................................... 0.57 0 0 0.57
Guarantees ............................................................ 0 0 0 0
Temporary Liquidity Guarantee Program .................... 0 0 502.0 502.0
Outlays .................................................................. 0 0 0 0
Loans ..................................................................... 0 0 0 0
Guarantees ............................................................ 0 0
lii
502.0 502.0
Deposit Insurance Fund ............................................... 0 0 188.9 188.9
Outlays .................................................................. 0 0
liii
188.9 188.9
Loans ..................................................................... 0 0 0 0
Guarantees ............................................................ 0 0 0 0
Other Federal Reserve Credit Expansion .................... 0 1,256.1 0 1,256.1
Outlays .................................................................. 0
liv
1,200.7 0 1,200.7
Loans ..................................................................... 0
lv
55.4 0 55.4
Guarantees ............................................................ 0 0 0 0
xxxiii
Unless otherwise noted, all data in this figure are as of October 27, 2010.
xxxiv
The term ‘‘outlays’’ is used here to describe the use of Treasury funds under the TARP, which are broadly classifiable as purchases of
debt or equity securities (e.g., debentures, preferred stock, exercised warrants, etc.). These values were calculated using (1) Treasury’s actual
reported expenditures, and (2) Treasury’s anticipated funding levels as estimated by a variety of sources, including Treasury statements and
GAO estimates. Anticipated funding levels are set at Treasury’s discretion, have changed from initial announcements, and are subject to fur-
ther change. Outlays used here represent investment and asset purchases—as well as commitments to make investments and asset
purchases—and are not the same as budget outlays, which under section 123 of EESA are recorded on a ‘‘credit reform’’ basis.
xxxv
Although many of the guarantees may never be exercised or will be exercised only partially, the guarantee figures included here rep-
resent the federal government’s greatest possible financial exposure.
xxxvi
U.S. Department of the Treasury, Treasury Update on AIG Investment Valuation (Nov. 1, 2010) (online at
financialstability.gov/latest/prl11012010.html). AIG values exclude accrued dividends on preferred interests in the AIA and ALICO SPVs and
accrued interest payable to FRBNY on the Maiden Lane LLCs.
xxxvii
This number includes investments under the AIGIP/SSFI Program: a $40 billion investment made on November 25, 2008, and a $30
billion investment made on April 17, 2009 (less a reduction of $165 million representing bonuses paid to AIG Financial Products employees).
As of November 1, 2010, AIG had utilized $47.5 billion of the available $69.8 billion under the AIGIP/SSFI. U.S. Department of the Treasury,
Treasury Update on AIG Investment Valuation (Nov. 1, 2010) (online at www.financialstability.gov/latest/prl11012010.html); U.S. Department
of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010, at 13 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
xxxviii
As part of the restructuring of the U.S. government’s investment in AIG announced on March 2, 2009, the amount available to AIG
through the Revolving Credit Facility was reduced by $25 billion in exchange for preferred equity interests in two special purpose vehicles, AIA
Aurora LLC and ALICO Holdings LLC. These SPVs were established to hold the common stock of two AIG subsidiaries: American International
Assurance Company Ltd. (AIA) and American Life Insurance Company (ALICO). As of October 27, 2010, the book value of the Federal Reserve
Bank of New York’s holdings in AIA Aurora LLC and ALICO Holdings LLC was $26.1 billion in preferred equity ($16.7 billion in AIA and $9.4
billion in ALICO). Federal Reserve Bank of New York, Factors Affecting Reserve Balances (H.4.1) (Oct. 28, 2010) (online at
www.federalreserve.gov/releases/h41/20101028/).
xxxix
This number represents the full $29.3 billion made available to AIG through its Revolving Credit Facility (RCF) with FRBNY ($18.9 bil-
lion had been drawn down as of October 27, 2010) and the outstanding principal of the loans extended to the Maiden Lane II and III SPVs to
buy AIG assets (as of October 27, 2010, $13.5 billion and $14.3 billion, respectively). The amounts outstanding under the Maiden Lane II and
III facilities do not reflect the accrued interest payable to FRBNY. Income from the purchased assets is used to pay down the loans to the
SPVs, reducing the taxpayers’ exposure to losses over time. Federal Reserve Bank of New York, Factors Affecting Reserve Balances (H.4.1)
(Oct. 27, 2010) (online at www.federalreserve.gov/releases/h41/20101028/).
