In The Matter Of: ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.

,

October 10, 2012

SOUTHERN DISTRICT REPORTERS 500 PEARL STREET NEW YORK, NY 10007 212 805-0330

Original File CAAJASSF.txt

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ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------x ASSURED GUARANTY MUNICIPAL CORP. formerly known as Financial Security Assurance, Inc., Plaintiff,
v. 11 Civ. 2375 JSR

FLAGSTAR BANK, FSB, et al., Defendants. ------------------------------x
October 10, 2012

10:28 a.m. Before: HON. JED S. RAKOFF,
District Judge

APPEARANCES SUSMAN GODFREY LLP (NYC) Attorneys for plaintiff BY: JACOB W. BUCHDAHL, Esq. ARUN SRINIVAS SUBRAMANIAN, Esq. JOSEPH C. PORTERA, Esq. WARREN T. BURNS, Esq. Of counsel ARNOLD & PORTER LLP Attorneys for defendants BY: VERONICA ELLEN RENDON, Esq. STEWART DAVID AARON, Esq. SUSAN L. SHIN, Esq. Of counsel

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not just the exclusion of the exhibit itself, but all
associated testimony and what that means because it is a
significant issue in which it appears that Ms. Walzak has, in

fact -THE COURT: Before we get into that, there is
something I neglected to mention. If there are any witnesses in the courtroom, they should be excluded now and throughout

the trial. MR. BUCHDAHL: Does that include expert witnesses, your Honor? THE COURT: That includes expert witnesses. (Pause) THE COURT: We have lost half our audience. Go ahead. MS. RENDON: Your Honor, on Tuesday of last week we
received this what purported to be a summary exhibit associated

for Ms. Walzak's analysis of defaulted loans. Those loans constituted the exact body of loans that our liability expert,
John Griggs, had reviewed, and so what you effectively had was Ms. Walzak creating an analysis that was designed to be a reply

analysis to our expert's rebuttal testimony to her original

testimony.
So just to be clear, Ms. Walzak, prior to the close of
discovery in this case, in the middle of December submitted her

expert report. Her deposition was taken in December.
Subsequent to that time, we submitted our expert report which
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1 2 3 So first I need to warn you that there are going to be 4 over the next two weeks while we try this case many 5 interruptions of the kind we had this morning. That's because 6 this is a Bench trial, and I have to deal with other matters, 7 some of which take longer than I thought. I apologize that I 8 missestimated this one. I'll try to do better, but you will 9 find it frustrating, irritating; and, therefore, a learning 10 experience. I do apologize for all the delay this morning. 11 With respect to the motions in limine, with one 12 exception they are denied, but without prejudice to raising 13 when the experts testify Daubert-like concerns. It seems to me 14 in a Bench trial it makes more sense to work those out while 15 the witness is testifying. 16 The exception is this new trial exhibit from Dr. 17 Walzak. 18 MR. BUCHDAHL: Your Honor, that exhibit is withdrawn. 19 We didn't bring it to court and we are not going to use it. 20 MS. RENDON: Your Honor, if I may address that, 21 though? There is a deeper issue that transcends the exhibit 22 itself that is apparent from demonstratives we received 23 yesterday that will be introduced into testimony, and so if you 24 wouldn't mind me explaining that we would like to be heard on 25

(In open court) (Case called) THE COURT: Good morning. All right.

looked at 126 loans included in Ms. Walzak's 800 loan sample. His testimony was taken. At the time he submitted his report, he put in all the summaries of his analysis. Discovery

closed in December. Separate and distinct from that, the plaintiffs had also put in prior to the close of discovery the
expert testimony of Joseph Mason, their damages expert. We had

agreed to permit him a small amount of time in the window of

the first week of January to take his expert deposition just

through some inefficiencies in the discovery process. On the eve of his deposition, we received a
supplemental report after the close of discovery and before his

deposition. We contacted the court because we were very
concerned new analyses were included, new theories of damages were included, entire new approaches to damages, four different

scenarios of damages were introduced at that time. The court, in a phone call that occurred between
myself, Mr. Buchdahl and your Honor, expressed its annoyance at

the fact that there had been a submission of additional expert testimony prior to the close of discovery, and while you did

permit that report to come in, you provided us with the additional opportunity to take a separate and distinct
deposition of Dr. Mason. You did so with the clear warning to

counsel for Assured that no expert testimony, supplemental

expert testimony should come in.
We now move forward to being on the eve of trial,
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summary exhibit of Ms. Walzak's analysis on the 126 loans that

1 2 our liability expert looked at. It was apparent when we 3 started looking at those items -- and I have a demonstrative -4 THE COURT: That is the exhibit that has been 5 withdrawn? 6 MS. RENDON: Here is the issue, your Honor: 7 As you can see, the summaries included significant new 8 allegations of breach. You also can see by the fact that this 9 is entirely yellow that there were withdrawals of opinions; in 10 other words, there used to be things she said but she has taken 11 out of her original testimony. 12 There are now brand new allegations of purported 13 material breach. We didn't continue to look through all 122 at 14 the court's direction, but as you can see just from the yellow 15 highlighting on here, per loan there are significant amounts of 16 new defaults that are alleged. 17 THE COURT: Counsel, the reason I don't see this as an 18 issue is I'm not going to allow any expert to testify to 19 something that is not reasonably within the confines of their 20 report. That's why I excluded them now. 21 Sometimes in the old days experts would sit in at 22 trial because they were being permitted to opine to even what 23 occurred at trial, but that's not the system under the current 24 rules, and so if they offer something, if any expert offers 25
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Tuesday of last week. We received what purports to be a

report. That reflects her withdrawing some of those. THE COURT: I think we need to distinguish between
offering new opinions and withdrawing opinions. There is

nothing wrong in withdrawing opinions. MS. RENDON: I agree with your Honor.
Let me get to the other thing that I know from these
demonstratives, is that there is now a defects per loan. When we go back to our yellow slides, we can see that she's adding many, many new defects per loan. I can see this just by -- you

can, too, your Honor -- how many new defects are being

introduced per loan. When I look at the tally -THE COURT: That is an objection to the introduction of that particular demonstrative if, in fact, it is offered. Why do I need to deal with that now? MS. RENDON: Because embedded, what it says, whether
it comes in through a demonstrative, this is the insidious nature of the additional analysis that has occurred, our ability, the court's ability, even plaintiff's counsel ability
giving good-faith efforts to police when broad summary opinions

are being given, how many defects per loan do you see?

THE COURT: Wait a minute, wait a minute, wait a
minute. I thought you were saying this was coming in through a

fact witness? MS. RENDON: Your Honor, I don't know -Trial Page 8

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1 2 3 understand that is where your court was headed. I am sorry if 4 my long-winded approach didn't get to this being the exact 5 issue. I understand what your Honor's saying. Here is the 6 difficulty we have with that approach: 7 First, I already know that Ms. Walzak or Mr. Brewer, a 8 fact witness that is going to be called by Assured, is going to 9 include at a very high level, include the improper new expert 10 testimony of Ms. Walzak. How do I know that? 11 THE COURT: Wait a minute. An expert can give 12 opinions. I don't see how a fact witness can give opinions. 13 MS. RENDON: Maybe I can explain how I know this, and 14 your Honor might be able to understand why I can't at least 15 answer that question. 16 We were provided with demonstratives yesterday. 17 Numerous different versions were coming in throughout the day, 18 but there are two demonstratives that we were told would be 19 used either with Mr. Brewer or Ms. Walzak, the expert's 20 testimony. One of them is a defective loan slide. It permits 21 to give the overall breach rates of Ms. Walzak. They reflect, 22 this breach rate reflects her new analysis. 23 I can tell by the number of loans that are included in 24 this analysis it's four less than used to be in her original 25

something that is not in his or her report, you can object and

it won't be permitted if it is not in their report. MS. RENDON: Maybe I can address that point. I

THE COURT: A fact witness can't give broad summary opinions or even narrow summary opinions or even any summary opinions. MS. RENDON: I understand that, your Honor. Let's
assume this comes in through Ms. Walzak because these are

opinion slides, okay?
And what we can tell from these opinion slides is that embedded in here, it certainly appears are her new allegations

of breach. How do I know that? THE COURT: First of all, I see your adversary shaking
his head "no," so he is apparently disagreeing with your
assertion. I find the whole thing premature. I have given the general guidelines, which is an expert's limited to what is in

his or her expert report. If something else is offered by an expert, it will be excluded. If something is offered by a nonexpert, it is relevant facts, it won't be excluded on that ground, but there may be other grounds it is excluded on or

not. I really think -MS. RENDON: Your Honor, without the ability, I can't police that. You're assuming I understand -THE COURT: Why can't you police it? MS. RENDON: I can't police that because I haven't had
the opportunity, given that I received all these brand new allegations of breach on Tuesday, to be able to fully and fairly understand where, in fact, that is not only coming into
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1 2 3 because it is like a simple question. So let me ask -- put you 4 on hold for a minute and let me ask plaintiff's counsel what 5 his view of all this is. 6 MR. BUCHDAHL: Your Honor, we represented to counsel 7 and to the court on a call last week we would offer no opinions 8 on direct that weren't within our expert's original report. 9 These demonstratives were prepared by our expert using 10 her original report. It is all there. We withdrew the exhibit 11 because there was an objection to it. We had discussed 12 exchanging summaries. They asked us to exchange summaries. We 13 gave it to them. No good deed goes unpunished. They didn't 14 like it. We withdrew it. It is gone. It is as simple as 15 that. 16 MS. RENDON: Your Honor, these don't agree with her 17 original report because -18 THE COURT: You are going to be able to establish 19 that -20 MR. BUCHDAHL: In fact, your Honor -21 THE COURT: Excuse me. You will be able to establish 22 that by questioning her, cross-examining her, and then I'll 23 rule. 24 MS. RENDON: I guess, your Honor, my -25
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this slide and whether it is a slide or it is testimony, it doesn't much matter, but when -THE COURT: I don't see why you can't police it

THE COURT: Now, the one and only interruption that I
have this morning is at 11:00 o'clock when I have a conference

call, though I am quite confident will take no more than 10

minutes, but I mention that because we're almost there.
Now, as I conveyed to counsel previously, while in a

Bench trial neither side is required to make an opening
statement, you're welcome to make an opening statement if you

like. Does plaintiff wish to make an opening statement?

MR. BUCHDAHL: I do, your Honor. I will be sure to wrap up by 11:00. THE COURT: Very good. MR. BUCHDAHL: Good morning, your Honor.
May it please the court, this case is fundamentally a
lawsuit about promises and accountability. Our client, Assured

Guaranty, has lived up to its promises, the promise it made when it put its guaranty behind Flagstar's mortgage-backed securities. It has paid every insurance claim on those notes

and no investor has lost a single penny. The defendant Flagstar has failed to live up to its
promises. Its breached the representations and warranties that

it made to Assured regarding the loans that served as
collateral for those securities. Now, the contract between these parties contained its own remedy for that breach. That

remedy is that if there is any loan that breaches those
representations and warranties, Flagstar is required to buy it
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THE COURT: Forgive me, counsel, because I understand
this is important to you, but I think we are wasting time at

this point. MS. RENDON: I appreciate that, your Honor. I will
bring that up during cross-examination. I hope to, while I do so demonstrate that throughout the testimony, the ability for us even to essentially understand and to have to keep asking is this part of your new analysis, and rely solely upon the word

of the expert without the ability to understand -THE COURT: I don't understand that at all. You have
the report. If something is not in the report, how could you

not know it? MS. RENDON: Your Honor, because these are low-level
analyses that are doing new types of breach counts than she did

in her original report. THE COURT: All right. When is she testifying? MR. BUCHDAHL: Ms. Walzak will be our fourth witness.
She may well take the stand later this afternoon, your Honor.

THE COURT: So if absolute worse comes to worst, we
can, while I am doing other matters because there will be interruptions, you can in effect have a mini-deposition right here in the courtroom and question her to your heart's content for an hour while I do something else. So I really don't think

there is a problem. MS. RENDON: Thank your Honor.

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back.
So Flagstar not only breached the representations and warranties, but it breached by including defective loans as

collateral, it breached its obligation to repurchase those
defective loans. As a result of those breaches, Assured has paid tens of millions of dollars in insurance claims. With

interest, it has suffered total damages of over a hundred

million dollars.
Now, how did Assured get into these transactions in the first place? The evidence will show that Flagstar Bank, like most of the banks in 2005 and 2006, was selling billions

of dollars of loans into securitizations trusts. It didn't
just do this because it wanted the profits and the fees, it had to do it because Flagstar was writing loans at a rate twice the

size of its own balance sheet. Now, the loans in the
securitizations in this case are HELOCs, home equity lines of credit. Flagstar needed to move those loans off its books and

into securitizations. It had one problem. If it tried to sell those
mortgage-backed securities on its own, it wouldn't have a credit rating that would attract any investor interest. It
needed to get bond insurance in order to have the AAA rating that would make people want to buy these bonds. So Assured

said fine, we'll write a policy on these securitizations, on
these notes and we'll promise to pay every claim, but we need a

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promise in return. We need from you, Flagstar, representations and warranties about the nature of these loans that are behind

these securities. Now, what are the representations at issue in this
case? There are two key ones. The first one is that every

loan in these deals is going to comply with Flagstar's
underwriting guidelines. Underwriting guidelines are the rules

that a bank has to control risk, rules about what the total debt level a borrower has compared to their income or rules
about what the total debt level is compared to the value of the

property, number of assets, those kinds of things.
The second key representation that Flagstar made is
there would be no fraud, error or omission on the part of any person in connection with these loans. It doesn't have to be

Flagstar's fraud. It could be the borrower's fraud and Flagstar wouldn't have to know about it.
These reps and warranties are critical because without them, Assured can't model the risk in the deals. It needs to make sure that it gets the right kinds of loans, and the reps

and warranties assure only the right kinds of loans are included. It is kind of like an insurance company, a life
insurance company or health insurance company that has two risk

models, one for smokers and one for nonsmokers. If you want the nonsmoker insurance, you have to promise you don't smoke.
That is what Assured did here, made us some promises about what
Opening - Mr. Buchdahl

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the chief risk officer at the time. Mr. Brewer will testify
that Assured never would have written these policies if they hadn't gotten the reps and warranties from Flagstar. He will testify that the repurchase remedy was a critical part of these

deals because that was the way to enforce those reps and

warranties in the first place.
Mr. Brewer will testify about how Assured sent notices
beginning in January of 2009 identifying loans against some 900 loans pointed out to Flagstar that were defective and how none

of them were bought back. The evidence will show Flagstar
didn't need a letter from Assured to know about these problems because Flagstar had originated and serviced every single one

of these loans, so they had to have known just how bad these loans were right from the start. In fact, their own witnesses
and their own documents will show they did know these loans had

problems.
Now, we are not going to show the court every loan in

this case because there were over 12,000 loans in these securitizations. We are going to prove our case through statistical sampling. Our next witness is the expert in the field of statistics, Dr. Nelson Lipshutz. Dr. Lipshutz will

testify he drew two samples of loans from these
securitizations, one from each, 400 loans each because he
calculated that 400 loans was the number that was necessary to get a representative sample. What does that mean? It means a
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1 2 3 4 5 6 each transaction. There is one securitization in 2005 and one 7 in 2006, a total of nearly a billion dollars in securities. 8 The evidence will show that after these deals were 9 entered into, the claims started to pile up and Assured started 10 to pay claim after claim. They went back and looked at the 11 loans that were behind these securities, and they found that 12 the overwhelming proportion of them -- nearly all of them, in 13 fact -- had breached the representations and warranties that 14 Flagstar had made. 15 So as the contract permits, Assured sent notices to 16 Flagstar and said please repurchase these loans, some 900 loans 17 in total. Flagstar refused to purchase a single one back. So 18 Assured filed this lawsuit and here we are. 19 Now, how will Assured prove its case here? In 20 addition to the deal documents and short amount of deposition 21 testimony, we are going to call four live witnesses. The first 22 one is going to be Russell Brewer, a senior executive and chief 23 surveillance officer at Assured Guaranty. He will testify how 24 he sat on the committees that approved these transactions as 25

kind of loans are here to limit the risk, promises no loans are

characterization of the sample would reflect properly within

bad underwriting, promises there are no fraudulent loans. Flagstar said okay, we'll make that promise. We promise that no loans will be defective or fraudulent. We promise if they are, we'll buy them back. The parties put these promises in writing in two different contracts, one for

the right confidence level the characterizations of the mortgage pools as a whole.
The next witness we'll call will be Rebecca Walzak.
Ms. Walzak is a leading expert in the area of underwriting and mortgage origination. She spent over 30 years in the industry

supervising underwriting at places like Prudential Home
Mortgage, Chase Manhattan Mortgage, and she herself has been

underwriting thousands of loans. She will testify that she led a team of underwriters and fraud examiners to look at all 800 loans in these samples and she checked the results herself in

every case against her years of experience.
What did she find? That huge numbers of these loans breached the representations and warranties made by Flagstar. In the 2006 transaction, two out of three loans breached those promises. In the 2005 transaction, the number was as high as

