October 14, 2010

Joshua Rosner
646/652-6207
jrosner@graham-fisher.com

Why “Blank Name” Matters and Trustee Obligations

Several new-media have quoted an early story on our October 12th note which suggested
we saw risks that origination flaws would allow investors to challenge securitizations on
$1.3 trillion of mortgages. This is incorrect. The story read: “potential paperwork errors
on some of the $1.34 trillion of securitized home mortgages may give investors an
opening to challenge the legality of deals, threatening to unnerve financial markets”.

Based on the large scale operational failures in foreclosure processing and the number of
foreclosures in which borrowers have been able to challenge a mortgage trusts ability to
foreclose, it appears that some trustees are at risk of large scale failures to properly assign
the notes to the trust.

Before anyone can offer a reasonable estimate of the number of mortgages or trusts at
risk, there needs to be a broad assessment of operational controls that oversaw the
moving of pools of mortgages from originators to trusts for the benefit of MBS investors.
We believe that the assignment of notes in “blank” name, which was a standard practice,
materially increased the risks of shoddy assignments.

We are not suggesting a Lehman style crisis will necessarily occur. We are suggesting
that if the investigation of front-end documentation practices uncovers assignment
failures in any scale resembling the back-end foreclosure processing failures, the scale of
uncertainty could create a market response reminiscent of that Lehman period.

It is our belief that, given the black box nature of the process and the former white-hot
origination market, some trustees may not have properly transferred notes to the trusts. If
not properly transferred, the “true sale” of mortgages to the trusts that issued mortgage-
backed securities would be in question. If this proves to have occurred we believe the
Trustee, may have liability.

To understand the increased risks posed from “blank” assignments, it is worth

understanding the arcane process by which mortgages are transferred from a
securitization sponsor to the trust. As we stated in our comment of October 12th:

“Nearly all Pooling and Servicing Agreements require that “On the Closing Date, the
Purchaser will assign to the Trustee pursuant to the Pooling and Servicing Agreement all
of its right, title and interest in and to the Mortgage Loans and its rights under this
Agreement (to the extent set forth in Section 15), and the Trustee shall succeed to such
right, title and interest in and to the Mortgage Loans and the Purchaser's rights under
this Agreement (to the extent set forth in Section 15)”. Also, an Assignment of Mortgage

Please refer to important disclosures at the end of this report.

The Weekly Spew October 2010

must accompany each note and this almost never happens. We believe nearly every single
loan transferred was transferred to the Trust in “blank” name.

“In blank name” is a concern to us because of the increased risks of documentation

failure that it brings. When a note is assigned “in blank name” it apparently
becomes a “bearer instrument”. As a result the requirements of transfer become
significantly more cumbersome and at risk of failure. Because “blank name” makes
this a bearer instrument, a receipt of delivery and acceptance from the originator to
the sponsor, a receipt of delivery and acceptance from the sponsor to the depositor,
and a receipt of delivery and acceptance from the depositor to the trustee are all
required. Moreover, the custodian must have all of these documents and the original
notes before the loan is considered to be owned by the trust. It is the responsibility
of the trustee to make sure that all documentation has been properly delivered to
the custodian and, it is our belief and understanding, that is would be the trustees
that would be on the hook for failing in that capacity.

There have been a large numbers of foreclosure proceedings where, because of improper
assignments, the trust has been unable to demonstrate the right to foreclose. It is thus that
we raised concern about the transfer “in blank name”. We do believe it likely the rush to
move large volumes of loans may well have resulted in operational failures in the “true
sale” process by some selling firms and trustees. Were this “missing assignment”
problem, which we are witnessing in individual foreclosure proceedings, to be found to
have resulted from widespread failure of issuers and trusts to properly transfer rights
there would be appear to be a strong legal basis for the calling into question
securitizations.

As example, consider an investor who bought an MBS security in 2007 and sold that
MBS at a loss in the market meltdown of 2008. As a result of the information coming out
during the “foreclosure moratoria”, the investor might now witness the trusts inability to
foreclose on a defaulted borrower because it is found not to have properly perfected their
mortgage note claim. Substantively, the original investor who bought and took a loss on a
“mortgage backed” security would have taken a loss on a “mortgage backed” that did not
properly own the mortgages it claimed to be backed by. It is reasonable to believe that
this investor would consider suit against the trustee to recoup losses.

Unfortunately, the rising uncertainty is only increased by the current reality that real
estate, trust and many of the related tax issues are currently addressed as state rather than
federal issues. Other than offering to act as referee, short of a politically charged battle
that may result from asserting interstate commerce authorities, there appears no current
opportunity for the federal government to create a uniform solution.

-2-
The Weekly Spew October 2010

1- This report is not directed to, or intended for distribution to or use by, any person or entity who is
a citizen or resident of or located in any locality, state, country or other jurisdiction where such
distribution, publication, availability or use would be contrary to law or regulation or which would
subject Graham Fisher or its subsidiaries or affiliated to any registration or licensing requirement
within such jurisdiction. All material presented within this report, unless specifically indicated
otherwise, is under copyright to Graham Fisher & Co. (GF&Co). None of the material, nor its
content, nor any copy of it, may be altered in any way, transmitted to, or distributed to any other
party, without the prior express written permission of Graham Fisher & Co. (GF&Co).

2- The information, tools and material presented in this report are provided to you for information
purposes only and are not to be used or considered as an offer or the solicitation of an offer to
sell or buy or subscribe for securities or financial instruments. GF&Co. has not taken any steps
to ensure that the securities referred to in this report are suitable for any particular investor. The
contents of this report are not intended to be used as investment advice.

3- Information and opinions presented in this report have been obtained or derived from sources
believed by GF&Co to be reliable, but GF&Co makes no representation as to their accuracy or
completeness and GF&Co accepts no liability for loss arising from the use of the material
presented in this report where permitted by law and/or regulation. This report is not to be relied
upon in substitution for the exercise of independent judgment. GF&Co may have issued other
reports that are inconsistent with, and reach different conclusions from, the information

-3-
The Weekly Spew October 2010

presented in this report. Those reports reflect different assumptions, views and analytical
methods of the analysts who prepared them.

4- Past performance should not be taken as an indication or guarantee of future performance, and
no representation or warranty, express or implied is made regarding future performance.
Information, opinions and estimates contained in this report reflect a judgment at its original date
of publication by GF&Co and are subject to change. The value and income of any of the
securities or financial instruments mentioned in this report can fall as well as rise, and is subject
to exchange rate fluctuations that may have a positive or adverse effect on the price or income
of such securities or financial instruments. Investors in securities such as ADRs, the values of
which are influenced by currency fluctuation, effectively assume this risk.

-4-