The maximum amount available through the RCF decreased from $34.4 billion to $29.3 billion between March and September 2010, as a
result of the sale of two AIG subsidiaries, as well as the company’s sale of CME Group, Inc. common stock. The reduced ceiling also reflects
a $3.95 billion repayment to the RCF from proceeds earned from a debt offering by the International Lease Finance Corporation (ILFC), an AIG
subsidiary. Board of Governors of the Federal Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity Programs and
the Balance Sheet, at 18 (Oct. 2010) (online at www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201010.pdf).
xl
This figure represents Treasury’s $25 billion investment in Citigroup, minus $13.4 billion applied as a repayment for CPP funding. The
amount repaid comes from the $16.4 billion in gross proceeds Treasury received from the sale of 4.1 billion Citigroup common shares. See
note ii, supra for further details of the sales of Citigroup common stock to date. U.S. Department of the Treasury, Troubled Asset Relief Pro-
gram Transactions Report for the Period Ending October 29, 2010, at 13 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
xli
This figure represents the $204.9 billion Treasury disbursed under the CPP, minus the $25 billion investment in Citigroup identified
above, $139.5 billion in repayments (excluding the amount repaid for the Citigroup investment) that are in ‘‘repaid and unavailable’’ TARP
funds, and losses under the program. This figure does not account for future repayments of CPP investments and dividend payments from
CPP investments. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010,
at 13 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
xlii
On November 9, 2009, Treasury announced the closing of the CAP and that only one institution, GMAC, was in need of further capital
from Treasury. GMAC, however, received further funding through the AIFP. Therefore, the Panel considers CAP unused. U.S. Department of the
Treasury, Treasury Announcement Regarding the Capital Assistance Program (Nov. 9, 2009) (online at
www.financialstability.gov/latest/tgl11092009.html).
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xliii
This figure represents the $4.3 billion adjusted allocation to the TALF SPV. However, as of October 27, 2010, TALF LLC had drawn only
$105 million of the available $4.3 billion. Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Sept.
30, 2010) (online at www.federalreserve.gov/releases/h41/20100930/); U.S. Department of the Treasury, Troubled Asset Relief Program Trans-
actions Report for the Period Ending October 29, 2010, at 21 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf). On June 30, 2010, the Federal
Reserve ceased issuing loans collateralized by newly issued CMBS. As of this date, investors had requested a total of $73.3 billion in TALF
loans ($13.2 billion in CMBS and $60.1 billion in non-CMBS) and $71 billion in TALF loans had been settled ($12 billion in CMBS and $59
billion in non-CMBS). Earlier, it ended its issues of loans collateralized by other TALF-eligible newly issued and legacy ABS (non-CMBS) on
March 31, 2010. Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: Terms and Conditions (online at
www.newyorkfed.org/markets/talflterms.html) (accessed Nov. 12, 2010); Federal Reserve Bank of New York, Term Asset-Backed Securities
Loan Facility: CMBS (online at www.newyorkfed.org/markets/cmbsloperations.html) (accessed Nov. 12, 2010); Federal Reserve Bank of New
York, Term Asset-Backed Securities Loan Facility: CMBS (online at www.newyorkfed.org/markets/CMBSlrecentloperations.html) (accessed Nov.
12, 2010); Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: non-CMBS (online at
www.newyorkfed.org/markets/talfloperations.html) (accessed Nov. 12, 2010); Federal Reserve Bank of New York, Term Asset-Backed Securities
Loan Facility: non-CMBS (online at www.newyorkfed.org/markets/TALFlrecentloperations.html) (accessed Nov. 12, 2010).
xliv
This number is derived from the unofficial 1:10 ratio of the value of Treasury loan guarantees to the value of Federal Reserve loans
under the TALF. U.S. Department of the Treasury, Fact Sheet: Financial Stability Plan, at 4 (Feb.10, 2009) (online at
www.financialstability.gov/docs/fact-sheet.pdf) (describing the initial $20 billion Treasury contribution tied to $200 billion in Federal Reserve
loans and announcing potential expansion to a $100 billion Treasury contribution tied to $1 trillion in Federal Reserve loans). Since only $43
billion in TALF loans remained outstanding when the program closed, Treasury is currently responsible for reimbursing the Federal Reserve
Board only up to $4.3 billion in losses from these loans. Thus, the Federal Reserve’s maximum potential exposure under the TALF is $38.7
billion. See Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Oct. 28, 2010) (online at
www.federalreserve.gov/releases/h41/20101028/).
xlv
It is unlikely that resources will be expended under the PPIP Legacy Loans Program in its original design as a joint Treasury-FDIC pro-
gram to purchase troubled assets from solvent banks. In several sales described in FDIC press releases, it appears that there is no Treasury
participation, and FDIC activity is accounted for here as a component of the FDIC’s Deposit Insurance Fund outlays. See, e.g., Federal Deposit
Insurance Corporation, FDIC Statement on the Status of the Legacy Loans Program (June 3, 2009) (online at
www.fdic.gov/news/news/press/2009/pr09084.html).
xlvi
This figure represents Treasury’s final adjusted investment amount in the Legacy Securities Public-Private Investment Program (PPIP).
As of October 29, 2010, Treasury reported commitments of $14.9 billion in loans and $7.5 billion in membership interest associated with
PPIP. On January 4, 2010, Treasury and one of the nine fund managers, UST/TCW Senior Mortgage Securities Fund, L.P. (TCW), entered into a
‘‘Winding-Up and Liquidation Agreement.’’ Treasury’s final investment amount in TCW totaled $356 million. Following the liquidation of the
fund, Treasury’s initial $3.3 billion obligation to TCW was reallocated among the eight remaining funds on March 22, 2010. See U.S. Depart-
ment of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010, at 23 (Nov. 2, 2010) (online
at financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
On October 20, 2010, Treasury released its fourth quarterly report on PPIP. The report indicates that as of September 30, 2010, all eight
investment funds have realized an internal rate of return since inception (net of any management fees or expenses owed to Treasury) above
19 percent. The highest performing fund, thus far, is AG GECC PPIF Master Fund, L.P., which has a net internal rate of return of 52 percent.