85 percent.
Not only that, but just in instances where there was fraud, where there was evidence outside the loan file that
directly contradicted what was in the loan file, that happened a huge amount of time. One in seven loans in 2005, one in five

loans in the 2006 sample had evidence of fraud.
Now, Ms. Walzak will testify about the types of errors and fraud and problems and defects that she found in these loans, everything from inflated appraisals, undisclosed debts,

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1 2 economy. She will give some examples. 3 You will hear about the private investigator in 4 Maryland who claimed to make $30,000 a month. Nobody looked to 5 see how unreasonable that income was, but if they investigated 6 the investigator, they would see he had undisclosed debts in 7 properties in West Palm Beach, Washington, D.C., Baltimore, 8 Maryland, and these sorts of problems infected loan after loan 9 after loan. 10 Ms. Walzak will testify that in each one of these 11 instances where she found a breach, the defect that she 12 identified materially increased the risk of loss to Assured on 13 these policies. After Ms. Walzak, we are going to call Dr. 14 Joseph Mason as our damages expert. He has a Ph.D in monetary 15 economics, and he did a lot of fancy math, but at the end of 16 the today his model is very simple. He modeled what would have 17 happened had Flagstar actually repurchased the loans they were 18 required under the contract to repurchase. 19 He found had they done so, there would have been 20 enough money coming into the trust to cover the bondholders and 21 Assured wouldn't have had to pay a single claim. It is 22 entitled to recover damages of over a hundred million dollars. 23 Now, his model is very conservative in two important ways: 24 First, although Flagstar clearly knew about these 25
Opening - Mr. Buchdahl

exaggerated incomes, all the sorts of things we all heard about that helped lead to the housing bubble that nearly wrecked our

breaches of representations and warranties caused anyone to

default. It was the economic crisis that caused that.
The court has already ruled the contract says nothing about that and simply says the repurchase remedy must be
enforced if you can show the risk of these loans are materially

increased.
Now, Flagstar's lawyers haven't give up yet. They have other arguments. The court will see, and the evidence will show, they are equally divorced from the terms of the

contract. First, you will hear a lot about due diligence.
Now, somehow they have an argument that because Assured conducted diligence prior to entering into this transaction,
Assured somehow can no longer enforce the repurchase remedy.

It is true that due diligence happened in this case. The underwriter of these transactions, JP Morgan, hired
third-party diligence teams to go out and look at small samples

of loans to see if there were any problems. Here is the
important thing to remember about this diligence. When they went through the files, they were simply checking to see if all the numbers looked right and if the income ratios looked right

and if all the papers were in place, but they never actually checked to see if the numbers made any sense. They never actually checked to see if the numbers were accurate. They

never looked for fraud at all.
The fact is, the reason that it was okay to engage in
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1 2 3 interest started to run. It is a lot of interest in this case. 4 Second, his model is conservative. While the 5 repurchase remedy does not distinguish in any way between a 6 loan that defaulted and a loan that is still current, Dr. Mason 7 only calculated this model to have Flagstar repurchase 8 defaulted loans that were defective, the worst performing of 9 the very worse ones. 10 What Dr. Mason found is that this remedy is very 11 sensitive and very powerful, in that Flagstar didn't have to 12 buy back that high a percentage of these loans in order to have 13 staved Assured from having paid any claims at all. In fact, 14 even a small fraction of repurchases would have prevented 15 Assured from having to pay any claims in this case. That is 16 important. Why? Because even if the court rejects some of the 17 underwriting files, even if you think Ms. Walzak was a little 18 bit too hard on Flagstar, you don't have to accept all of those 19 findings in order to award full damages to Assured, over a 20 hundred million dollars. 21 Before I sit down, I will say a few words about some 22 of the defenses and what the evidence will show the defenses 23 defendant has in this case. The court rejected their main 24 defense. Their main defense was you can't prove that these 25

problems right from the get-go in most of these deals, he only calculated the repurchase remedy starting in January of 2009, at the time of the first repurchase demand. That is when his

limited due diligence was because Assured had these reps and warranties that if there was fraud that nobody knew about, that

risk was on Flagstar. So this due diligence argument
ultimately is a complete red herring because it is irrelevant

to the contract issues in the case.
Now, you're also going to hear from Flagstar about loss model. Once again we struggle to see any connection between loss modeling and the words of the contract. The
evidence will show that Assured under-predicted the losses that would happen in these deals. Assured's estimate was the loss

would be about three or four percent. That was better than Flagstar's estimates which were only about one and a quarter percent. Nobody got it right. Everybody got it really wrong.

The fact is, the losses were 5 or 10 times that amount. What does that have to do with the contract? Absolutely nothing because there is nothing in this
repurchase remedy that says if you under-predicted the losses, you somehow can't take advantage of your contractual remedies.

There is nothing about that at all.
At the end of the day, your Honor, this case is a very

simple and straightforward. Assured has lived up to its
promises. Flagstar has failed to live up to its promises. Now is the time to hold Flagstar accountable and to make Assured

whole. Thank you. THE COURT: All right. Thank you very much.
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ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
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1 I assume defense counsel wants to give an opening 2 statement as well? 3 MS. RENDON: I do, your Honor. 4 THE COURT: We'll take a 10-minute break so I can do 5 this conference call and, then we'll hear from defense counsel. 6 MS. RENDON: Thank your Honor. 7 (Recess) 8 (Continued on next page) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Caarass2 Opening - Ms. Rendon

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might to make this a story about faulty loan origination by

Flagstar and purported material defects existing in the
collateral that forms the parts of these trusts. They do so by asking the Court to rely upon the flawed expert testimony of Rebecca Walzak, their reliability expert, and Joseph Mason,

their damages expert. Both use significantly flawed
methodologies and arrive at conclusions that are unsound and

unsupported. You will hear more about that as we take the
cross-examinations and, as you saw alluded to in our motions in

limine, which we appreciate, we can raise again at a later

point in time.
More tellingly and more importantly, Assured also asks
us to ignore the actual underlying event. What happened? How

were these loans originated? What did they look like at the

point of origination when these went into the trust? It's exactly that reason why they are trying their case with no underlying factual witnesses going in, almost. One fact witness, that's it. They are otherwise relying upon their

expert testimony.
The underlying events, though, when you actually look

at them, tell a very different story than the story that
Assured's trying to tell, the real story that shows you the
quality and the sound underwriting that went into these loans, that belies any suggestion that there are rampant or pervasive

material breaches running through these pools of loans.
Opening - Ms. Rendon Page 24

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1 2 begins, we received last night a set of slides that defense 3 counsel intends to use during her opening presentation. We 4 have an objection to two of those slides. 5 THE COURT: What is the legal ground of the objection? 6 MR. SUBRAMANIAN: The legal ground is that these 7 slides are not connected to any evidence in the case, they are 8 not grounded in the testimony of any of the experts that we 9 have seen, and they include math that is objectively 10 misleading, just palpably false. 11 THE COURT: I need to remind counsel this is not a 12 jury trial. Even a jury is instructed that an opening 13 statement is not evidence. If defense counsel is foolish 14 enough to put in her opening statement what you will show to me 15 was completely misleading, not grounded in evidence, then think 16 of all the wonderful things you will be able to say on 17 summation. 18 MR. SUBRAMANIAN: Objection withdrawn. 19 THE COURT: Very good. 20 MS. RENDON: Thank you, your Honor. And I'm not too 21 nervous of that happening. Thank you for hearing us today, 22 your Honor. 23 Let me jump in. Assured, as you just heard in the 24 opening statement of Mr. Buchdahl, is trying with all their 25

THE COURT: Let's hear from the defendants. MR. SUBRAMANIAN: Your Honor, before defense counsel

In fact, your Honor indicated that at least as a
matter of causation, the issue is whether there were purported

defects in the loan body that materially raised the risk profile of the collateral in the loans relative to Assured's interests. The best evidence that that is not the case is
actually the due diligence that Assured performed back in time

immediately before the closing of these transactions.
Mr. Buchdahl in his opening indicated and made an

analogy to this being like a life insurance situation. It absolutely is not. But let's just the extend analogy for a second. This is like a life insurance policy in which the
insurer is asking you to ignore that immediately prior to the issuance of the policy a doctor was asked to perform a full body diagnostic of the patient at the insurer's request and the doctor does so and comes out with a double thumbs up, clean

bill of health.
What is happening now is years and years later an
expert in a litigation context is being hired to make something of that hangnail that that patient had immediately prior to the

issuance of the policy. Or, worse, to perform, not even by
herself but through a team of unknown people that she selected, Internet research that indicates maybe back in time there were

carcinogens in the air that could have caused that insured to
have lung cancer. And don't you know, we are going to say it's more reasonable than not that he probably did have lung cancer

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SOUTHERN DISTRICT REPORTERS

(6) Pages 21 - 24

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
Caarass2 Opening - Ms. Rendon Page 25 Caarass2 Opening - Ms. Rendon

October 10, 2012
Page 27

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

as a result of those carcinogens, and that is what is causing this, that's what he lied about, he had a preexisting medical

condition, deny on that basis.
Isn't it funny that all of this is coming out now that Assured is being asked to pay. This often happens with

insurers.
Let's go and look at what actually happened back in
time. Back in time immediately prior to the issuance of these transactions, FSA itself selected random representative samples of loans that were slated to be included in each transaction. You can see this from this excerpt of the executive summary that we have here up on the screen. This is the document that was provided to the executive risk committee of FSA at the time they agreed to insure. Mr. Brewer, who you will hear from later, sat on this committee and read this evidence as part of

the decision to insure. For the 2005-1 transaction, two random samples
actually were selected and were underwritten. One included 125 randomly selected representative loans. A second set included

250 randomly selected representative loans which were specifically selected by FSA. The 2006-2 transaction also
included 250 randomly selected representative loans that FSA

itself selected to be included in the sample.
What happened with these loans? Professionals were hired, professional reunderwriting firms, in fact the exact
Opening - Ms. Rendon

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

But what we were told by Mr. Beard is the collateral
got a C because these are HELOCs, second lien loans. That's a
generic grade given to all HELOCs. Why? Because they have an

inherent risk associated with them. They are high loan-tovalue. They sit on top of a first lien. If there is a problem in a falling housing economy, they are going to be the ones

subject to nonpayment. That's why there is a C on that category. But in terms of the credit, which means is the
borrower good credit and can they pay, do they have an ability

to pay, you see the grades that were received for the two

transactions. I just walked you through the three levels of due
diligence, the first two being from 2005-1, the second being based upon the random representative sample of 2006-2. This contemporaneous due diligence offers a unique insight into the

credit quality of the loan. It also offers a unique insight
into the risk appetite of FSA at the time that these loans were insured. It also shows us what FSA considered material at the

time of the closing of the transaction.
What is the story with Mrs. Walzak? How does she years and years later come to some drastically higher breach

rates? If you look, your Honor, under the most basic
analytics, her breach rates are totally out of line with the

claims experience.
Opening - Ms. Rendon Page 28

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

firms some of whom employees of which Ms. Walzak later in time

1 2 performing reunderwriting of loans. They went back and 3 reunderwrote the loans not only to Flagstar's underwriting 4 guidelines, but they separately graded them to guidelines that 5 FSA had provided them, guidelines that were specifically 6 designed to test the materiality of any detected defects that 7 occurred through that reunderwriting process. 8 Why did they use random representative pools of loans? 9 Two employees of FSA are going to testify, have testified, that 10 they did so so that they could understand not just what was in 11 their immediate sample but so that they could have a sense of 12 the risk profile of the entire body of collateral that they 13 were making insurance decisions. Mr. Stiehl testified to that 14 and Mr. Beard testified to that. These are the two individuals 15 who were specifically on the FSA team evaluating and performing 16 the due diligence, and it was Mr. Beard who presented the 17 proposal to insure these transactions to the executive 18 committee. 19 What happened as a result of the underwriting? 20 Tellingly, and this is why I said the doctor gave a clean bill 21 of health, under FSA's grading system the loans received credit 22 quality grades of A-plus, ability to pay grades of A-plus. The 23 only category in which they got a C was because of the 24 collateral. 25

How can it be that she finds an 85 percent material

hires, because those firms have a great reputation for

breach rate in the 2005-1 transaction, a $450 million transaction, but there is only a claims experience of
$14 million? Yet in the 2006-2 pool she finds a 20 percent lower breach rate on a smaller pool of loans, but that has a $75 million claims experience. The breach rates and the analytics and the logistics just don't add up. But that is not surprising, and we'll get into deeper reasons why her analysis

is suspect.
Ms. Walzak cannot define materiality. What you have in front of you are excerpts from her transcripts. What you see here is me asking her to question: Well, you gave 126

questions to your team of 8, you are little group of 8
underwriters. Which ones create material issues? The answer

she gives me is, well, there is no, there is no checklist. What you do, I can't tell you yes, yes, yes or no, no, no equals materiality.
I say, because that's because each loan is individual, right? Yes, it is. And each loan has unique characteristics? That's correct. Then I say to ensure that there is a proper consistency in the approach and in the findings of materiality, how did you explain to your reviewers what they should be looking for? If we are going to rely upon them as the first line reviewers, what is it that they are looking for, what are their guidelines? Did you and your underwriters ever try to
(7) Pages 25 - 28

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SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
Caarass2 Opening - Ms. Rendon Page 29 Caarass2 Opening - Ms. Rendon

October 10, 2012
Page 31

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put pen on paper to delineate when risk rises from unacceptable to acceptable? The answer I got back is we didn't need to do

that, basically I left it to the discretion of the underwriters.
I think what we are talking about and hearing here is an I-know-it-when-I-see-it standard, and that is simply not
acceptable under Daubert, something we'll talk about later. It also led to inconsistent and unsupported allegations of breach. The reality is the contemporaneous due diligence that

occurred back in time was a much tighter, more controlled reunderwriting process. It was an iterative process. I'll

show you a little bit more about that. By contrast, Ms.
Walzak's was not. She was asked, did you have contact with Flagstar during your work? No, I did not. Did you interview anybody? No. Did you look at their training materials? No, I

did not.
She and her group of 8 were sitting actually dispersed

throughout the entire country, but in a vacuum, making materiality decisions on Internet research. Whereas, what
happened in real life during the contemporaneous due diligence

is there was an iterative process. There was interaction and
dialogue between the reunderwriters, Flagstar, and FSA. What

happened in that process is there was an initial finding of
EV3. What that means, your Honor, is the potential for there

to be a material issue in the loan file.
Opening - Ms. Rendon

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

percent. Now, I want to be clear, your Honor, I'm about to show you that these are entirely unsubstantiated rates. But
FSA or Assured -- I'm sorry, I'm going between the two. It was FSA back in time. Current day it is called Assured as a result

of a merger.
What you actually see is at best their fraud rates are only 14 percent and 19.75 percent. It does not justify the
much higher breach rates where it clearly is reunderwriting to reunderwriting and a comparison of those two processes that

occurred.
But let's look at this. Does this 14 percent and 19.7
percent mean something? I'll tell you, your Honor, I did a lot of work in deposition to try to understand what's behind that 14 percent and 19.75 percent. I asked pretty straightforward

questions along those lines. I'm trying to figure this out,

how could you get there. I was told in one of these exhibits, these massive
exhibits that you will see later, that if I tallied up one of
her 126 questions, question U104, that I could get to how these

percentages were calculated. Well, that actually wasn't the
case. When Mr. Burns, counsel for Assured, cross-examined her

after I finished my direct, he actually had to go back and
clean up the record: That's not true, U104 doesn't lead you to that route, it won't show you how to get to the 14 or the 19.75

percent.
Opening - Ms. Rendon Page 32

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1 2 3 4 5 6 there came to be at the time of closing a finding of no 7 material issues in the loan pool. 8 Ms. Walzak didn't have that benefit. Her breach rate 9 at best is nothing more than the first-day findings of Clayton 10 and Bohan being tendered up as evidence of material and 11 pervasive breaches. When you actually have interaction and the 12 ability to seek and obtain additional documentation, 13 information, and input from FSA, it led to drastically 14 different results on the two pools. 15 This constitutes the best evidence of the lack of 16 material origination and underwriting issues. It's 17 contemporaneous in time. It's reflective of FSA's input. It 18 shows a tighter process with more controls. And it is in fact 19 based upon an open exchange of information and iterative in 20 nature. 21 But we are told Walzak somehow trumps. Ms. Walzak 22 somehow trumps because she purports to have a separate company 23 perform a fraud review on the loans, which leads, according to 24 her, to findings of fraud rates of 14 percent and 19.75 25

What you see is over the course of time you see the different dates during the period of time in which the due diligence was occurring through that process, the ability to ask for a missing document, the ability to say what was the rationale for the underwriting decision, the ability of FSA itself to waive some of the conditions as nonmaterial, that

Then she was asked by Mr. Burns, how did you get
there? What you hear in her answer in this very long answer, I won't call it rambling, is that there was somehow some approach by which she counted up certain different things that caused

her to do some type of math that may have led her to those

rates.
I asked her, in the last question of the examination,

I'm not trying to be clever here, I'm just trying to
understand, as a matter of just understanding your testimony,

how is it that you came up with these rates? Is there a
calculation that you performed that's documented somewhere that

I can look at? I was told, I don't know if I still have it,
but I can go back and I can look for it and I can see how I did

it.
I asked that that be produced to me so that I could
see with my own two eyes how she got there. To this day, your

Honor, that's never been produced to me. It certainly wasn't produced to me prior to the close of expert discovery, and it would be totally inappropriate at this point in time for it to

be produced to us.
So, your Honor, we can't figure out how that 14 and 19.75 percent was calculated. And we have tried to do that. You end up saying this is a totally unreliable number, these purported fraud reviews and breach rates are fraud, are totally

unreliable.
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SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
Caarass2 Opening - Ms. Rendon Page 33 Caarass2 Opening - Ms. Rendon

October 10, 2012
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1 2 that does leave a nagging question: What happened? We do know 3 as a matter of fact that Assured has paid some claims on these 4 transactions. If it's not the purported material breaches, 5 what transpired by this? 6 As Bill Clinton in his successful campaign against 7 George Bush once said, it's the economy, stupid. I'll tell you 8 what I mean by that. Here it actually is a combination of a 9 historic down-turn in the housing market, the unique risk 10 characteristics of HELOCs, strategic defaults which is 11 testified to by Ms. Walzak, and the faulty risk modeling of 12 FSA, none of which results in liability to my clients Flagstar, 13 all of which are the exact kinds of risks that the insurer 14 agreed to insure when it accepted the premiums on these 15 transactions. 16 In structuring a transaction, FSA derived an expected 17 loss number. They basically have to come up with a number that 18 they anticipate are going to be the expected losses. Then what 19 they do is they apply a multiplier to that to come to a 20 projected worst case scenario. They structure the 21 securitization transaction to have credit enhancements and 22 overcollateralization to protect them so that they will never 23 hit that number and never, under their zero loss model, have to 24 pay a claim. 25

We come back to the best evidence of the quality of

transaction is likely not to result in any claims not being

the loan pools being the contemporaneous due diligence. But

reimbursed to FSA.
If we look at the same analysis, though, on 2006-2,
where the claims experience has been much higher, we see that by the averaging approach they projected potential claims of 50 million. Actually payments to date have been 75. If they

had in fact used a multiplier on the RMG model, the more appropriate model, it would have led them to a much higher
cushion and not have caused them to be in the dilemma that they

are in today. Interestingly, at the time -- this is from the actual minutes of the 2005-1 consideration by the FSA credit
committee -- Mr. Cochran in those minutes, the actual time they are considering the 2005-1 transaction, reiterated his concern

about the validity of the averaging approach given the disparate results, something Mr. Brewer will say yes, he
recalls was being discussed. Nonetheless, with eyes wide open, with an understanding that there was a potential housing bubble

out there, they decided to do these transactions. Later on, interestingly, Dexia, the parent of FSA, also questioned the utility and appropriateness of the
averaging approach and recommended to Mr. Williams, somebody

that we will call a former employee of FSA, that he fix it, that he come up with a better model that wouldn't do this

heavy-handed.
Opening - Ms. Rendon Page 36

Caarass2

Opening - Ms. Rendon

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 2 different models -- and we are going to talk to Mr. Brewer 3 about these models later -- a historical model, a FICO model, 4 and an RMG proprietary model, and they basically averaged them. 5 What do you see when you look at the percentages of 6 loss calculated by each model? One of them, the RMG model, 7 predicted a much higher level of loss than the other two. Why? 8 Well, the RMG model was particularly sensitive to the risk 9 factor associated with HELOCs. It is particularly sensitive to 10 LTV, loan-to-value ratio. The other two don't take that into 11 account. In fact, the other two are historically biased. The 12 RMG model has no historical bias. Just look back to how did 13 things perform historically. If you have high FICO creditors 14 and you look back historically, how did things perform? 15 Instead of accepting the output of their RMG risk 16 model that was based on the heightened sensitivity of HELOCs 17 and also was based upon the specific attributes of the loan 18 collateral as found by FSA's own due diligence, the only model 19 which was, they ended up doing an averaging approach, which led 20 them to a much lower amount. 21 Let's see. The much lower amount led to $80 million 22 of projected losses. Interestingly, on the 2005-1 transaction 23 there are only payments to date of 14 million. There was only 24 payments to date of 14 million. This shows that the 2005-1 25

What did they do here? They ended up doing a very

heavy-handed approach in their loss modeling. They took three

Why does all this matter? Again we come back to my deposition of Ms. Walzak, I asked her, what do you think are the most relevant credit criteria as far as being predictive of risk of default? The exact question we are trying to answer

here. She gives an answer. What she says is, well,
generally there's these kinds of things. But then she goes on

to say, but with the significant decline in property values during this or shortly after this time period, meaning when these transactions closed, we know that in some cases if the property value deteriorated a great deal, that borrowers will

make strategic decisions to default. What does that mean? Well, in a falling housing
market, when their property values are way under water, some borrowers will decide not to pay on their second lien mortgage because they know the second lien creditor is very limited in

its ability to foreclose. They will take on the time and expense and risk of a foreclosure process only so that the first lien creditor can take all the proceeds? They don't do it. What happens? Strategic defaults happen, especially by

smart folks who have high FICO scores.
What we see here now is Ms. Walzak giving testimony about those states she understands have been most affected by
the slumping housing markets and falling property values. What

does she articulate? California, Nevada, Arizona, Florida. (9) Pages 33 - 36

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SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
Caarass2 Opening - Ms. Rendon Page 37 Caarass2 Brewer - direct

October 10, 2012
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She also acknowledges the issue is in Michigan. I say, well, what happens when you have these particular states hit by a falling housing market? Her answer right at the bottom there

is "Strategic defaults primarily."
An interesting list of states. Why is that? Because
when you look at the characteristics of these two pools, your

Honor, what you see is that these two transactions were
concentrated in the exact states that Ms. Walzak acknowledges

were heaviest hit by the falling housing market, all posttransaction, all causing there to be this potential strategic

default issue. So, it is unsurprising to me when I look at those
statistics and I see that close to 50 percent of the loans in the 2005 transaction were in the states worst hit by the
falling housing market and I see in the 2006 transaction that 60 percent of the loans were in some of the hardest hit states,

out of the mouth of their own liability expert, it's unsurprising to me that I see almost a perfect inverse
relationship between falling housing prices and loan charge-

offs in the 2005-1 transaction and I see that same almost

perfect inverse relationship in the 2006-2 transaction. This is an analytic that tells a story. This shows
you what really happened. It also explains why FSA is trying to solely focus on a very quick case, put in their experts, and

hopefully we don't go beyond that, because their case falls
Opening - Ms. Rendon

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

A. I work at Assured Guaranty. Q. What is your job title at Assured? A. I am the chief surveillance officer. Q. Are you testifying on behalf of Assured today? A. Yes. Q. Can you tell us what Assured's business is. A. We are in the business of guaranteeing municipal bonds and asset-backed securities. Q. Can you describe for the Court what you mean by guaranteeing asset-backed securities. A. Yes. We guarantee that payment will be made to investors even if the underlying assets don't perform. Q. What business benefit does the security issuer get from Assured's insurance? A. The issuer gets the benefit of our credit rating. At the
time these transactions were done, we had AAA ratings. As a

result, the securities that are sold have a lower interest rate

than would otherwise be the case. Q. Has Assured provided insurance on any Flagstar deals? A. Yes, on the two transactions in this case. Q. Can you describe when those transactions took place. A. In 2005 and 2006. Q. I'm going to refer to the insurance provided by Assured as "the policies," OK? A. Mm-hm.
Brewer - direct Page 40

Caarass2

Page 38 Caarass2

1 apart when you do. You have to look at the actual facts. They 2 tell a different story. 3 Assured is not going to be able to meet its burden of 4 proof in this case, your Honor. We appreciate your time and 5 patience in hearing our defenses. 6 THE COURT: Thank you very much. 7 Plaintiff will call your first witness. 8 MR. SUBRAMANIAN: Plaintiff calls Mr. Russell Brewer. 9 RUSSELL BREWER, 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 Q. Could those deals have been done without Assured's 2 policies? 3 A. Not on the terms that they were done. It would have been 4 difficult for them to be sold. 5 Q. Can you describe that in a little bit more detail. 6 A. Yes. The securities had underlying ratings of BBB, which 7 is substantially lower than the ratings that were -- than the 8 securities were assigned given our AAA rating. It would have 9 been difficult to find a market for them at BBB without 10 insurance. called as a witness by the plaintiff, 11 Q. Were investors told about the policies before they 12 purchased the securities? having been duly sworn, testified as follows: MR. SUBRAMANIAN: Your Honor, I have all of the 13 A. Yes. documents I'll be using with the witness in binders. It is 14 Q. How were they told? probably easier if I hand one up to the Court as well. 15 A. It's obvious from the offering materials that there is THE COURT: Yes. 16 insurance, and the rating is described in the offering THE CLERK: State your name and spell your last name 17 materials. slowly. 18 Q. Going into these deals, did Assured expect to pay any THE WITNESS: Russell Brown Brewer II, B-R-E-W-E-R. THE COURT: Mr. Brewer, you need to get your chair 19 claims under the policies? 20 A. No. closer to the mic. 21 Q. Why not? DIRECT EXAMINATION 22 A. The transactions were structured in a way that if losses BY MR. SUBRAMANIAN: 23 came in as expected, there was enough protection in the form of Q. Good morning, Mr. Brewer. 24 excess collateral or excess interest from the underlying loans A. Good morning. Q. Can you tell us where you work. 25 to protect us against claims.

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SOUTHERN DISTRICT REPORTERS

(10) Pages 37 - 40

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
Caarass2 Brewer - direct Page 41 Caarass2 Brewer - direct

October 10, 2012
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Q. Has Assured in fact paid claims under the policies? A. Yes. Q. Mr. Brewer, you have a binder of documents in front of you. If you could open that up to tab 1, which is Plaintiffs' Exhibit 459. A. Mm-hm. THE COURT: Can I go back to your last questions and

1 2 3 4 5 6 7 answers. When you say you didn't expect to pay on it, normally 8 when an insurance company sells insurance, they don't expect to 9 pay beyond a certain amount so they can make a profit, but they 10 do expect that there will be some occasions when they will have 11 to pay. Yes? 12 THE WITNESS: Not in financial guaranty insurance. 13 THE COURT: So you think you're selling something that 14 is risk-free from your standpoint? 15 THE WITNESS: No. I wish it were. The question was 16 did we expect to pay a loss. 17 THE COURT: What is the risk that you contemplated 18 might arise where you would have to pay? 19 THE WITNESS: If losses substantially exceeded our 20 underwriting estimate. 21 THE COURT: That could occur for any number of 22 reasons, yes? 23 THE WITNESS: It could. 24 THE COURT: All right. Go ahead. 25
Brewer - direct

A. It's the same type of report for the 2006-2 transaction. MR. SUBRAMANIAN: Your Honor, we offer Exhibit 458 into evidence. Q. Can you turn to page 4. THE COURT: Wait a minute. Is there any objection? MS. RENDON: No objection, your Honor. THE COURT: Did you offer 459 as well? MR. SUBRAMANIAN: I did, your Honor. THE COURT: Any objection? MS. RENDON: No objection, your Honor. THE COURT: They are received. (Plaintiff's Exhibits 458 and 459 received in evidence) THE COURT: Go ahead. Q. On page 4, Mr. Brewer, can you tell from this page how many claims Assured has paid on the 2006-2 deal? A. It shows amounts drawn under the policy of 75.4 million. Q. Has Assured been reimbursed for any of these claims? A. No. Q. Has Assured made good on its promise to pay all claims under the policies? A. Yes. Q. Is there a risk that Assured will pay more claims as time goes on? A. Yes.
Brewer - direct Page 44

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THE WITNESS: But it was not our expected case that they would do so. THE COURT: Hope springs eternal. THE WITNESS: It wasn't our hope. OK. THE COURT: We'll see. THE WITNESS: Yes. THE COURT: Go ahead, counsel. BY MR. SUBRAMANIAN: Q. Mr. Brewer, if you take a look at Plaintiffs' Exhibit 459, do you recognize this document? A. Yes. It's the trustee report on the 2005-1 transaction. Q. What is the purpose of this document? A. It provides a monthly accounting of how the transaction is performing. MR. SUBRAMANIAN: Your Honor, we would offer Exhibit 459 into evidence. Q. Mr. Brewer, can you turn to page 5 in this document. A. Mm-hm. Q. Can you tell from this document and this page how many claims assured has paid on the 2005-1 deal? A. Yes. It's amounts drawn under the policy for the notes is $14.7 million. Q. Can you turn to tab 2 in your binder. A. Yes. Q. Plaintiffs' Exhibit 458. Do you recognize this document?

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Q. Can you describe those risks. A. There are still securities outstanding. The collateral
backing those securities have balloon maturities, meaning that they were interest-only and then principal at maturity. That maturity date is coming up in the next three or four years, I believe. As those loans come up to their maturity date, some of them may default. Some of them may default in the interim, but particularly at the maturity date there is a risk that more

will default. Q. Before Assured issued the policies, did Flagstar make any promises about the loans in the trust? A. Yes, they made a whole variety of representations and warranties about the loans. Q. You said representations and warranties. What kind of representations and warranties did Flagstar make? A. They made representations that the loans met their underwriting criteria, that there was no fraud or
misrepresentation on the part of the borrower during the loan

process. Things of that kind. Q. You mentioned underwriting criteria, and we have heard a
little bit today about underwriting guidelines. What are

those? A. Underwriting guidelines are the minimum set of requirements
that a loan must meet in order to be approved by a lender.

Q.

Would Assured have issued the policies without the promises

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SOUTHERN DISTRICT REPORTERS

(11) Pages 41 - 44

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
Caarass2 Brewer - direct Page 45 Caarass2 Brewer - direct

October 10, 2012
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that were made by Flagstar? A. No. Q. Why not? A. It's very difficult as an insurance company coming in from
the outside. These are loans that reside on the books of a bank. They have much more knowledge of the underlying collateral than we could ever gain. As a result, the bank was asked or the seller in general is asked to make representations and warranties about what the loans are. It's common in all

securitizations. Q. We have been talking a little bit about the risk of loss.
Who was responsible for the risk of loss on loans that broke

Flagstar's promises? A. Flagstar. Q. Why did Assured file this lawsuit? A. We found upon inspection that a large number of the loans
in the transaction failed to meet the representations and

warranties that were provided. We attempted to -THE COURT: Although there has been no objection to
this or the several other impermissible questions that were
asked by counsel, the Court has some obligation not to permit

blatantly improper questions from being asked. This is a blatantly improper question. The Court will disregard the

question and the answer. MR. SUBRAMANIAN: That's fine.
Brewer - direct

We can move on. I

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Q. Does that include the insurance that was issued on the Flagstar deals? A. Yes. Q. Did you have this position in 2005 when insurance was first issued on a Flagstar-sponsored deal? A. No. At FSA I was the chief risk management officer, and it
was a somewhat smaller company and I had a variety of

responsibilities. Q. What were your responsibilities as chief risk management officer? A. I was a member of the credit committee for structured
financings of this type. I was responsible for the general risk management of the company. I also did have the surveillance department reporting to me at that time and

corporate research and a couple of other areas. Q. What were your responsibilities with respect to the policies at issue in this case? A. I was a member of the credit committee that approved the transactions. Q. Mr. Brewer, can you turn in your binder to tab 3, which is Plaintiffs' Exhibit 451. A. Yes. Q. Do you recognize this document? A. It's a purchase agreement for the transaction. Q. When you say the transaction, which transaction is that?
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1 apologize, your Honor. 2 Q. Let's talk a little bit about your background. Then we 3 will get a little bit deeper into the facts of this case. How 4 long have you worked for Assured? 5 A. 26 years at Assured and a predecessor company that they 6 acquired. 7 Q. Where did you work before that? 8 A. It was a company called Financial Security Assurance, or 9 FSA. 10 Q. How about before you were working at FSA? 11 A. I worked for Moody's Investors Service. 12 Q. You mentioned FSA. When did FSA change its name to 13 Assured? 14 A. In 2009 we were acquired by Assured and changed our name. 15 Q. I'll refer to the company as "Assured" even before the 16 acquisition. OK? 17 A. Mm-hm. 18 Q. You said before that you were the chief surveillance 19 officer for Assured. What are your responsibilities in that 20 role? 21 A. I oversee a department of about 60 people or so that 22 manages, or monitors really, our insured portfolio. Today we 23 have a little over $500 billion of outstanding securities, most 24 of which are municipal bonds but some of which are asset-backed 25 securities.