U.S. Department of the Treasury, Legacy Securities Public-Private Investment Program, at 7 (Oct. 20, 2010) (online at
financialstability.gov/docs/External%20Report%20-%2009-10%20vFinal.pdf).
xlvii
As of October 29, 2010, the total cap for HAMP was $29.9 billion. The total amount of TARP funds committed to HAMP is $29.9 bil-
lion. However, as of October 30, 2010, only $597.2 million in non-GSE payments has been disbursed under HAMP. U.S. Department of the
Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010, at 43 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf); U.S. Department of the Treas-
ury, Troubled Assets Relief Program Monthly 105(a) Report—September 2010, at 6 (Oct. 1, 2010) (online at
financialstability.gov/docs/105CongressionalReports/September%20105(a)%20reportlFINAL.pdf). Data provided by Treasury staff (Nov. 10,
2010).
xlviii
A substantial portion of the total $81.3 billion in loans extended under the AIFP has since been converted to common equity and pre-
ferred shares in restructured companies. $8.1 billion has been retained as first lien debt (with $1 billion committed to old GM and $7.1 bil-
lion to Chrysler). This figure ($67.1 billion) represents Treasury’s current obligation under the AIFP after repayments and losses. U.S. Depart-
ment of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010, at 18 (Nov. 2, 2010) (online
at financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
xlix
This figure represents Treasury’s total adjusted investment amount in the ASSP. U.S. Department of the Treasury, Troubled Asset Relief
Program Transactions Report for the Period Ending October 29, 2010, at 19 (Nov. 2, 2010) (online at
financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
l
U.S. Department of the Treasury, Troubled Asset Relief Program: Two Year Retrospective, at 43 (Oct. 2010) (online at
www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospectivel10%2005%2010ltransmittal%20letter.pdf).
li
U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending October 29, 2010, at 17 (Nov.
2, 2010) (online at financialstability.gov/docs/transaction-reports/11-2-10%20Transactions%20Report%20as%20of%2010-29-10.pdf).
lii
This figure represents the current maximum aggregate debt guarantees that could be made under the program, which is a function of
the number and size of individual financial institutions participating. $286.8 billion of debt subject to the guarantee is currently outstanding,
which represents approximately 57.1 percent of the current cap. Federal Deposit Insurance Corporation, Monthly Reports on Debt Issuance
Under the Temporary Liquidity Guarantee Program: Debt Issuance Under Guarantee Program (Sept. 30, 2010) (online at
www.fdic.gov/regulations/resources/tlgp/totallissuance09-10.html). The FDIC has collected $10.4 billion in fees and surcharges from this pro-
gram since its inception in the fourth quarter of 2008. Federal Deposit Insurance Corporation, Monthly Reports Related to the Temporary Li-
quidity Guarantee Program: Fees Under Temporary Liquidity Guarantee Debt Program (Sept. 30, 2010) (online at
www.fdic.gov/regulations/resources/tlgp/fees.html).
liii
This figure represents the FDIC’s provision for losses to its deposit insurance fund attributable to bank failures in the third and fourth
quarters of 2008, the first, second, third, and fourth quarters of 2009, and the first and second quarters of 2010. Federal Deposit Insurance
Corporation, Chief Financial Officer’s (CFO) Report to the Board: DIF Income Statement—Second Quarter 2010 (online at
www.fdic.gov/about/strategic/corporate/cfolreportl2ndqtrl10/income.html). For earlier reports, see Federal Deposit Insurance Corporation,
Chief Financial Officer’s (CFO) Report to the Board (online at www.fdic.gov/about/strategic/corporate/index.html) (accessed Nov. 12, 2010). This
figure includes the FDIC’s estimates of its future losses under loss-sharing agreements that it has entered into with banks acquiring assets
of insolvent banks during these eight quarters. Under a loss-sharing agreement, as a condition of an acquiring bank’s agreement to purchase
the assets of an insolvent bank, the FDIC typically agrees to cover 80 percent of an acquiring bank’s future losses on an initial portion of
these assets and 95 percent of losses on another portion of assets. See, e.g., Federal Deposit Insurance Corporation, Purchase and Assump-
tion Agreement—Whole Bank, All Deposits—Among FDIC, Receiver of Guaranty Bank, Austin, Texas, Federal Deposit Insurance Corporation and
Compass Bank, at 65–66 (Aug. 21, 2009) (online at www.fdic.gov/bank/individual/failed/guaranty-txlplandlalwladdendum.pdf).