1 A. This is 2005-1. 2 Q. What was the purpose of this agreement? 3 A. What it did was document the sale of loans from Flagstar 4 bank to an entity Flagstar ABS LLC in this case. 5 MR. SUBRAMANIAN: Your Honor, we would like to offer 6 Plaintiffs' Exhibit 451 into evidence. 7 MS. RENDON: No objection, your Honor. 8 THE COURT: Received. 9 (Plaintiff's Exhibit 451 received in evidence) 10 Q. What rights did Assured have under this agreement? 11 A. We were a third-party beneficiary under the agreement. 12 Q. Could you please turn to page 7 in this agreement. 13 A. Yes. 14 Q. I'm looking at section 3.02, which is titled "Seller 15 Representations and Warranties Relating to the Mortgage Loans." 16 Do you see that? 17 A. Yes. 18 Q. After that, there are a series of numbered paragraphs. Do 19 you have an understanding of what these are? 20 A. These are the representations and warranties that were 21 provided with respect to each of the underlying mortgage loans. 22 Q. Could you please turn to page 17. 23 A. Yes. 24 Q. Do you see paragraph 65? 25 A. Yes.

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SOUTHERN DISTRICT REPORTERS

(12) Pages 45 - 48

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
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October 10, 2012
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Q. Could you read that. A. "No error, omission, misrepresentation, negligence, fraud,

1 2 or similar occurrence with respect to a mortgage loan has taken 3 place on the part of any person, including, without limitation, 4 the mortgagor, any appraiser, any builder or developer, or any 5 other party involved in the origination of the mortgage loan or 6 in the application of any insurance in relation to such 7 mortgage loan." 8 Q. What was the purpose of this representation? 9 MS. RENDON: Objection, your Honor. 10 THE COURT: Sustained. 11 Q. Was this representation important to Assured? 12 A. Yes, it was. 13 Q. Why is that? 14 A. Because it represented that Flagstar Bank was representing 15 to us that there was no fraud in the origination process of the 16 loan, which is a concern that we had as an outsider coming into 17 the transaction. 18 Q. Can you go into more detail about why that was a concern 19 for Assured. 20 A. Our concern is that the risk of loss on a loan is very 21 different if we are concerned that there is fraud on the part 22 of the borrower or really the part of anyone involved in the 23 origination of the loan. It would make predicting losses or 24 the likelihood of loss on that loan very difficult. 25
Brewer - direct

Flagstar? A. Yes. Q. Why is that? A. Again, we were expecting that each of the underlying loans
would meet the underwriting guidelines, and the reason for that is it would have been impossible to estimate losses had we not

thought that was the case. Q. Was that the same concern that you had with respect to fraud or misrepresentation by the borrowers? A. Yes, very much the same thing. Q. We have been looking at the purchase agreement for the
2005-1 transaction. Was there a purchase agreement for the

2006 deal? A. Yes. Q. How do the terms of that agreement compare to this one? A. They were essentially the same. Q. Does that purchase agreement include the two presentations we have been discussing? A. Yes. Q. Can you turn to tab 4 in your binder. A. Mm-hm. Q. Do you recognize this document? A. It's the sale and servicing agreement for the 2005-1 transaction. Q. What was the purpose of this agreement?
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Q. Was this representation by Flagstar true? MS. RENDON: Objection, your Honor. THE COURT: Sustained. Q. Let's take a look at another of the representations in this contract. Can you turn to page 13. A. Yes. Q. Do you see representation number 36? A. Yes. Q. Could you read that. A. "Each mortgage loan was originated in good faith and in accordance with the seller's underwriting guidelines." Q. Was this representation important for Assured? A. Yes, it was. Q. Why is that? A. Well, it's important for us to know that the underwriting

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 guidelines of the originator were being followed as they were 16 applied to each individual loan. 17 Q. Why is that important for Assured? 18 MS. RENDON: Objection, your Honor. 19 MR. SUBRAMANIAN: I'm just asking why it's important 20 for Assured. 21 THE COURT: Sustained. 22 Q. When you were reviewing these transactions with an eye 23 towards approval, at that point in time was it important to 24 Assured that the underwriting guidelines were adhered to by 25

A. This transaction described the sale of assets to the
issuer, which is a trust in this case, and established the

servicing responsibilities. Q. Does Assured have any rights under this contract? A. We are a third-party beneficiary under this agreement as well. MR. SUBRAMANIAN: Your Honor, we would like to offer Exhibit 198 into evidence. MS. RENDON: No objection, your Honor. THE COURT: Received. (Plaintiff's Exhibit 198 received in evidence) Q. Generally speaking, do you have an understanding of what happens under this agreement if Flagstar breaches its representations about a loan? MS. RENDON: Objection, your Honor. THE COURT: Sustained. (Continued on next page)

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SOUTHERN DISTRICT REPORTERS

(13) Pages 49 - 52

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
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October 10, 2012
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BY MR. SUBRAMANIAN: Q. Well, going into this agreement and this arrangement with

1 don't see as being relevant. 2 MR. SUBRAMANIAN: Sure. Flagstar, did you have an understanding at that time of what 3 BY MR. SUBRAMANIAN: rights Assured had versus Flagstar if there were breaches in 4 Q. What if we're talking about, Mr. Brewer, a the loans underlying securitizations? 5 misrepresentation by a borrower of their income, would that be MS. RENDON: Objection, your Honor. 6 material to Assured? THE COURT: Sustained. 7 MS. RENDON: Objection, your Honor; calls for BY MR. SUBRAMANIAN: 8 speculation. Q. Mr. Brewer, can you turn in the contract to Page 11. 9 THE COURT: Well, I will allow it on the assumption A. The sales and servicing agreement? 10 you're going to be able to introduce evidence of that, yes? Q. That's right. 11 MR. SUBRAMANIAN: Yes, through the other witnesses. A. Yes. 12 THE COURT: Subject to connection then, he may answer. Q. On Page 10, on the opposite page, you'll see there is a 13 THE WITNESS: Can you ask the question again. header marked, "Section 2.04"? 14 BY MR. SUBRAMANIAN: A. Yes. 15 Q. Sure. Assume you have a misrepresentation by a borrower of Q. It says, "Representations and warranties regarding the 16 their income. Would that have been material to Assured? mortgage loans, retransfer of certain mortgage loans." Do you 17 A. Yes, it would. It would indicate that the borrower was not see that? 18 as creditworthy as we believed he would be when estimating the A. Yes. 19 loss. Q. Do you have an understanding of what is meant by retransfer 20 THE COURT: Would it depend on the magnitude of the of certain mortgage loans? 21 misrepresentation? MS. RENDON: Objection, your Honor. 22 THE WITNESS: Well, technically it depends on the THE COURT: Sustained. Counsel, these documents speak 23 direction as well, but assuming a person substantially for themselves. His understanding is irrelevant to any issue 24 overstates their income, yes. in this case. 25 THE COURT: So the question is, the keyword there is
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1 MR. SUBRAMANIAN: Your Honor, all I am doing here is 2 trying to walk through the provisions for context sake. 3 THE COURT: Walk all you want, but don't put improper 4 questions to the witness. 5 MR. SUBRAMANIAN: Understood. I won't do so. I 6 apologize. 7 BY MR. SUBRAMANIAN: 8 Q. We have been talking about breaches of the representations 9 and warranties made by Flagstar. Can you give some examples of 10 breaches that in Assured's view would have increased the risk 11 of loss at a time of these transactions? 12 MS. RENDON: Objection, your Honor. 13 MR. SUBRAMANIAN: I am asking his lay understanding of 14 what types of breaches would have impacted the risk of loss to 15 Assured. 16 THE COURT: Again I don't see the relevance to any 17 issue in this case. Sustained. 18 MR. SUBRAMANIAN: One of the issues in this case has 19 to do with materiality, materiality in the view of Assured. So 20 I am asking Mr. Brewer, as a representative and officer of 21 Assured, what kind of breaches of the reps and warranties -22 THE COURT: No, no, no. Materiality would be if there 23 was evidence of an actual breach, and then you could put to him 24 was this material to it. But you're talking about some 25 abstract, before-the-fact kind of concern. That is what I

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"substantial," right? THE WITNESS: I think any time a borrower overstates
their income or lies on a credit application, that implies more

risk of loss than we would have expected. THE COURT: Look, supposing a borrower innocently,
through an arithmetic mistake or something like that, says that his income is 98,000 when, in fact, it is 97,000. Would that

be material? THE WITNESS: Innocently and in extremely small amounts, no. THE COURT: How do you define "material" for your purposes in these circumstances? THE WITNESS: If they indicate that the borrower is more likely to default than we would have assumed. THE COURT: Okay. THE WITNESS: For instance -- can I give you an example? THE COURT: Go ahead. BY MR. SUBRAMANIAN: Q. We have looked at the Sale & Servicing Agreement for the
2005-1 deal. Was there a Sale & Servicing Agreement for the

2006-2 deal? A. Yes. Q. How did those agreements compare? A. They were essentially the same.
(14) Pages 53 - 56

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SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
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October 10, 2012
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Q. Could you turn to Tab 5 in this binder. It is Plaintiff's 1 Exhibit 90. 2 A. Yes. 3 Q. Do you recognize this document? 4 A. This is the insurance and indemnity agreement from the 5 2005-1 transaction. 6 Q. Does Assured have any rights under this agreement? 7 A. Yes. We are a party to this agreement. 8 Q. What was the purpose of this agreement? 9 A. The purpose of this agreement was to -10 THE COURT: Can I go back to another point you made a 11
minute ago. Supposing someone lied on their application but

A. There are a variety of them, but a particularly material
one would be whether the home was a primary residence or not would be a common nonfinancial fact on a loan application that

can significantly affect the risk confidence of that loan.
Loans for primary houses are less likely to default than loans

on investment properties, for instance. Therefore, it is

important that we know what the loan is for. Q. Are misrepresentations about other properties, is that something that is important for Assured? A. Yes, there can be -MS. RENDON: Objection, your Honor. 12 THE COURT: Well, again I only want these questions

not about anything relating to finances. Would that be 13 put if you are representing you are going to have evidence of material? 14 that kind of misrepresentation. THE WITNESS: I think it could indicate materiality, 15 MR. SUBRAMANIAN: We are, your Honor. and the example I was going to think of was getting to your 16 MS. RENDON: I still ask counsel not be permitted to income question, but -17 lead his own witness, your Honor. THE COURT: Let me give an example. Supposing someone 18 THE COURT: Well, I agree with that as a general
puts down on their application that they are Caucasian when, in 19

proposition, but I think, A, there is no way he could really

fact, they're not, would that be material? 20 put this question without a little leading, so I will allow THE WITNESS: No. 21 this question. Go ahead, you may answer. THE COURT: So there are a lot of things that might be 22 THE WITNESS: Can you ask it again. put on an application that would not be material because they 23 THE COURT: The question was, what about would not increase your financial risk, correct? 24 misrepresentations about non-primary residences, right? Is THE WITNESS: There are elements on the application 25 that the question?
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1 that don't address financial risk. 2 THE COURT: Okay. So now you wanted to give me an 3 example. 4 THE WITNESS: The example that I was going to give 5 that would seem to be material would imply significant 6 differences in the risk, like if you made $92,000, but in order 7 to qualify for this loan, you could only qualify if you made 8 $93,000. 9 If you, therefore, represented that you made $93,000, 10 and that were a common occurrence, that implies that although 11 on the individual loan it may be small, there is fraud in the 12 origination process that had we been aware of would have raised 13 significant concern that that was -- some goes to process and 14 some goes to materiality of an individual loan. 15 BY MR. SUBRAMANIAN: 16 Q. Other than finances, what are some other types of 17 misrepresentations that would be material to Assured? 18 A. That are provided in the insurance indemnity agreement, we 19 are back on there? 20 Q. No. I am asking you to, following on Judge Rakoff's 21 question, we are talking about misrepresentations as to 22 finances. 23 A. I am sorry, yes. 24 Q. What are some of the other types of misrepresentations that 25 would be important?

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MR. SUBRAMANIAN: Yes, your Honor. THE COURT: Like enumerable summer homes that most partners of large law firms have. THE WITNESS: Well, I think if on their loan
application they said they had one property and, in fact, they had 10, that would be a misrepresentation that was material.

It would show that the borrower was substantially more

leveraged than was apparent on the loan application. BY MR. SUBRAMANIAN: Q. What do you mean by, "leveraged"? A. "Leverage" meaning the amount of debt that they have relative to their income. Q. Focusing back on Exhibit 90, you mentioned this was the
insurance and indemnity agreement. What was the purpose of

this agreement? MS. RENDON: Your Honor, objection. THE COURT: Yes, I will allow that as a general background. You may answer. A. It sets out the terms upon which insurance is being provided in this transaction and it establishes a direct
contractual relationship between ourselves and Flagstar Bank.

MR. SUBRAMANIAN: We offer Exhibit 90 into evidence. MS. RENDON: No objection, your Honor. THE COURT: Received. (Plaintiff's Exhibit 90 received in evidence)
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SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
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BY MR. SUBRAMANIAN: Q. Mr. Brewer, would you turn to Page 5 in this agreement. A. Yes. Q. Do you see Subsection K -A. Yes. Q. -- at the top of the page? Would you read that? A. "Each of these representations and warranties of the bank
or the depositor contained in the transaction documents is true

and correct in all material respects and the bank and the
depositor hereby makes each such representation and warranty

to, and for the benefit of, FSA, as if the same were set forth

in full herein." Q. Who is the bank in this provision? A. Flagstar Bank. Q. Who is FSA? A. Assured Guaranty, but the predecessor company. Q. Why was this provision important to Assured? MS. RENDON: Objection, your Honor. THE COURT: Sustained. BY MR. SUBRAMANIAN: Q. You mentioned before that the insurance and indemnity
agreement was to provide Assured direct rights against

Flagstar? A. Yes. Q. What do you mean by that?
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that. A. "Conditions precedent to issuance of the policy." Q. Below that are there are letter subheadings. Do you see that? A. Yes. Q. What were these? A. These are the conditions that had to be met prior to the issuance of our policy. Q. Would you look down an Subsection E and please read that. A. "Representations and warranties of the bank and the
depositor in this agreement shall be true and correct in all material respects as of the date of issuance as of the date of

issuance." Q. Based on the investigation Assured conducted, was this representation and warranty true? MS. RENDON: Objection, your Honor. THE COURT: Sustained. BY MR. SUBRAMANIAN: Q. Now, taking a look at this, this condition, would Assured
have issued a policy if it knew that this condition was not

satisfied? MS. RENDON: Objection, your Honor. THE COURT: Overruled. A. No, it wouldn't have. BY MR. SUBRAMANIAN:
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1 MS. RENDON: Objection, your Honor. 2 MR. SUBRAMANIAN: I am providing background on why 3 these provisions were important to Assured as it entered into 4 this relationship with Flagstar. 5 THE COURT: Why does that matter? 6 Supposing they entered into it for some totally 7 different reason than whatever he is going to say? So what? 8 The agreement was entered into. Your claim is it was breached, 9 materially breached. That was the issue? 10 MR. SUBRAMANIAN: Right, your Honor. 11 THE COURT: So if they entered into it on whim and 12 caprice, you would still have that claim. 13 MR. SUBRAMANIAN: That's fine, your Honor. Again it 14 was for context, to show the importance of these provisions to 15 Assured, and that is all. 16 THE COURT: Sustained. 17 MS. RENDON: Thank your Honor. 18 BY MR. SUBRAMANIAN: 19 Q. This provision refers to the transaction documents. Does 20 that include the purchase agreement and Sale & Servicing 21 Agreement we just referred to? 22 A. Yes. 23 Q. Turn to Appendix A on Page 42. 24 A. Yes. 25 Q. At the top of Page 42 there is some language. Can you read

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Q. Why not? A. Representations and warranties were a critical element to
our underwriting, to our underwriting of the policy and wouldn't have been -- were required, absolutely required. Q. Was this condition -- let me ask you first, was there an insurance and indemnity agreement for the 2006-2 deal?

A. Q. A. Q.

Yes. Was this condition in that contract? Yes.
Let's talk for a little bit about where the loans behind

these securities came from. Who sold the loans at issue here

to the 2005-1 and 2006-2 trusts? A. Flagstar. Q. Who was the servicer of these loans? A. Flagstar was at the time of the loans. Q. What is a service agreement? "Servicer," what does that mean? A. The servicer is responsible to collect the loans, process
payments on behalf of the trust and that kind of thing, calling the borrowers, getting their payments to come in and that kind

of stuff. Q. That was handled by Flagstar, correct? A. Yes, it was. Q. Who originated the loans at issue in this case? A. Flagstar.
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SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
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Q. What did Assured find when it began to investigate the loans behind these securities? MS. RENDON: Objection, your Honor. My understanding is that this witness has no personal knowledge of the
repurchase process that occurred in connection with these

transactions. MR. SUBRAMANIAN: That can be brought out on cross-examination. THE COURT: No, no, no. He was called as a fact
witness, recipient witness. He can only testify what he knows

from personal knowledge. Sustained. MR. SUBRAMANIAN: He will only testify what he knows
as an officer of the company based on Assured's internal

deliberations about -THE COURT: Sustained. MR. SUBRAMANIAN: -- filing of the lawsuit and -THE COURT: Sustained. BY MR. SUBRAMANIAN: Q. Are you aware, Mr. Brewer, of Assured ever sending to
Flagstar requests for repurchase of the loans underlying these

securities? A. Yes. Q. When did that occur? A. In January of 2009. Q. Can you describe your understanding of what led up to that
Brewer - direct

1 your Honor. 2 THE COURT: Any objection? 3 MS. RENDON: No objection. 4 THE COURT: 465 is received. 5 (Plaintiff's Exhibit 465 received in evidence) 6 BY MR. SUBRAMANIAN: 7 Q. Turn to Tab 7 in your binder. 8 A. Yes. 9 Q. Plaintiff's Exhibit 464, do you recognize this document? 10 A. Yes. 11 THE COURT: You're offering 464? 12 MR. SUBRAMANIAN: Yes. 13 THE COURT: Any objection? 14 MS. RENDON: No objection. 15 THE COURT: Received. 16 (Plaintiff's Exhibit 464 received in evidence) 17 BY MR. SUBRAMANIAN: 18 Q. Mr. Brewer, can you turn to Tab 8 in your binder. 19 MR. SUBRAMANIAN: Your Honor, what Tab 8 is is a 20 summary of the expenses that Assured has incurred in this case. 21 Now, what we would like to do we think would be most 22 appropriate would be for plaintiff to prove its expenses 23 through a post-trial application if we prevail in this case, 24 but I can go into the issue of expenses with Mr. Brewer, but I 25 would be happy to do it in any way that your Honor would like.
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1 I have the invoices and back-up for the summary included here 2 at Tab 8. 3 MS. RENDON: I object to the exhibit, your Honor. 4 MR. SUBRAMANIAN: Your Honor, that's -5 THE COURT: Well, Mr. Brewer, did you prepare this? 6 THE WITNESS: No. 7 THE COURT: Do you have any knowledge, personal 8 knowledge, regarding this exhibit? irrelevant. What you're really trying to do is introduce 9 THE WITNESS: No. hearsay into the evidence, and the objection has been made and 10 THE COURT: Sustained. the objection is sustained. 11 MR. SUBRAMANIAN: Your Honor, I guess the question BY MR. SUBRAMANIAN: 12 would be, and this was a summary that was prepared by attorneys Q. Mr. Brewer, can you turn to Tab 6 in your binder. 13 of invoices that had been collected from Assured and produced A. Yes. 14 to Flagstar in this case. I guess in terms of the procedural Q. Plaintiff's Exhibit 465, do you recognize this document? 15 question is how your Honor would like us to prove up those A. This is a letter that was sent to Flagstar Bank in January 16 expenses if we are entitled to reimbursement at the end of this of 2009. 17 case. Q. What is the letter concerning? 18 MR. BUCHDAHL: If I may, the issue is the expenses are MS. RENDON: Objection, your Honor. Again my 19 continuing through trial. That is why Mr. Subramanian made an understanding is that this witness had no connection to the 20 offer to do an offer of proof after trial. We can call a repurchase process that is associated and discussed in these 21 witness to simply say I have reviewed all these exhibits and I letters. 22 have calculated them. It will be a partial amount that will THE COURT: Let me ask a different question. Are you 23 grow, and that is why we think it might be more appropriate to offering Exhibit 465? 24 offer that at the conclusion of the trial. It is a matter of MR. SUBRAMANIAN: I am offering it into evidence, yes, 25 convenience for the court.

demand. MS. RENDON: Objection, your Honor. Again my understanding is this witness had no connection to the repurchase process associated with these trusts. THE COURT: Sustained. MR. SUBRAMANIAN: I am just asking for Mr. Brewer's understanding. THE COURT: No, no, no. His understanding is

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(17) Pages 65 - 68

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
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1 Q. Focusing on the 2005-1 transaction, can you describe what 2 happened. after trial and other elements of damages that are, if there 3 A. Yes. A third party firm, so-called diligence firm, was are such, I don't know what is in this exhibit. 4 hired by the banker to perform a review of some of the files of MR. BUCHDAHL: Your Honor, if I may just describe in 5 the transaction. some detail? The vast majority of these expenses are 6 Q. Do you remember who the diligence firm was? attorney's fees. 7 A. I think it was Clayton in the 2005-1 transaction. THE COURT: That is not surprising. 8 Q. Did Clayton's review process check for borrower fraud or MR. BUCHDAHL: We would be foolish to do otherwise. 9 misrepresentation? It also includes a large number of expert witness 10 MS. RENDON: Objection, your Honor. This witness has fees, obviously, which is in the same category of attorney's 11 no personal knowledge to answer that question. fees, but it also includes attorney's fees that were accrued by 12 MR. SUBRAMANIAN: I would submit Mr. Brewer was on the Assured during the repurchase process when they had lawyers 13 committee that approved the transaction and reviewed documents involved in making these demands. It does kind of all fall 14 concerning the third-party reviewed process. I am only asking into that general category of attorney's fees, expert 15 Mr. Brewer for his understanding based on his review of those witness-related expenses. 16 documents. THE COURT: I guess I need to know from the defense 17 MS. RENDON: He is asking to elicit hearsay. counsel, have you seen this exhibit before? 18 THE COURT: Let me understand what plaintiff is MS. RENDON: I have not. 19 attempting to establish through this line of evidence and I can MR. BUCHDAHL: This was produced on our exhibit list. 20 rule on the objection. What is it, what element of your claim MS. RENDON: I am sorry, it was, and we objected on 21 would this relate to? the basis of hearsay. I apologize, your Honor. 22 MR. SUBRAMANIAN: This does not relate to an element THE COURT: All right. Are you objecting? Have you 23 of our claim, but to a defense that has been asserted by seen any of the backup to any of this? 24 Flagstar concerning the pre-transaction diligence process. I MS. RENDON: I have not, your Honor. 25 am just exploring into Mr. Brewer's personal understanding with
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THE COURT: I don't think there is any difference between attorney's fees which I think can properly be offered

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1 2 3 4 part of your damage claims or make a separate application with 5 respect to these expenses, you're going to need to provide your 6 adversary with the backup. 7 MR. BUCHDAHL: I was under the impression we had 8 produced the backup. 9 MR. SUBRAMANIAN: Yes, your Honor, all of the invoices 10 that are underlying this summary have been produced to 11 Flagstar, and these expenses are all up to June of 2012, and 12 that is why. 13 THE COURT: So what we need to have plaintiff do is 14 sometime over the next few days take a look at the backup and 15 find out whether there is a challenge to the figures as opposed 16 to the substantive challenge to whether you're entitled to this 17 or not. 18 MR. SUBRAMANIAN: We have all the invoices right here 19 so we can provide those. 20 THE COURT: Very good. 21 BY MR. SUBRAMANIAN: 22 Q. Mr. Brewer, was there any review of the loans done before 23 Assured issued the policies? 24 A. Yes. 25

THE COURT: We'll take this up no earlier than the end

of the giving of evidence in this trial, possibly even later than that, but I will deem it something that the plaintiffs can preserve till at least that time. If you're going to make this

respect to that defense, but to be clear, this is not -THE COURT: I don't understand. If they say that
based on the, as I understand it, on the due diligence that you

performed, and if you had it, analyzed it correctly, for
example, it was the RMG or whatever those three meaningless initials were, approach, you would have expected to have all

these losses or a good deal of them, so what is his understanding of what was done?
How does that bear on that issue, either on rebutting
their issue which is apparently what you intend to do on that

issue, or anything else for that matter? MR. SUBRAMANIAN: Your Honor, Mr. Brewer was an officer of Assured at the time of these transactions. THE COURT: I understand that. MR. SUBRAMANIAN: He was also on the committee that approved the transaction. THE COURT: I understand that the three previous times you told me that. MR. SUBRAMANIAN: The only thing we are trying to
elicit from the witness, your Honor, is Mr. Brewer's personal understanding of the two things that Flagstar has indicated

were material and relevant to the actual contracts in this

case. The due diligence -THE COURT: No, no, I don't think that is what they're
saying. My understanding is -- counsel for defense will
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ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
CAAJASS3 Brewer - direct Page 73 CAAJASS3 Brewer - direct

October 10, 2012
Page 75

1 correct me if I am wrong -- that their own data obtained 2 through due diligence, through other means, if properly 3 analyzed, would have shown that they bore the risks that they 4 have now. Do I have that right? 5 MS. RENDON: That's correct, your Honor. 6 THE COURT: So you can certainly bring out from him or 7 any other witness with actual knowledge of that process why it 8 was done the way it was done. If he has knowledge from his 9 position or service on that committee as to why they, for 10 example, averaged the three measures as opposed to otherwise, 11 that would be relevant, but his general understanding I don't 12 think is relevant. 13 MR. SUBRAMANIAN: For instance, on this point, your 14 Honor, in terms of comparing the due diligence to what has been 15 done now in this litigation, one of the key points is that the 16 pre-transaction due diligence involved no search and no check 17 for borrower misrepresentation or fraud. 18 It is a major part of plaintiff's case. The witness 19 does have an understanding of that based on his involvement 20 with these transactions at the time they were executed. 21 MS. RENDON: Actually, I don't believe the witness 22 does have knowledge of that. I understand the efficiency with 23 which plaintiff's counsel is trying to put this case on, but 24 they are trying to channel through one witness a lot of stuff 25 on which this one witness does not have personal knowledge,
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light of the implicit inference in your query that you're

awfully hungry -MR. BUCHDAHL: I am always hungry, but I am happy to wait till 1:00. THE COURT: We'll break 5 to 1:00. MS. RENDON: I didn't hear what you said you would break? THE COURT: About five minutes before 1:00. MS. RENDON: Thank you. MR. SUBRAMANIAN: Your Honor, I will be done before that. THE COURT: Okay. BY MR. SUBRAMANIAN: Q. Mr. Brewer, what was the purpose of this executive summary? A. This was the basis upon which the transaction was approved
by the members of that committee. It was a summary of the

credit elements of the transaction. MR. SUBRAMANIAN: We offer Exhibit 99 into evidence. MS. RENDON: No objection. THE COURT: Received. (Plaintiff's Exhibit 99 received in evidence) BY MR. SUBRAMANIAN: Q. Turn to Page 3 in this document. A. Yes. Q. What is this page discussing?
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1 2 up receiving a memo from other employees of FSA that ran the 3 due diligence process. A third-party vendor performed the 4 analysis. 5 Mr. Brewer, as a recipient of a memo, cannot speak as 6 to logistics and underpinnings of the specific due diligence, I 7 don't believe, with any level of personal knowledge. I think 8 what we see here is trying to channel a lot of facts that the 9 plaintiffs wish to bring out in their case through one witness, 10 a very senior executive of the company, but they can't run 11 afoul of the rules of evidence in doing so. He does not have 12 personal knowledge of these facts that are trying to be 13 elicited, and I object on that basis. 14 MR. SUBRAMANIAN: I withdraw the question and move on. 15 BY MR. SUBRAMANIAN: 16 Q. Mr. Brewer, can you turn to Tab 9 in your binder. 17 A. Yes. 18 Q. Plaintiff's Exhibit 99, do you recognize this document? 19 A. This is the executive summary that was reviewed by the 20 underwriting committee in approving this transaction. 21 MR. BUCHDAHL: I apologize. So I don't get my hopes 22 up too early, what time does the court prefer to break for 23 lunch? 24 THE COURT: Well, we normally break at 1:00, but in 25

okay?

He did not run that due diligence process. He ended

MS. RENDON: Can you use the Bates number, counsel? MR. SUBRAMANIAN: AGM 6132213. MS. RENDON: Thank you. BY MR. SUBRAMANIAN: Q. Mr. Brewer, what does this page discuss? A. It is discussing the results of the Clayton Group file review. Q. Would you look at the last paragraph on the page and read that for us, please. A. "Of the 125 loans that were reviewed, zero loans were coded
as Event Level 3 for the reason other than the TILA violation. Truth in lending. Clayton is in the process of clearing credit

and compliance exceptions." Q. First off, what is the TILA violation? A. It is a truth in lending requirement that the lender had,
and there must have been an example where it wasn't properly

documented. Q. Do you recall what the issue was with the TILA violation in the context of this transaction? A. I know that there have been in the past, the company had
not properly documented truth-in-lending issues and that was something that was addressed prior to this transaction being underwritten, and there must have been one case found in this

diligence. Q. Putting that to the side, what did Clayton find?
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ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
CAAJASS3 Brewer - direct Page 77 CAAJASS3 Brewer - direct

October 10, 2012
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A. Clayton found that the loans, there were no so-called Event Level 3 violations in the transaction. Q. Did Clayton find the types of problems Assured has alleged in this case? MS. RENDON: Objection, your Honor. THE COURT: Sustained. BY MR. SUBRAMANIAN: Q. Asking it another way, if Clayton had found the kinds of

1 A. ROR refers to right of recision. You have to document the 2 borrower has -- after assigning a document, there is a certain 3 number of days during which the borrower can rescind the loan. 4 That is something that is typically found in the loan file. 5 The other one is trailing documents. Those are 6 documents, sometimes the securitizations haven't been happening 7 quite soon after loan was originated and sometimes not every 8 single document is in the file at the time of review, and those problems Assured has alleged in this case, would Assured have 9 documents are subsequently received. issued the policy? 10 THE COURT: Do you know whose handwriting this is? A. No. 11 THE WITNESS: I don't. Q. What did Clayton's file review have to do with the 12 THE COURT: You saw this document yourself, but representations made by Flagstar in the contracts we have been 13 without the handwriting presumably? talking about? 14 THE WITNESS: Yes. MS. RENDON: Objection, your Honor. 15 THE COURT: In the paragraph right below the one that THE COURT: Sustained. 16 you just read -BY MR. SUBRAMANIAN: 17 THE WITNESS: Yes. Q. Was Clayton's due diligence a representation or part of the 18 THE COURT: -- it says, "The due diligence results contracts? 19 confirm RMG's expectation that the expected loss based on the MS. RENDON: Objection, your Honor. 20 tape information would be validated by the expected loss based THE COURT: Sustained. 21 on the diligence rates." BY MR. SUBRAMANIAN: 22 First, is RMG a company? Q. Let's move on and talk about the 2006 deal. Were there any 23 THE WITNESS: No. RMG is the residential mortgage file reviews on 2006-2 deal? 24 group. It is our group in the company that was responsible for A. Yes, by a different firm called Bohan. 25 underwriting transactions of this type.
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Q. Would you turn to Tab No. 10 in your binder. A. Yes. Q. Do you recognize this document? A. Yes, it is the executive summary for the 2006-2 transaction. MR. SUBRAMANIAN: We offer Exhibit 100 into evidence. MS. RENDON: No objection, your Honor. THE COURT: Received. (Plaintiff's Exhibit 100 received in evidence) BY MR. SUBRAMANIAN: Q. Please turn to Page 3 in this document. A. Yes. Q. What is this page discussing? A. This page has similar results of the Bohan due diligence. Q. I am looking at paragraph under the listing of event level. Do you see that? A. Yes. Q. What does this paragraph say? A. "Of the 250 loans that were reviewed, 6 were coded as Event

1 THE COURT: All right. Do you have an understanding 2 of what that sentence means? 3 THE WITNESS: Let me read it again. (Pause) 4 Well, my memory is hazy on this, but what we were 5 trying to do was to predict losses, of course, on the mortgage 6 pool. We could do that by using data on the mortgage tape or 7 data collected in the process of this file review that is 8 referred to here. 9 THE COURT: What do you mean by the mortgage tape? 10 THE WITNESS: Mortgage tape is a computer record of 11 every single loan in the transaction. Of course, it is not 12 done on tape any more, but we always refer to these as tapes. 13 That has a record of each loan and various characteristics of 14 that loan. 15 When we were trying to determine the credit quality 16 underlying the loans, we were trying to draw conclusions about 17 the credit quality of the borrowers and the value of the 18 collateral, as you will see here, the borrower's ability to pay 19 which will come up in a minute. We could do so either by using Level 3 due to trailing document and ROR issues. These loans 20 the results of the sample or by using information of the tape. are in the process of being cleared. It is Flagstar's belief 21 THE COURT: The first sentence then, if I understand that all of the loans will be cleared prior to the closing of 22 what you've just said, means that the due diligence results the transaction." 23 showed a similar loss expectation to that which the tape Q. What are the trailing document and ROR issues referred to 24 showed, yes? here? 25 THE WITNESS: And, therefore, I think what this means

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(20) Pages 77 - 80

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CAAJASS3 Brewer - direct Page 81 CAAJASS3 Brewer - direct

October 10, 2012
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1 2 3 4 5 6 talking about results. I would interpret this to mean -- I 7 haven't read this recently -- that that is the loss that would 8 come out of the RMG loss model, which is one of those funny 9 models you were referring to before, yes. As a result, we come 10 up with a slightly different expected loss result, and 7.1 11 percent is what the tape would imply. 12 THE COURT: Right. If either of those were what you 13 expected, it would be either somewhere in the area of 7 to 8 14 percent? 15 THE WITNESS: Yes. 16 THE COURT: Okay. 17 THE WITNESS: I can see going to the next page we used 18 8.05 percent in our computation of expected loss. We took the 19 higher one. 20 THE COURT: Go ahead, counselor. 21 BY MR. SUBRAMANIAN: 22 Q. Let's actually talk about the loss model. Let's focus in 23 on that. Can you turn back to Tab No. 9. 24 A. Tab No. 9? 25

is that we used the summary information contained on the tape.