liv
Outlays are comprised of the Federal Reserve Mortgage Related Facilities. The Federal Reserve balance sheet accounts for these facilities
under Federal agency debt securities and mortgage-backed securities held by the Federal Reserve. Board of Governors of the Federal Reserve
System, Factors Affecting Reserve Balances (H.4.1) (Oct. 27, 2010) (online at www.federalreserve.gov/releases/h41/20100930/). Although the
Federal Reserve does not employ the outlays, loans, and guarantees classification, its accounting clearly separates its mortgage-related pur-
chasing programs from its liquidity programs. See, e.g., Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances
(H.4.1), at 2 (Oct. 28, 2010) (online at www.federalreserve.gov/releases/h41/20101028) (accessed Nov. 3, 2010).
lv
Federal Reserve Liquidity Facilities classified in this table as loans include primary credit, secondary credit, central bank liquidity swaps,
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, loans outstanding to Commercial Paper Funding Facility LLC,
seasonal credit, term auction credit, the Term Asset-Backed Securities Loan Facility, and loans outstanding to Bear Stearns (Maiden Lane
LLC). Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Oct. 28, 2010) (online at
www.federalreserve.gov/releases/h41/20101028/) (accessed Nov. 3, 2010).
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SECTION FOUR: OVERSIGHT ACTIVITIES
The Congressional Oversight Panel was established as part of
the Emergency Economic Stabilization Act (EESA) and formed on
November 26, 2008. Since then, the Panel has produced 24 over-
sight reports, as well as a special report on regulatory reform,
issued on January 29, 2009, and a special report on farm credit,
issued on July 21, 2009. Since the release of the Panel’s October
oversight report, the following developments pertaining to the Pan-
el’s oversight of the TARP took place:
• The Panel held a hearing in Washington on October 21, 2010,
discussing restrictions on executive compensation for compa-
nies that received TARP funds. The Panel heard testimony
from Kenneth R. Feinberg, the former Special Master for
TARP Executive Compensation, as well as from industry and
academic experts.
• The Panel held a hearing in Washington on October 27, 2010.
The Panel heard testimony from Phyllis Caldwell, chief of
Treasury’s Homeownership Preservation Office, as well as from
industry and academic experts about Treasury’s HAMP pro-
gram and the effects of recent foreclosure documentation irreg-
ularities on Treasury’s ability to maintain systemic financial
stability and effective foreclosure mitigation efforts under the
TARP.
Upcoming Reports and Hearings
The Panel will release its next oversight report in December. The
report will discuss HAMP, the most expansive of Treasury’s fore-
closure mitigation initiatives under the TARP, assessing its effec-
tiveness in meeting the TARP’s legislative mandate to ‘‘protect
home values’’ and ‘‘preserve homeownership.’’ This will be the Pan-
el’s fourth report addressing Treasury’s foreclosure mitigation ef-
forts under the TARP.
Acknowledgements
The Panel would like to thank the following individuals for shar-
ing their thoughts and suggestions: Roger Ashworth, MBS Analyst,
Amherst Securities; Guy Cecala, CEO and Publisher, Inside Mort-
gage Finance; Chris Gamaitoni, Vice President, Compass Point Re-
search & Trading; Jason Gold, Senior Fellow for Housing and Fi-
nancial Services Policy, Third Way; Laurie Goodman, Senior Man-
aging Director, Amherst Securities; Anne Kim, Domestic Policy
Program Director, Third Way; Paul Miller, Managing Director and
Group Head of Financial Services Research, FBR Capital Markets;
Matthew O’Connor, Research Analyst, Deutsche Bank Securities;
Christopher Peterson, Associate Dean for Academic Affairs and
Professor of Law, University of Utah; Robert Placet, Associate Ana-
lyst, Deutsche Bank Securities; Joshua Rosner, Managing Director,
Graham Fisher & Co.; and, Jason Stewart, Managing Director,
Compass Point Research & Trading.
The Panel also wishes to acknowledge and thank the many indi-
viduals from the academic, legal, consumer, analyst, and other
communities who provided useful information and views for this re-
port.
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SECTION FIVE: ABOUT THE CONGRESSIONAL
OVERSIGHT PANEL
In response to the escalating financial crisis, on October 3, 2008,
Congress provided Treasury with the authority to spend $700 bil-
lion to stabilize the U.S. economy, preserve home ownership, and
promote economic growth. Congress created the Office of Financial
Stability (OFS) within Treasury to implement the TARP. At the
same time, Congress created the Congressional Oversight Panel to
‘‘review the current state of financial markets and the regulatory
system.’’ The Panel is empowered to hold hearings, review official
data, and write reports on actions taken by Treasury and financial
institutions and their effect on the economy. Through regular re-
ports, the Panel must oversee Treasury’s actions, assess the impact
of spending to stabilize the economy, evaluate market trans-
parency, ensure effective foreclosure mitigation efforts, and guar-
antee that Treasury’s actions are in the best interests of the Amer-
ican people. In addition, Congress instructed the Panel to produce
a special report on regulatory reform that analyzes ‘‘the current
state of the regulatory system and its effectiveness at overseeing
the participants in the financial system and protecting consumers.’’