THE COURT: Which would be 7.1 percent? THE WITNESS: Just a moment. THE COURT: Is that the second sentence of that paragraph? THE WITNESS: Yes, I see what that means. You're

average of those three. THE COURT: You say it was determined to take the average. Who made that determination? THE WITNESS: We did as an underwriting conclusion, a policy matter. THE COURT: I want to know who "we" is. THE WITNESS: The company did. THE COURT: I know it is the company. Within the company, who made that determination? THE WITNESS: It was the senior members of the credit
committee. I would have participated in that, our CEO would

have participated in that, and other members of senior underwriters of the company. THE COURT: What was the rationale for, as you recall it, if you do, for taking the average? THE WITNESS: Well, it is hard to say. We had these
three, we had the three pieces of information that you see

before you. THE COURT: Yes, but you notice that two are one extreme, so to speak, and the other is a very different extreme? THE WITNESS: Yes. THE COURT: So it seems to someone who knows nothing about this, a strange situation to do an average. THE WITNESS: Well, I can understand that.
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1 Q. That's right. 2 A. Ah-huh. 3 THE COURT: For the record, that is Exhibit 99. 4 MR. SUBRAMANIAN: Exhibit 99. My apologies, your 5 Honor. Turn to Page 6, AMG 6. 6 BY MR. SUBRAMANIAN: 7 Q. Can you describe for the court the chart at the top of the 8 page here. 9 A. This is the chart that summarizes how we determine or how 10 we computed, really, the expected loss in this transaction. 11 Q. What was the expected loss calculation for the 2005 deal? 12 A. 4.32 percent. 13 Q. How did Assured get there? 14 A. That is the average of the three estimates of loss that are 15 above it, the 1.28 percent for the FICO model, which is a model 16 based using FICO scores, fair credit scores, which was a common 17 way to think about defaults on consumer loans. 18 Historical estimation was 1.7 4 percent. That was 19 using analogous but not specifically Flagstar-originated HELOC 20 loans and historical performance of those, and the RMG loss 21 model was a loss model that was developed by our residential 22 mortgage group based on our experience by insuring sub-prime 23 mortgage-backed securities, and so we always had a debate as to 24 which of these was the most accurate way to think about losses 25 going forward. It was determined that we would take the

1 Most of the transactions we had underwritten up until 2 this time were sub-prime mortgage transactions. That was a 3 model with which we had a lot of familiarity and there was 4 broad acceptance within the company about how, how sub-prime 5 mortgage loans behaved and how that model predicted that 6 behavior. 7 I think when we came into HELOC loans, it was a much 8 higher quality borrower, much higher credit scores than we had 9 been familiar with, and we were reluctant to eliminate any 10 consideration of our older model, if you will, that was the 11 sub-prime model at the time. We decided to rather take an 12 average of these three approaches. 13 THE COURT: Well, just to press a little bit, I am not 14 not sure any of this was discussed at the time, but if it was, 15 I need to hear what was discussed. 16 One would think when you see two models giving a very 17 low expected loss, 1.28 and 1.74, and a third model giving a 18 very high by contrast loss, 9.94, a person doing that would say 19 there is something wrong with these models. Either the 20 approach taken at the low models is wrong or the approach taken 21 at the high model is wrong, or they're both wrong because it 22 doesn't seem at all likely that you would get such a divergence 23 just by chance. 24 So was there any discussion about which was the better 25 model or anything like that?

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ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
CAAJASS3 Brewer - direct Page 85 CAAJASS3 Brewer - direct

October 10, 2012
Page 87

1 THE WITNESS: Yes, there was a lot of discussion of 2 that at the time. I think based strictly on history, one would 3 have concluded the lower numbers were more supported because 4 they represented the performance -- well, in the case of FICO, 5 it was people based on the FICO store, but on historical 6 estimation, they were actually, that was actual HELOC loss 7 experience. 8 THE COURT: All right. If you had greater confidence 9 in the loan models, was there any discussion as to why the RMG 10 model was giving such a high number? 11 THE WITNESS: Well, yes. The reason is the RMG model, 12 because it was based on lending to sub-prime borrowers, was 13 much more sensitive to loan-to-value as an estimate of default 14 behavior than credit score because, of course, sub-prime 15 borrowers, most of them had low credit scores. 16 There was what we thought at the time a conservative 17 bias to looking at expected loss. 18 THE COURT: In other words, if I understand what 19 you're saying, you're saying although you had greater 20 confidence or thought the more accurate models were the two low 21 ones, you thought you would give at least some weight to the 22 higher one by average of the three? 23 THE WITNESS: Yes. 24 THE COURT: I don't want to put words in your mouth. 25 Was that the essence of the discussion or not?
CAAJASS3 Brewer - direct

1 no personal knowledge of the numbers underlying this page. 2 MR. SUBRAMANIAN: Your Honor, we are just asking 3 Mr. Brewer to read this document into the record. It is 4 evidence of what Flagstar reported in this document. 5 MS. RENDON: I didn't object to the admission of the 6 exhibit. 7 THE COURT: All right. Now that you focused me on it, 8 I have taken full knowledge of it, and as you will be going 9 along where you pointed to particular points in the voluminous 10 documents, I made a notation on my copy so that I can focus on 11 them later as well. I don't think we need to have to read it 12 into the record. Go ahead. 13 BY MR. SUBRAMANIAN: 14 Q. Mr. Brewer, can you look at Page 75 in this document. 15 A. Yes. 16 Q. Looking at the third paragraph, do you see the first 17 sentence there? 18 A. I am sorry. Can you say it again? 19 Q. The third paragraph from the bottom? 20 A. Yes. 21 Q. Would you read just the first sentence there? 22 A. "The company recorded 26.1 million dollars in residual 23 interests as of December 31, 2005, as a result of non-agency 24 securitization of 600 million in home equity line of credit 25 loans. The HELOC securitization."
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1 2 3 THE COURT: Okay. Go ahead, counselor. 4 BY MR. SUBRAMANIAN: 5 Q. Mr. Brewer, can you turn to Tab 11 in your binder. This is 6 Plaintiff's Exhibit 76. 7 A. Yes. 8 Q. What is this document? 9 A. The Flagstar Bank Corp. 10-K for 2006. 10 MR. SUBRAMANIAN: We offer Plaintiff's Exhibit 76 into 11 evidence. 12 MS. RENDON: No objection. 13 THE COURT: Received. 14 (Plaintiff's Exhibit 76 received in evidence) 15 BY MR. SUBRAMANIAN: 16 Q. Mr. Brewer, can you turn to Page 76 in this document. 17 A. Yes. 18 Q. Mr. Brewer, would you talk a little bit about estimated 19 losses. Can you tell from this page what Flagstar reported its 20 estimated losses for the two transactions at issue in this 21 case? 22 A. This page shows -23 MS. RENDON: Objection, your Honor. The document 24 speaks for itself, and clearly is not a place, the employee has 25

THE WITNESS: I think the historical one had more, was

more factual directly on point and factually based, yes. We intended to have a conservative bias to our expected case.

Q. Was there a residual interest in the 2005-1 trust? A. Yes. Q. Who owned that interest? A. Flagstar. Q. What is this sentence saying about Flagstar's residual interest? MS. RENDON: Objection, your Honor. THE COURT: I think since some of the terms there are
not crystal clear to someone on the outside, I will allow him

to explain it. Go ahead. THE WITNESS: What it means is that Flagstar believed
that there was 26.1 million dollars residual value in these home equity loans after repayment of the securitization.

BY MR. SUBRAMANIAN: Q. As of what date were they making that prediction? A. As of the date of this 10-K. Q. Looking down at the last paragraph in the first sentence of that paragraph, can you read that for us. A. "On December 31, 2006, the company recorded 11.2 million in
residual interests as a result of its non-agency securitization of 302 million in home revolving equity line of credit loans.

The HELOC revolving securitization." Q. What does this sentence say? THE COURT: I understand that from the sense of it. MR. SUBRAMANIAN: I will pass the witness. We have no
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ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
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October 10, 2012
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further questions. THE COURT: We'll take our lunch break at this time.
I am reminded by my ever vigilant law clerk that we have a
matter down in chambers at 2:00 o'clock that will probably last a half hour. So you're going to have a really fulfilling lunch

break. We'll see you at 2:30 back here in court. (Luncheon recess) (Continued on next page)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT: Putting aside the spin, if she is going to
be testifying to particular loans, then I think the defense
ought to be provided with a list of those loans. Any objection

to that? MR. BUCHDAHL: Your Honor, typically you wouldn't give
this ahead of time; they would find out during direct testimony

which specific. But I have no objection to providing that
ahead of time. When we go home tonight, we will sort it out.

I don't think she is going to testify today. We will sort out which specific examples we are going to use and we will identify them by the row number in the spreadsheet that
accompanied her original report so they can prepare as much as

they want. THE COURT: That sounds fine.

I have other matters

starting at about 4:10, so we are definitely not going to get to her today. As for whether, quote, they would learn about this for the first time on her direct, unless I miss my guess, you can look through the entire canon of federal law and you won't find a law that requires that, as opposed to the judge

directing that you do it sooner. Let's go with the cross-examination. MS. RENDON: Your Honor, if I could really quickly.
I'll jump right into cross-examination, I promise. Maybe we

could set so, there is an actual real-time, that we adjourn
today at 4:10, when your Honor indicated he is otherwise busy,
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1 that we have that list no later than, let's say, 6:30 this 2 evening, just so that we have time to consider it. We do want 3 an appropriate amount of time. 4 THE COURT: Is she the next witness? repeatedly over the next few days. Let's get the witness back 5 MR. BUCHDAHL: She is not the next witness. on the stand. 6 THE COURT: When do you think you could get it to MS. RENDON: We learned a lot, your Honor, in the 7 them? interim. Your Honor, as the witness approaches the stand, I 8 MR. BUCHDAHL: Why don't I agree to produce it by the have an application to make to the Court unrelated to the 9 time that they produced for her opening this morning. witness. I'd ask permission to be able to do so at this time. 10 THE COURT: No, no. You guys, you can hondle with THE COURT: Sure. 11 each other but not with the Court. MS. RENDON: We understand from colloquy between 12 MR. BUCHDAHL: Your Honor, that was around 10 p.m. to counsel on a break that Ms. Walzak, the liability expert, when 13 get back to decide which ones loans we are going to use. We'll she testifies, will be testifying to approximately 20 different 14 do it by 10 p.m. individual loan files during the course of her testimony. We 15 THE COURT: I think you should provide it by 9 p.m. would ask, whether it's 20 or any other number, given the 16 MS. RENDON: Thank you, your Honor. issues that we discussed earlier this morning, that we be 17 RUSSELL BREWER, resumed. provided with a list, which can even be provided during the 18 CROSS-EXAMINATION period of time I'm crossing this witness, as to those loan 19 BY MS. RENDON: files that Ms. Walzak intends to be testifying to with any 20 Q. Good afternoon, Mr. Brewer. I'm Veronica Rendon. We met specificity so that we have a little bit of lead time beyond 21 once before at deposition, as you probably recall. just hearing her live testimony to compare and contrast what 22 A. Mm-hm. her original allegations were on her chart relative to what the 23 Q. It's nice to see you again, sir. I want to run back new allegations were in that summary exhibit, so that we could, 24 through some of you are employment history so we can establish if appropriate, object as necessary during the live testimony. 25 a foundation for some of the questions I'll be asking you later

AFTERNOON SESSION 3:05 p.m. THE COURT: Here it is exactly 2:30 as promised. As I said before, I do apologize. We are going to face this

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1 in your examination. I apologize if any of them are redundant, 2 but this part shouldn't take that long. 3 THE COURT: Counsel, stop the preludes and put a 4 question. 5 MS. RENDON: You got it. 6 Q. Mr. Brewer, how long have you been employed by Assured 7 Guaranty? 8 A. 26 years, including the predecessor company FSA. 9 Q. So in saying 26 years, you're grouping both FSA and Assured 10 Guaranty, correct? 11 A. Yes. 12 Q. That's because Assured entered into some form of corporate 13 merger or transaction with FSA after which the company became 14 Assured, correct? 15 A. Correct. We changed our name to Assured Guaranty 16 Municipal. 17 Q. I believe you indicated you started with FSA around, did 18 you say, 1986? 19 A. Yes. 20 Q. FSA itself as a company started around 1985, correct? 21 A. I think that's right. 22 Q. So you have effectively been there at least pretty close 23 since day one of FSA? 24 A. Pretty much. 25 Q. Your role in that early period of time with FSA was acting
Caarass4 Brewer - cross

1 latter half of 2008, would that -2 THE COURT: If you did that, you would be asking an 3 improper question which I would have no choice but to sustain 4 the objection to. 5 MS. RENDON: Then I would choose not to ask that 6 question, your Honor. 7 THE COURT: If you want to impeach a witness with 8 prior testimony, what you do is you give everyone a copy of the 9 deposition: The witness, your adversary, and the Court. You 10 say, I propose to read page X, line such and such. You then 11 pause for a few seconds while your adversary decides to object. 12 The objection, if it is being offered for purposes of 13 impeachment, would be on the grounds that it is not even 14 arguably inconsistent. However, if a witness is identified 15 with a party adversary, then of course his deposition can come 16 in over a hearsay objection even if it is not inconsistent. 17 But, whatever the situation, after pausing for a moment, if 18 there is no objection, then you can read the relevant portion. 19 OK? 20 MS. RENDON: Thank you, your Honor. I appreciate 21 that. It had been an inartful attempt to refresh recollection 22 as compared to impeach, but your assistance will -23 THE COURT: For purposes of refreshing recollection, 24 you shouldn't ever refer to what the document is. You should 25 simply place the document in front of the witness, and it can
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as the main underwriter for asset-backed securities, correct?