The Panel issued this report in January 2009. Congress subse-
quently expanded the Panel’s mandate by directing it to produce a
special report on the availability of credit in the agricultural sector.
The report was issued on July 21, 2009.
On November 14, 2008, Senate Majority Leader Harry Reid and
the Speaker of the House Nancy Pelosi appointed Richard H.
Neiman, Superintendent of Banks for the State of New York,
Damon Silvers, Director of Policy and Special Counsel of the Amer-
ican Federation of Labor and Congress of Industrial Organizations
(AFL–CIO), and Elizabeth Warren, Leo Gottlieb Professor of Law
at Harvard Law School, to the Panel. With the appointment on No-
vember 19, 2008, of Congressman Jeb Hensarling to the Panel by
House Minority Leader John Boehner, the Panel had a quorum and
met for the first time on November 26, 2008, electing Professor
Warren as its chair. On December 16, 2008, Senate Minority Lead-
er Mitch McConnell named Senator John E. Sununu to the Panel.
Effective August 10, 2009, Senator Sununu resigned from the
Panel, and on August 20, 2009, Senator McConnell announced the
appointment of Paul Atkins, former Commissioner of the U.S. Secu-
rities and Exchange Commission, to fill the vacant seat. Effective
December 9, 2009, Congressman Jeb Hensarling resigned from the
Panel and House Minority Leader John Boehner announced the ap-
pointment of J. Mark McWatters to fill the vacant seat. Senate Mi-
nority Leader Mitch McConnell appointed Kenneth Troske, Sturgill
Professor of Economics at the University of Kentucky, to fill the va-
cancy created by the resignation of Paul Atkins on May 21, 2010.
Effective September 17, 2010, Elizabeth Warren resigned from the
Panel, and on September 30, 2010, Senate Majority Leader Harry
Reid announced the appointment of Senator Ted Kaufman to fill
the vacant seat. On October 4, 2010, the Panel elected Senator
Kaufman as its chair.
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APPENDIX I: LETTER FROM CHAIRMAN TED KAUFMAN
TO SPECIAL MASTER PATRICIA GEOGHEGAN, RE: FOL-
LOW UP TO EXECUTIVE COMPENSATION HEARING,
DATED NOVEMBER 1, 2010
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EXHIBIT 190
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 191
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP, and BANK OF AMERICA
CORP.
Defendants.
Index No.: 08/602825
IAS Part 3 (Bransten, J.)
CONFIDENTIAL MATERIAL-SUBJECT TO STIPULATION AND ORDER FOR THE
PRODUCTION AND EXCHANGE OF CONFIDENTIAL INFORMATION
This envelope, containing documents which are filed in this case by MBIA Insurance
Corporation, is not to be opened nor are the contents thereof to be displayed or revealed other
than to the Court, the parties and their counsel of record, except by order of the Court or consent
of the parties.
EXHIBIT 192
FILED: NEW YORK COUNTY CLERK 01/03/2012
INDEX NO. 602825/2008
NYSCEF DOC. NO. 1404 RECEIVED NYSCEF: 01/03/2012
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK: lAS PART 3
----------------------------------------------------------------x
MBIA INSURANCE CORPORATION,
Plaintiff,
-against-
COUNTRYWIDE HOME LOANS, INC.,
COUNTRYWIDE SECURITIES CORP.,
COUNTRYWIDE FINANCIAL CORP.,
COUNTRYWIDE HOME LOANS
SERVICING, LP and BANK OF AMERICA
CORP.,
Defendants.
----------------------------------------------------------------x
PRESENT: HON. EILEEN BRANSTEN
Index No.: 602825/08
Motion Date: 10/6/11
Motion Seq. No.: 037
PlaintiffMBIA Insurance Corporation's ("MBIA") moves pursuant to CPLR 3212 (e)
for partial summary judgment against defendants Countrywide Home Loans, Inc. ("CHL");
Countrywide Securities Corporation ("CSC"), Countrywide Financial Corporation ("CFC")
and Countrywide Home Loans Servicing, LP ("CHLS", and, with CHL, CSC and CFC,
"Countrywide") collectively and CHL separately.
MBIA seeks judgment first that on its claim for fraud against Countrywide, MBIA
need establish only that Countrywide's alleged misrepresentations inducedMBIA to issue
insurance policies on terms it would not have agreed to had MBIA known of the alleged
misrepresentations, and that MBIA need not show a causal connection between
'- ~
Countrywide's alleged misrepresentations and MBIA's claims payments made pursuant to
MBIA's insurance policies.
MBIA v. Countrywide, et al.
Index No. 602825/08
Page 2
Second, MBIA seeks judgment on its claim against CHL for breach of the insurance
agreement. Specifically, MBIA wants the court to declare that MBIA need establish only
that CHL's alleged warranty breaches increased the risk of the insurance that MBIA
provided, and that MBIA need not show a causal connection between CHL's alleged
warranty breaches and MBIA's claims payments made pursuant to MBIA's insurance
policies. Third, MBIA seeks judgment on its claim for CHL's breach of its alleged
repurchase obligation under various transaction documents. Specifically, MBIA seeks
judgment that it need establish only that a loan breached a representation or warranty in a
way that materially affects MBIA' s interests, and that MBIA need not show that the allegedly
non-compliant loan was non-performing or that the non-performance was caused by
Countrywide's breaches of representations and warranties in respect of that loan.
MBIA further seeks, pursuant to CPLR 3211 (b) to strike Countrywide's and Bank
of America Corporation's ("BAC") Fourteenth and Fifteenth Affirmative Defenses, wherein
Countrywide asserts that it was not the cause of any alleged injury, loss or damages suffered
by MBIA (fourteenth) and that MBIA 's claims are barred, in whole or in part, by superseding
or intervening causes of any alleged damages, and that any damages MBIA did suffer result
directly from causes other than Countrywide's alleged acts or omissions.
Countrywide opposes.
MBIA v. Countrywide, et at.
BACKGROUND
Index No. 602825/08
Page 3
The facts of this matter have been discussed extensively in previous decisions of this
court. Thus, only details necessary to this motion are referenced herein.
MBIA brought the instant action on September 30, 2008 against the Countrywide
defendants. MBIA alleged, and alleges, that Countrywide fraudulently induced MBIA to
insure the securitizations and that Countrywide breached the representations and warranties
in the transaction documents. On August 24,2009, MBIA filed an amended complaint (the
"Amended Complaint").
This action stems out of fifteen residential mortgage-backed securitizations (the
"Securitizations"). Each securitization is comprised of a group of mortgage loans
("Mortgage Loans"), originated or acquired by Countrywide. Countrywide sold or conveyed
the Mortgage Loans Securitizations to trusts. The trusts, in turn, issued notes and certificates
backed by the loans to investors. The investors were promised a return of principal with
interest. Payments of interest and principal depended on an ongoing stream of principal and
interest payments on the Mortgage Loans held by the trusts.
The rights and obligations of the parties to the Securitizations are set forth in contracts
(the "Transaction Documents"). The Transaction Documents provide for the sale of the
Mortgage Loans to the trusts (the "Purchase Agreements"); the servicing of the Mortgage
Loans by CHL or CHLS (the "Sales and Servicing Agreement" or "SSA") and a Pooling and
Servicing Agreement ("PSA") for closed-end second liens. Further, the trusts issued the
MBIA v. Countrywide, el al.
Index No. 602825/08
Page 4
Securitizations through an Indenture and sold the Securitizations pursuant to a Prospectus
and Prospectus Supplement. The Transactions closed between September 2004 and
May 2007.
MBIA, for premiums received, insured that payments to the Securitizations' investors
would be made. For each Securitization, MBIA issued a Note or Certificate Guaranty
Insurance Policy to the trusts that provided the terms for an MBIA-issued financial guaranty
policy ("Insurance Policy"). Each Insurance Policy guarantees that should the payments
received from the Mortgage Loans be insufficient to cover payments due under the
Securities, MBIA would pay the shortfall. The terms of each Insurance Policy were stated
in an Insurance Agreement ("Insurance Agreement").
The Insurance Agreements contain and incorporate representations and warranties
regarding the individual loans that comprise the Securities. Countrywide asserts that the
Insurance Agreements contain many of the provisions found in the other
Documents. Countrywide'S Memorandum of Law in Opposition to Plaintiffs Motion for
Partial Summary Judgment and Motion to Strike Defenses ("Countrywide Opp. Memo."),
p. 3. MBIA asserts that the representations and warranties in the Insurance Agreements were
comprehensive, and that it relied upon those representations and warranties when evaluating
the risk associated with insuring the Securitizations. Plaintiffs Memorandum of Law in
Support of Motion for Partial Summary Judgment and Motion to Strike Defenses ("MBIA
Memo."), p. 5.
MBIA v. Countrywide, et al. Index No. 602825/08
Page 5
MBIA states that the Insurance Agreements contain two types of representations and
warranties, the "Transactional Warranties" and the "Loan-Level Warranties." MBIA Memo,
pp.6-7.
MBIA states that the Transactional Warranties contain a representation about the
accuracy of the information provided to MBIA by Countrywide. Specifically, the
Transactional Warranties state that "[ n ]either the Transaction Documents nor other material
information relating to the Mortgage Loans ... contains any statement or a material fact by
the Master Servicer, the Sponsor or Depositor which was untrue or misleading in any
material respect when made." Sheth Affirm., I Ex. 6, Insurance Agreement for HELOC
securitization, § 2.01 U); Ex. 7, Insurance Agreement for CES securitization, § 2.01 U).
The Loan-Level Warranties are alleged to contain a "comprehensive array of
representations and warranties by Countrywide about the characteristics of the underlying
loan pools and of individual loans." MBIA Memo., p. 6. MBIA alleges that the
representations and warranties consist of those made by Countrywide in other Transaction
Documents, (id., citing Sheth Affirm., Ex. 8, Mortgage Loan Purchase Agreement
("MLPA"); Ex. 9, Sales and Servicing Agreement; Ex. 10, Pooling and Servicing
Agreement), which are incorporated into the Insurance Agreement. Sheth Affirm., Ex. 6,
§ 2.01(1); Ex. 2 § 2.01(1); see also Ex. 6, §§ 2.04 U), 2.07 (g).