1

be any document in the world, and say, having looked at this,

A. I ran the asset-backed group for a time, yes. 2 put it aside, does it refresh your recollection or not. Q. What was your role in that group? 3 MS. RENDON: Thank you, your Honor. A. I would have managed the group that presented transactions 4 BY MS. RENDON: to our underwriting committee. 5 Q. When FSA decided to stop wrapping or insuring transactions, Q. You said you are currently in the surveillance department, 6 it was because Dexia, the parent company of FSA, had correct? 7 effectively instructed FSA to so stop, correct? A. Yes, I run surveillance for the company. 8 A. I think we agreed as a group certainly Dexia was important, Q. Surveillance is the department that monitors transactions 9 yes. after they have already closed, correct? 10 Q. The reason you agreed as a group was because you at FSA A. Yes. 11 were losing significant money in connection with insuring Q. At this time Assured is not currently wrapping, or I should 12 asset-backed securitizations, correct? say insuring any mortgage-backed securitization transactions, 13 A. We were concerned that we would lose substantial money, correct, new ones? 14 yes. A. We have not done so recently, that's correct. 15 Q. If you continued to wrap such transactions? Q. FSA had stopped wrapping or insuring mortgage-backed 16 A. Yes. securitization transactions prior to becoming Assured, correct? 17 Q. It was only after Assured purchased FSA or merged with FSA A. Yes, we did. 18 that a new repurchase department was created the purpose of Q. What period of time was that that FSA stopped insuring 19 which was putting back loans to originators, correct? mortgage-backed securitizations? 20 A. We did after a time establish a group specifically for that A. I'm not sure. It was 2008 perhaps. I'm not positive when 21 purpose. we stopped. 22 Q. That was only after Assured had taken over FSA, correct? Q. Sometime in 2008, to the best of your recollection? 23 A. Yes. A. Yes. It could have been early 2009. I'm just not sure. 24 Q. At that time a new department was created where personnel Q. If I told you that you testified previously that it was the 25 specific to push back loans to originators was established,
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ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
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October 10, 2012
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1 correct? 2 MR. SUBRAMANIAN: Your Honor, I would like to object 3 to this line of questioning. When we were on direct, there 4 were objections to Mr. Brewer testifying about the repurchase 5 process. I don't think the witness has any personal knowledge 6 relevant to this area, as Ms. Rendon objected. 7 MS. RENDON: I'm happy to explain, your Honor. My 8 understanding is that Mr. Brewer understands which departments 9 were in existence at particular points in time, and that is to 10 distinguished from the questions that were being asked earlier 11 this morning as to the specific interactions about repurchase 12 relevant to these transactions. 13 MR. SUBRAMANIAN: Your Honor -14 THE COURT: Excuse me. Before we hear all these 15 interesting discussions, is the objection on the ground of 16 scope or -17 MR. SUBRAMANIAN: The objection is -18 THE COURT: -- lack of foundation or what? 19 MR. SUBRAMANIAN: There are three grounds for the 20 objection: Scope, lack of foundation, and also relevance. 21 THE COURT: The objection on the grounds of scope is 22 overruled because in my court, once a witness is called, he or 23 she is fair game for anything that is relevant regardless of 24 whether they were asked about it on direct. 25 I'm not clear, however, as to what the relevance is.
Caarass4 Brewer - cross

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Q. For which years is that true, Mr. Brewer? A. I don't recall. I was a member of the MRC for a very long time. Q. When do you believe you stopped serving as a member on the MRC? A. At the time of the merger. Q. That was approximately in 2009? A. July 1st of 2009. Q. It is fair to say that in the period of time and also
shortly before the period of time of these transactions at issue in 2005 and 2006, you sat on the credit committee?

A. That's true. Q. And you believe that also would have been true in 2004, sir? A. Yes. MS. RENDON: I'd like to approach the witness and
provide him with -- we have created binders, your Honor, of

exhibits that we would like to show the witness. THE COURT: Yes, that's fine. MS. RENDON: I have one for your Honor as well. Q. Mr. Brewer, I'm going to ask you to turn to the first tab
in your binder. AYP should be the tab. Do you see that?

A. Yes. Q. It's an awkward lettering system, but this is going to be
the exhibit designation, defendants' exhibit designation, for
Brewer - cross Page 100

Page 98 Caarass4

1 MS. RENDON: Your Honor, what we are going to 2 establish is that the only reasons why repurchases started 3 being made wasn't because there were discoveries about the true 4 issues with originations, it's because there was a loss of 5 substantial money, and new management came in and decided to 6 start making attempts to push back loans. 7 THE COURT: What is the relevance of that? This is 8 not a case that involves the motivations of the parties. This 9 is a case about whether there was or was not a breach of 10 certain representations and warranties. If a warranty was 11 breached or a misrepresentation was made, the fact that the 12 other party decided to do something about it because they hated 13 the other guy's guts or they felt very bored, they hadn't had a 14 lawsuit in at least two months, or any other reason would be 15 neither here nor there. 16 MS. RENDON: OK, your Honor. I'll move on. 17 THE COURT: Good. 18 MS. RENDON: Thank you. 19 BY MS. RENDON: 20 Q. You indicated that you were the chief risk management 21 officer from 2000 to 2009, is that correct? 22 A. Yes. 23 Q. You also indicated that you sat on the MRC, or the credit 24 committee, of FSA, is that correct? 25 A. Yes.

1 this exhibit. Do you see, sir, this is a memorandum sent from 2 Andre Thomas and Charles Campbell to the MRC on August 7, 2004? 3 A. Yes. 4 Q. Do you recognize Mr. Thomas and Mr. Campbell? 5 A. Yes. 6 Q. Who are they? 7 A. They were employees in the residential mortgage group at 8 that time. Andre Thomas is still with us, and Charlie Campbell 9 no longer works with Assured. 10 Q. Do you understand the entity to which this memo was sent, 11 the MRC, is the risk committee that we were just discussing? 12 A. Yes. 13 Q. And you were a member of that committee? 14 A. Correct. 15 Q. In this time period? 16 A. Yes. 17 Q. As such, you believe you would have received this memo? 18 A. Yes. 19 MS. RENDON: I move to admit this document into 20 evidence, your Honor. 21 MR. SUBRAMANIAN: No objection. 22 THE COURT: Received. 23 (Defendant's Exhibit AYP received in evidence) 24 Q. Mr. Brewer, you see that this memo makes reference to a 25 FICO/DTI expected loss model. Do you see that, sir?

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SOUTHERN DISTRICT REPORTERS

(25) Pages 97 - 100

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
Caarass4 Brewer - cross Page 101 Caarass4 Brewer - cross

October 10, 2012
Page 103

1 A. Yes. 2 Q. You gave testimony earlier in your direct where you were 3 talking about a FICO model, correct? 4 A. Correct. 5 Q. That model was one of the three models that was averaged in 6 connection with the two Flagstar transactions at issue, 7 correct? 8 A. Yes. 9 Q. You understand this is that same FICO model that is being 10 discussed in this memo? 11 A. Yes. Actually, this is talking about our methods of trying 12 to estimate losses. Without rereading it, I can't swear that 13 it is only using FICO scores. 14 Q. To the extent there is a discussion here about a FICO loss 15 model, do you believe that to be the same model that was used 16 in the averaging of the two Flagstar transactions? 17 A. Yes. 18 Q. Let me ask you, sir, in the section on the first page, 19 AGN00277942, there is a section called "Overview." Do you see 20 that? 21 A. Mm-hm. 22 Q. It says in the third paragraph of that section, "This 23 analysis supports the use of the FICO/DTI method to estimate 24 expected losses in the CSFB and other natural 'AA' and 'AAA' 25 transactions that RMG is currently guaranteeing where the
Caarass4 Brewer - cross

1 MS. RENDON: Your Honor, may I proceed? 2 THE COURT: There's an objection pending, unless you 3 want to rephrase the question. 4 MS. RENDON: I will. 5 Q. My question is, Mr. Brewer, you indicated that to the 6 extent that this is talking about a FICO/DTI model, that that 7 is the reference to the FICO model that was referred to in the 8 memos that we looked at for the two Flagstar transactions, 9 correct? 10 A. Yes. And I'm actually confused about that. I'm not 11 positive about that. This piece here is talking about applying 12 the FICO/DTI model in the context of highly rated first lien 13 transactions. I just don't know if this is exactly the same 14 source of information that was used in the Flagstar. I might 15 find it out here, but it's going to take me a second. 16 Q. Let's look at the first sentence in the overview. It says, 17 "Over the past five years RMG has been accumulating borrower 18 Fair Isaac credit scores, FICO, and evaluating how they 19 compared to the standard FSA credit grade during a loan file 20 review." Do you see that, sir? 21 A. Mm-hm. 22 Q. Do you understand that to be referring to the FICO expected 23 loss model? 24 A. I understand it to mean that we were considering whether 25 FICO scores could be used in lieu of determining a credit grade
Brewer - cross Page 104

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 via a file review. 2 Q. My question for you is in that discussion or that debate, 3 can we use the FICO model as compared to a file review 4 approach? Do you understand the FICO component of the 5 conversation to be referring to the FICO expected loss model 6 that's being discussed in the Flagstar transactions? the context of AA and AAA first lien transactions, is what I 7 A. I can't answer that. I don't know. would interpret that to mean. 8 Q. Your initial reaction was that it was that same model, Q. So this is talking about using FICO for transactions that 9 correct? are not similar in nature to the two Flagstar transactions, 10 A. That was my initial reaction, yes. correct? 11 Q. Why was that your initial reaction, sir? A. This particular memo wasn't dealing with the Flagstar 12 A. Because it's based on FICO scores. But I'm not positive. transaction, if that's what you mean. 13 Q. How many FICO models -- how many expected loss models based Q. Yes. 14 upon FICO do you understand FSA employed in this time period A. From my impression of this, we were talking about first 15 2004, 2005, and 2006? lien transactions primarily, which Flagstar deals are not. 16 A. I think we applied one in the case of first lien Q. I'm sorry of sir, I have been interrupting you and I don't 17 transactions. What I am not positive of is if it was exactly mean to. It's the New Yorker in me. I keep talking too fast. 18 the same one that was applied in the context of second lien It says here that there is analysis supporting the use of the 19 transactions. I just don't remember. FICO model in the CSFB and other natural AA and AAA 20 Q. Do you recall there being two different FICO models, sir? transactions that you would say appear to relate to first lien 21 A. I don't recall. transactions, correct? 22 Q. You're saying that the FICO model being referred to -MR. SUBRAMANIAN: Your Honor, objection. There have 23 THE COURT: I'm sorry. When you say you don't recall, been references to a FICO model. As referred to in this 24 do you mean by that you don't recall either way, or are you document, it is a FICO slash DTI model. 25 saying that your best memory is that there was only one but

traditional file diligence not being performed." Do you see

that, sir? A. Yes. Q. What do you understand the reference to CSFB transactions to be? A. That would be Credit Suisse First Boston, and this is in

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(26) Pages 101 - 104

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
Caarass4 Brewer - cross Page 105 CAAJASS5 Brewer - cross

October 10, 2012
Page 107

1 there might have been a second? 2 THE WITNESS: I really don't know. I just don't 3 remember. Perhaps it's closer to the second. It's not like we 4 had 30 of these models running around. We would have tried to 5 narrow this down. 6 THE COURT: In some general sense, at least, whenever 7 you saw a reference to RMG, or RMG FICO, it was the sort of 8 thing that is being described here? 9 THE WITNESS: RMG model would be something that is not 10 described here. 11 THE COURT: I'm sorry. Withdraw that. FICO. 12 THE WITNESS: FICO, in this ballpark. It wouldn't be 13 far from this. 14 THE COURT: Go ahead. 15 BY MS. RENDON: 16 Q. Let me ask, sir, for you to turn to the second page of this 17 memo. 18 A. OK. 19 Q. Now we have on AGN00277943. Are you there, sir? 20 A. Yes. 21 Q. We are looking at the top where it talks about major 22 issues. Do you see that portion of this page? 23 A. Yes. 24 Q. We look at the first bullet point there, it's talking about 25 FICO data, correct?
Caarass4 Brewer - cross

1 Q. Do you understand very high FICO pools to be those where 2 the FICO is in the 700 range? 3 A. Yes. 4 Q. Do you understand that to be the type of pool that the 5 Flagstar pools was composed of? 6 A. I think it was. 7 Q. So you would understand this sentence to be saying that the 8 FICO model is not very predictive for very high FICO pools such 9 as the two Flagstar pools, correct? 10 A. It would be saying that the -- yes, based on our experience 11 of only going up to 700, it says in the next sentence that this 12 was predicted losses on sub-prime pools which we discussed this 13 morning as being not what we were talking about here but, yes, 14 this model would have -- it was proposed here limited 15 application above 700 FICO. 16 Q. In other words, this sentence is indicating that the model 17 was not predictive for high FICO pools, correct? 18 A. That was what was stated here, yes, in the view of the 19 authors. 20 Q. Then it was -- one of the authors is Mr. Thomas, correct? 21 A. Yes. 22 Q. Mr. Thomas still works at -23 A. Yes, he does. 24 Q. The next sentence says, the one in italics in that same 25 paragraph, says since this model is only used to predict losses
Brewer - cross Page 108

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

A. Yes. Q. You understand that to be the FICO data that's underlying the FICO expected loss model, correct? A. OK, yes. Q. It says in that paragraph, "Most of the FICO data that

1 on sub-prime pools, this range sufficiently covers RMG's usual 2 FICO experience. Do you see that, sir? 3 A. Yes. 4 Q. You understand that sentence to mean that the FICO model is 5 typically only employed by FSA in this time period for RMG," and that's the residential mortgage group of FSA, 6 sub-prime pools, correct? correct? 7 A. Correct. A. RMG is residential mortgage group. 8 Q. Now, let's go down to Paragraph 3 in this section. There Q. It says here, "Most of the FICO data that RMG has collected 9 it is talking where the bold component says overreliance on falls within a very tight FICO range. 85.95 percent of the 10 FICO/DTI expected loss. Do you see that paragraph, sir? observations fall between 500 FICO and 700 FICO. Therefore, 11 A. Yes. the FICO/DTI model is not very predictive for very low or very 12 Q. Here it says while the FICO/DTI expected loss method does high FICO pools," correct? 13 yield results comparable to the file amended, there are A. That's what it says. 14 currently no plans to stop conducting full file reviews and (Continued on next page) 15 using these file rereview results to estimate losses. 16 Do you understand full file reviews to be the process 17 akin to the due diligence process that we talked about earlier 18 today relative to Flagstar? 19 A. Yes. 20 Q. And the full file review is the reference to getting a 21 random representative pool of loans and re-underwriting them to 22 the originators guidelines? 23 A. It was a process where we would receive a file study from a 24 third party and use it in a similar way that was used in the 25 Flagstar, yes.

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(27) Pages 105 - 108

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
CAAJASS5 Brewer - cross Page 109 CAAJASS5 Brewer - cross

October 10, 2012
Page 111

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Q. It then goes on to say there was no substitute for having

1 2 referring to? 3 A. At this time it was where there was some supervision of the 4 file of to be processed. 5 Q. In other words, an FSA employee typically was on site to 6 oversee the file review process, correct? 7 A. At the time that was written, that was a common thing. 8 Q. This was in August of 2004, correct? 9 A. That's when it was written, yes. 10 Q. It then goes on to say the FICO/DTI method of loss 11 estimation will only be used when a full file review is not an 12 available option, i.e., natural AAA transactions, NIM 13 securitizations, et cetera. Do you see that, sir? 14 A. I do. 15 Q. You understand that sentence to mean that FICO, the FICO 16 model was only to be used when there was not the type of due 17 diligence process that we saw employed in the two Flagstar 18 transactions, correct? 19 A. In this case, substituting -- you keep saying that the 20 FICO/DTI is exactly the same as the FICO model used in the 21 Flagstar case. It was my testimony that I don't know if that 22 is true, okay? 23 But if you're asking me the question, this was an 24 approach that was used to approximate the results that would 25

and yet it proposes to substitute the FICO/DTI approach for

an FSA employee on site. Do you know what that sentence is

that very thing. Q. It also says the FICO model is to be used only for sub-prime transactions, correct? A. It says that. It is how it has been used. It says that
this is being applied in AAA transactions NIM securitizations,

that is what this says right here. Q. It also says -A. Which is not what Flagstar is. Q. Right, that is not what Flagstar is, right, sir?
And it also says that FICO is not very predictive for

very high FICO pools, correct? A. This -- a minute? Q. I am looking at Paragraph 1. A. FICO/DTI is not very predictive for very low or very high,
that was their view because most of our experience was in the

500 to 700 range. Q. It goes on in the last sentence of Paragraph 3, when FSA
provides a full Guaranty for a transaction, a loan file review

will be required. Do you see that? A. I do. Q. In the two Flagstar transactions, FSA provided a full guaranty for the transaction, correct? A. Yes. Q. That is why a loan file review occurred, correct?
Brewer - cross Page 112