I Affinnation of Manisha M. Sheth in Support of Motion for Partial Summary Judgment
and Motion to Strike Defenses ("Sheth Affirm.").
MBIA v. Countrywide, et at. Index No. 602825/08
Page 6
Relevant to the pending motion, MBIA's Amended Complaint asserts: (1) fraud
against CFC, CHL and CSC; (2) breach of the express representations and warranties in the
Insurance Agreement by CHL and CHLS; (3) breach of the obligation to repurchase non-
compliant mortgage loans by CHL; and (4) breach of the loan servicing covenants in the
SSA's and PSA's by CHL and CSC.
MBIA moves for summary judgment that it need not establish a causal connection
between Countrywide's alleged misrepresentations and MBIA's claim payments made
pursuant to MBIA's issued insurance policies. MBIA also seeks judgment that MBIA's
claim against Countrywide for breach of the repurchase obligations does not require a
showing that a non-compliant loan is actually in default or that CHL's alleged
misrepresentations were the actual cause of default of a particular loan.
ANALYSIS
I. Standard of Law
CPLR 3212( e) provides, in relevant part, that "summary judgment may be granted as
to one or more causes of action, or part thereof, in favor of anyone or more parties, to the
extent warranted, on such terms as may be just."
The standards for summary judgment are well settled. The movant must tender
evidence, by proof in admissible form, to establish the cause of action "sufficiently to
warrant the court as a matter oflaw in directing judgment." CPLR 3212(b); Zuckerman v.
MBIA v. Countrywide, et at.
Index No. 602825/08
Page 7
City of New York, 49 N.Y.2d 557, 562 (1980). "Failure to make such showing requires
denial ofthe motion, regardless of the sufficiency of the opposing papers." Winegradv. New
York Univ. Med. Ctr., 64 N.Y.2d 851,853 (1985). Once such proof has been offered, to
defeat summary judgment "the opposing party must show facts sufficient to require a trial
of any issue of fact." CPLR 3212(b); Zuckerman, 49 N.Y.2d at 562. MBIA here moves on
legal issues.
CPLR 3211(b) states that "[a] party may move for judgment dismissing one or more
defenses, on the ground that a defense is not stated or has no merit." When moving to
dismiss an affirmative defense, the plaintiff bears the burden of demonstrating that the
affirmative defense is without merit as a matter oflaw because it either does not apply under
the factual circumstances of the case or fails to state a defense. Bank of America, NA. v. 414
Midland Ave. Assocs., LLC, 78 A.D.3d 746, 748 (2nd Dep't 2010).
II. Arguments
A. MBIA's Claims for Fraud and Breach of Warranty
MBIA contends that to succeed on an insurance fraud claim, the insurer must prove
only that the application for insurance made a material misrepresentation that, had the insurer
known of the true facts, would have led the insurer to either not issue the policy or issue the
policy on different terms. MBIA also asserts that to succeed on a breach of warranty claim,
the insurer must prove only that the breach of warranty materially increased the insurer's risk.
MBIA argues that it is not required to establish a causal link between Countrywide's alleged
MBIA v. Countrywide, et at. .
Index No. 602825/08
Page 8
misrepresentations and claims MBIA made under the insurance policies. MBIA supports its
argument with N.Y. Insurance Law §§ 3105 and 3106, respectively.
Countrywide, in opposition, contends that MBIA must establish that the claims
payments it made pursuant to its issued policies were caused by Countrywide's alleged
misrepresentations and not by another cause, including the economic downturn that began
in late 2007. Countrywide further argues that N.Y. Insurance Law § 3105 does not apply to
MBIA's common law claim for fraud, and sections 3105 and 3106 do not provide for
rescissory damages, the remedy which MBIA seeks.
B. Causation
The base issue before the court in this motion is when causation occurs in claims for
insurance fraud and breach of representations and warranties. MBIA asserts that causation
occurred, and liability results, when Countrywide made misrepresentations that were material
and which induced MBIA to issue financial guaranty insurance policies when, had it known
the true facts, it may have either declined to issue the policies or issued the policies on
different terms. MBIA contends that it was denied the opportunity to examine the facts
based on proper infonnation, and, thus, all payments it has made pursuant to the policies
result from Countrywide's alleged misrepresentations.
Countrywide argues that MBIA, having chosen to seek damages for all payments it
has or will make pursuant to the Insurance Policies, must prove that its claims payments were
directly and proximately caused by Countrywide's alleged misrepresentations. Countrywide
MBIA v. Countrywide, et at.
Index No. 602825108
Page 9
argues that N.Y. Insurance Law §§ 3105 and 3106 do not provide for damages, but only that
MBIA may avoid the insurance contracts should MBIA prove a material misrepresentation
was made. Further, Countrywide contends that an insurance company may only invoke N.Y.
Insurance Law Sections 3105 and 3106 in a declaratory action or as an affirmative defense
or counterclaim.
(i.) The First Department Decision of June 30, 2011
Countrywide asserts that this court and the First Department have both held that
MBIA must prove that Countrywide's alleged wrongdoing caused MBIA's losses. This is
correct; that wrongdoing causing loss must be proven before damages are levied has never
been an issue for debate. It is further axiomatic that proximate cause is inherent in causation.
"[T]here must be some reasonable connection between the act or omission of the defendant
and the damage which plaintiff has suffered." Prosser and Keaton on Torts, § 41 at p. 263
(5th Ed.).
However, the court disagrees with Countrywide's characterization of this court's
holding and the Appellate Division's June 30, 2011 decision with regard to causation. See
MBIA Ins. Corp. v. Countrywide Home Loans, Inc. et al., 87 A.D.3d 287 (1st Dep't 2011).
The Appellate Division decision did not hold, as Countrywide argues, that this court must
determine which ofMBIA's losses were caused by Countrywide's alleged wrongdoing and
which were caused by the "Mortgage Market Meltdown." Countrywide Memo, p. 7. Rather,
in the section that Countrywide quotes, the First Department rejected Countrywide's
MBIA v. Countrywide, et al.
Index No. 602825/08
Page 10
contention that MBIA's fraud claim must be dismissed for failure to plead a causal link
between Countrywide's alleged misrepresentations and MBIA's alleged damages. The First
Department held that MBIA's pleading sufficiently alleged loss causation to avoid
Countrywide's motion to dismiss, as "it was foreseeable that MBIA would suffer losses as
a result of relying on Countrywide's alleged misrepresentations about the mortgage loans."
MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 87 A.D.3d at 296. The First Department
further held that "[i]t cannot be said, on this pre-answer motion to dismiss, that MBIA's
losses were caused, as a matter of law, by the 2007 housing and credit crisis." Id. The
appellate court did not hold that MBIA's claims payments must be directly shown to be
caused by Countrywide's alleged misrepresentations. Countrywide's quotation of the First
Department's parenthetical explanation to In re Countrywide Fin. Corp. Sec. Litig., 588
F. Supp. 2d 1132, 1174 (C.D. Cal. 2008) does not lend support to its argument. See
Countrywide Memo., p. 7.
Countrywide's reliance upon this court's April 27, 2010
2
Decision and Order is
similarly unavailing. See Countrywide Memo., p. 7. Therein, in response to Countrywide'S
arguments, this court merely stated that it was premature on a motion based on pleadings to
determine "whether an economic downturn constituted an intervening cause in the link
between Countrywide's alleged conduct and MBIA['s]" alleged injury. Decision and Order
of April 27, 2010 ("4/27/10 Order"). The court did not state that it must make such a
determination in the future.
2 Incorrectly dated as April 27, 2009.
:'
MBIA v. Countrywide, et al.
Index No. 602825/08
Page 11
Neither the First Department nor this court addressed the determination of causation,
and therefore no decision exists thereon that must be the law of the case. Baldasano v Bank
a/NY, 199A.D.2d 184,185 (lstDep't 1993).
(ii.) NY Insurance Law §§ 3105 and 3106
MBIA asserts its claims as informed by New York Insurance Law Sections 3105 and
3106. New York Insurance Law § 3105, titled "Representations by the insured", states, in
pertinent part:
(a) A representation is a statement as to past or present fact, made to the
insurer by, or by the authority of, the applicant for insurance or the prospective
insured, at or before the making of the insurance contract as an inducement to
the making thereof. A misrepresentation is a false representation, and the facts
misrepresented are those facts which make the representation false.
(b)( 1) No misrepresentation shall avoid any contract of insurance or defeat
recovery thereunder unless such misrepresentation was material. No
misrepresentation shall be deemed material unless knowledge by the insurer
of the facts misrepresented would have led to a refusal by the insurer to make
such contract.
Section 3106, titled "Warranty defined, effect of breach", states, again in pertinent part:
(a) In this section "warranty" means any provision of an insurance contract
which has the effect of requiring, as a condition precedent of the taking effect
of such contract or as a condition precedent of the insurer's liability thereunder,
the existence of a fact which tends to diminish, or the non-existence of a fact
which tends to increase, the risk of the occurrence of any loss, damage, or
injury within the coverage of the contract. The term "occurrence of loss,
damage, or injury" includes the occurrence of death, disability, injury, or any
other contingency insured against, and the term "risk" includes both physical
and moral hazards.
MBIA v. Countrywide, et at. Index No. 602825/08
Page 12
(b) A breach of warranty shall not avoid an insurance contract or defeat
recovery thereunder unless such breach materially increases the risk of loss,
damage or injury within the coverage of the contract. If the insurance contract
specified two or more distinct kinds ofloss, damage or injury which are within
its coverage, a breach of warranty shall not avoid such contract or defeat
recovery thereunder with respect to