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Brewer - cross

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 A. A loan file review did occur. 2 Q. I will ask you to turn now, sir, to the next exhibit in our 3 binder, at AYQ. just analyzed the FICO scores. 4 A. Ah-huh. Again this was an approach that is being proposed in 5 Q. We have here Defendant's Exhibit AYQ is a Financial this paper for double and AAA first lien mortgage deals. As 6 Security Assurance Holdings Limited minutes of September 14th, long as we are square on that, everything you said is okay. 7 2005 meeting of the underwriting committee of the board of Q. I don't think we are square on that. So let's ask a couple 8 directors. Do you see that, sir? of more questions, okay? 9 A. I do. A. All right. 10 Q. What is the underwriting committee of FSA at this time? Q. This indicates that there is no substitute for performing a 11 A. This was a committee of our board of directors that was file review, correct? 12 called underwriting committee or underwriting review committee. A. No, it isn't. This is a proposal to substitute for a 13 They refer to it here as the underwriting committee. physical review of files. That is what this is. 14 Q. Are you familiar with that the underwriting committee was Q. I understand that. In connection with that discussion, 15 at FSA in 2005? there is a sentence here that says there are currently -- 16 A. Generally. THE COURT: Where are you looking at? 17 Q. What was its purpose, sir? MS. RENDON: In the same Paragraph 3 where we just 18 A. It was to review underwriting and credit matters of the were and it indicates in the second clause of the first 19 subcommittee of the board of directors. sentence of that paragraph, there are currently no plans to 20 Q. What does that mean, underwriting and credit matters, if stop conducting full file reviews and using these file review 21 you can be more specific, please? results to estimate losses, correct? 22 A. It looked at transactions that were insured, it looked at A. That is what this says. It is inconsistent in what is 23 our portfolio and how it was performing. written here. It says there is no substitute for a physical 24 Q. What was the purpose for looking at underwriting and presence. It says there is no substitute for a file review, 25 transactions and seeing how they were performing?

have been achieved had we done a file review, and this was a paper that was designed to show that had we done a file review, we would have gotten very similar results to what we got if we

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SOUTHERN DISTRICT REPORTERS

(28) Pages 109 - 112

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
CAAJASS5 Brewer - cross Page 113 CAAJASS5 Brewer - cross

October 10, 2012
Page 115

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A. If you're on the board of a credit granting organization,
you tend to look at credit matters, and that would be a natural

thing for the board to look at. Q. I am just trying to understand with more specificity, sir,
when you say you look at credit matters, that is a very general

description. What are the kinds of things that an executive
committee such as this of a credit organization is looking at

and considering? A. They would look at our portfolio of exposures and how
they're performing. It is transaction-by-transaction analysis

of developments in our portfolio. Q. It is not just for credit, it is also about how to properly underwrite insurance, correct? A. It can be. That wasn't a big part of what they did. Q. The members of this committee were very senior members of FSA. Is that correct? A. They were members of our board of directors. Q. If it is a fair characterization -A. They didn't work at FSA. Q. I am sorry. It is your board members of FSA? A. Correct. Q. It is the board of directors of FSA that ran the company, correct? A. Yes, it was.
Brewer - cross

1 through a brief discussion of FSA's request to increase the net 2 par limit for a single HELOC transaction from one billion to 3 1.5 billion. Do you see that? 4 A. Yes. 5 Q. Do you understand the ensuing discussion in this paragraph 6 to be dealing with that proposal? 7 A. Ask the question again. Sorry. 8 Q. Do you understand the ensuing discussion that's reflected 9 in that very same paragraph to be related to that proposal? 10 A. Yes. 11 Q. In fact, the last sentence of that paragraph says the 12 committee accepted the proposal, correct? 13 A. It does. 14 Q. So the proposal appears to be to increase the net par limit 15 for a single HELOC transaction from 1 to $1.5 billion. 16 It goes down about a couple of sentences later and it 17 says the committee asked how the residential real estate 18 bubble -- and "bubble" is in quotes -- risk is addressed in 19 FSA's underwriting approach, and Messrs. Brewer and Williams 20 noted a 23 percent decline in housing values is assumed upon 21 foreclosure and a "bubble" factor is included in the expected 22 loss estimate by stressing the foreclosure frequency up to 1.3 23 times for MSA's metropolitan statistical areas for housing 24 values have increased more rapidly than the relevant states 25 GDP. Do you see that, sir?
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CAAJASS5

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Q. I'm going to, there is a reference to others present at the
top of this document and there is a reference to Russell B.

Brewer. Is that you, sir? A. Yes. Q. I won't ask you what the B stands for. A. You have already. Q. Let me go to under Roman I on the first page, underwriting committee decisions taken. There is a B. Dexia credit
committee limits and there is a parenthetical beneath that,
presenting parties, Russell Brewer, Rick Holzinger and Dave

Williams. Do you see that, sir? A. Yes. Q. It says here that Messrs Brewer, Holzinger and Williams led
the committee through a brief discussion -- well, I am sorry.

MS. RENDON: Before I ask these questions, your Honor,
at this time I would like to move this document, have it be

admitted in evidence. MR. SUBRAMANIAN: Subject to a demonstration of
relevance, we have no objection. I don't think that has been

made at this point. THE COURT: AYQ is received subject to connection. (Defendant's Exhibit AYQ received in evidence) BY MS. RENDON: Q. There is a reference in the, sir, Mr. Brewer, to
Messrs. Brewer, Holzinger and Williams led the committee

1 A. Yes. 2 Q. The reference to the committee asking how the residential 3 real estate bubble risk is addressed, what did you understand 4 the committee asking about? 5 What is the real estate bubble risk that is being 6 referred to in that paragraph? 7 A. The bubble that they're referring to is the fact housing 8 prices had risen for a number of years in the U.S. 9 Q. The fact that housing prices had been increasing for a 10 number of years in the U.S., how does that present a bubble 11 risk? 12 A. The risk is that prices will go down in the future, and we 13 attempted to model that, effects that that would have. 14 Q. It is fair to say, as a result, that in September 14th 15 2005, the board of directors of FSA understood that there was a 16 real estate bubble risk as a result of increasing housing 17 prices in the United States, correct? 18 A. There was a concern that housing prices could go down, yes. 19 MS. RENDON: I ask that AYQ be admitted into evidence 20 at this time. 21 THE COURT: It has been admitted subject to 22 connection. What you're saying, you believe you have satisfied 23 the connection? 24 MS. RENDON: I am sorry, your Honor. You are saying 25 it better than I. That is what I mean.

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SOUTHERN DISTRICT REPORTERS

(29) Pages 113 - 116

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
CAAJASS5 Brewer - cross Page 117 CAAJASS5 Brewer - cross

October 10, 2012
Page 119

1 THE COURT: Yes. Any objection? 2 MR. SUBRAMANIAN: Your Honor, I object on the grounds 3 of relevance. I don't understand how this testimony relates to 4 the claims administered in this case. Perhaps there can be 5 explanation to the relevance. 6 MS. RENDON: I am happy to explain, your Honor. 7 As you saw from my opening argument in this matter, in 8 the period of time when these two transactions closed, there 9 was, in fact, a real estate bubble, that it appears the board 10 of FSA understood existed. They were making decisions on how 11 to do loss modeling associated with their various transactions. 12 What is apparent is that one of their loss models, the 13 RMG model tested for LTV, something specifically sensitive to a 14 housing bubble risk. What I am trying to establish as one of 15 the bricks in my building I am trying to build, there was 16 recognition at FSA's highest levels there was a real estate 17 bubble risk and in the relevant period of time September 2005, 18 a mere two months before the 2005-1 transaction closed. 19 THE COURT: Assuming that you establish that, what 20 follows from that that is of relevance to this case? 21 MS. RENDON: It shows, your Honor, that there was 22 discussions being made about how to do loss modeling that 23 ignored the housing bubble risk which is in our minds the real 24 cause for the losses on these trusts. 25 THE COURT: I am going to think about this whole line,
CAAJASS5 Brewer - cross

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

A. Yes. Q. Editor is Doug Watson? A. Yes. Q. Who is Mr. Watson? A. He was, I believe he was the chief underwriting officer at this time. MS. RENDON: I will ask that AYR be admitted into evidence at this time. MR. SUBRAMANIAN: Your Honor, no objection. THE COURT: Received. (Defendant's Exhibit AYR received in evidence) MS. RENDON: Thank you. BY MS. RENDON: Q. Let me ask you to turn, sir -- well, actually, let me just
get a little more background before we start asking specific

questions.
You agreed with me that this is a chapter from the
residential mortgage loan underwriting guidelines of FSA. To

be clear, what does that mean? A. It is a chapter of the firm's underwriting guidelines. Q. Right, FSA's? A. It covers residential mortgage loans. Q. I am sorry. You are being more articulate than I am. I appreciate it.
When we say this is a chapter from FSA's underwriting
Brewer - cross Page 120

Page 118 CAAJASS5

1 but I will for now continue to receive the exhibit. 2 MS. RENDON: Thank you, your Honor. 3 THE COURT: If that line of argument is relevant, then 4 you have satisfied the relevance condition, but I'm not certain 5 that that line is relevant, but you may continue. 6 MS. RENDON: Thank you, your Honor. I appreciate it. 7 I am going to move now to the next exhibit that we have in our 8 binder which is AYR. 9 BY MS. RENDON: 10 Q. May I ask you to turn to that, Mr. Brewer. 11 A. Ah-huh. 12 Q. We have in front of us Defendant's Exhibit AYR. Do you 13 understand this to be, sir, a chapter from the residential 14 mortgage loan underwriting guidelines of FSA in or around the 15 period November 10th, 2005? 16 A. Yes. 17 Q. Is it fair to say that as the head of the risk management 18 committee at this point in time, you would have been familiar 19 with these underwriting guidelines? 20 A. Yes. 21 Q. You would have reviewed this document? 22 A. Yes. 23 Q. It says here the editor of the -- I am sorry -- it says 24 last approved November 10th, 2005. Do you see that down at the 25 bottom, sir?

1 guidelines related to residential mortgage loans, would that 2 include HELOC, sir? 3 A. Yes. 4 Q. So, in other words, this is the chapter of FSA's 5 underwriting guidelines that was dealing with underwriting, 6 insurance underwriting for HELOCs in or around November 2005? 7 A. Generally, yes. 8 Q. This is the period of time that the Flagstar due diligence 9 was being performed, correct? 10 A. Yes. 11 Q. It was also a month before the 2005-1 transaction closed, 12 correct? 13 A. Yes. 14 Q. Let's look now and turn to page AGM OO 316295. Do you see 15 that, sir? It is the first page of the full text. 16 A. Yes. 17 Q. I am looking now up at the section called "overview." Are 18 you there, sir? 19 A. Ah-huh. 20 Q. It talks about there is various languages and then there is 21 the last sentence in that paragraph. It says, "In addition to 22 the minimum investment grade requirement, FSA has developed 23 criteria to help ensure strong portfolio performance. The 24 criteria relate to 7 major areas. The first three include 25 collateral tape review, on-site operations diligence, file

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(30) Pages 117 - 120

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
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diligence and appraisal review." Do you see that, sir? A. Yes. Q. You agree with me that the criteria that is being discussed

1 2 3 4 here, including the three items that I just read to you were 5 criteria that FSA considered in the underwriting of any 6 transaction to help ensure strong portfolio performance, 7 correct? 8 A. Well, the on-site diligence was not done in all cases. 9 These were guidelines, and transaction, one 10 transaction to the next would have incorporated different 11 elements of this, but these were generally things we were 12 trying to focus on. 13 Q. These were things you were generally trying to focus on 14 because it was FSA's belief, by focusing on these kinds of 15 things, it would help improve portfolio performance, correct? 16 A. Yes, this is prudent underwriting and these were a number 17 of things we looked at, yes. 18 Q. Looking at collateral tape review, on-site operations 19 diligence, and file diligence and appraisal review, were the 20 kinds of things that you did to help minimize your perceived 21 risk of default in the collateral, correct? 22 A. We were trying to minimize default on the securities and, 23 yes, these were things we considered in underwriting 24 securities. 25
Brewer - cross

A. An electronic file of all of the underlying loans that are
used in a securitization, loan securitization and various

statistics with respect to each loan. Q. And that is something that the originator of the loans, for instance, in our transaction, Flagstar, provides to the insurer, here FSA, correct? A. Yes. Q. What the collateral tape review is talking about or at least what you described to be this first bullet point is
efforts that FSA made as part of its due diligence to ensure the integrity of the information appearing on that loan data

tape, correct? A. There was checking to ensure the integrity of the tape, yes. Q. Do you understand that that checking occurred to the two Flagstar transactions? A. There is a review that I reviewed, a summary of it that we
spoke about this morning that was the result of that review.

Q. It indicated that, in fact, that review had occurred, correct? A. It had been done by Clayton or Bohan, depending on the transaction and, yes, had been completed. Q. As a member of the MRC or risk committee, you understand at
least what was reported to you was that the collateral tape review resulted in there being a determination that, in fact,
Brewer - cross Page 124

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Page 122 CAAJASS5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Q. I understand that, but I want to be more specific in that, sir, okay?

1 the tapes did have integrity in terms of the information 2 appearing on it, correct? What I am saying is that is it a fair statement that 3 A. Well, we found -- I find no evidence to the contrary that the reason why the criteria included performing a collateral 4 there was a loan file for every record that was chosen in the tape review, on-site operations diligence, file diligence and 5 sample and that the key elements were matched, the file and the appraisal reviews were because those were mechanisms that 6 tape matched. helped, in FSA's mind, to understand the perceived risk of 7 Q. So to take that out of the double negative, it was your potential default of, let's say, HELOCs in a transaction, 8 understanding, based upon the file review performed in the two correct? 9 Flagstar transactions that, in fact, the file review affirmed A. Those are techniques that were used to help us try to get 10 the information appearing on the loan data tape, correct? our hands around what losses would be in a pool. 11 A. Yes, I found no information to the contrary in what I read. Q. That was so that you could determine whether or not and 12 Q. Let's talk about the second bullet point here, on-site come to decisions about potential defaults in the portfolio, 13 operations diligence. What do you understand on-site correct? 14 operations diligence to be referring to? A. Yes. 15 A. Meetings with the issuer or in this case Flagstar. Q. The collateral tape review, the item that is described in 16 Q. Do you understand in the two Flagstar transactions there the first bullet point, what does that refer to, sir? 17 were, in fact, meetings with management? A. I think what it refers to is trying to verify that the 18 MR. SUBRAMANIAN: Objection, your Honor; lack of collateral tape is accurate and to review its contents. 19 personal knowledge. Q. And the collateral tape is something that you briefly 20 THE COURT: Sustained. alluded to earlier under the judge's questions, correct? 21 BY MS. RENDON: A. Yes. 22 Q. I'll ask it this way, sir: As a member of the risk Q. Let's just be a little bit more specific about what a 23 committee of FSA in approving the transactions, did you collateral data tape is, okay? What do you understand a 24 understand that one thing that had occurred was, in fact, collateral data tape to be? 25 on-site operations diligence?

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SOUTHERN DISTRICT REPORTERS

(31) Pages 121 - 124

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
CAAJASS5 Brewer - cross Page 125 CAAJASS5 Brewer - cross

October 10, 2012
Page 127

1 MR. SUBRAMANIAN: Objection, the same objection as 2 before. 3 THE COURT: Hang on a moment. 4 (Pause) 5 THE COURT: Well, the previous objection which was 6 lack of personal knowledge doesn't apply to this question which 7 calls for his understanding. The question is what is the 8 relevance of his understanding. 9 MS. RENDON: Your Honor, I'll strike the question and 10 ask a different question. I think this can just be easier than 11 it is. 12 BY MS. RENDON: 13 Q. As a member of the MRC, when you read the memo, did you see 14 a reference in the 2005-1 Flagstar executive summary to the 15 fact that an on-site operations diligence had occurred? 16 A. I don't recall. 17 Q. The on-site operations diligence that you see in the second 18 bullet point, outside of giving me the general statement that 19 it involves meetings with management, describe for me, please, 20 better and more specifically, sir, what you understand is 21 supposed to occur at least as envisioned in the bullet point 22 referenced in this document? 23 A. This is a general reference to reviews of two types. We 24 would typically meet with senior management responsible for the 25 origination of loans and then also servicing of loans. It
CAAJASS5 Brewer - cross

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A. Well, to get a sense of the control, the controls that they
had in place, the care that they took in underwriting loans, that kind of thing. We try to get an assessment of where in

the spectrum of our clients they stood. Q. The idea is that if they have good controls in their
underwriting process, there is a lower chance of default on the

loans? A. Not at all. It goes to how confident we are in the
prediction we're able to make about any given level of default. You can have perfectly good controls and have a 40 percent

default rate, okay?
But you can also have terrible controls and conclude you have a 2 percent default rate. Really they're unrelated.

The level of default and level of control are not related.

Q. When you said you wanted to understand the risk of the
insured including the controls that they employed in the underwriting process, if what you said is just true, why is it

a matter of risk? A. Because we're attempting to get a sense of how much
confidence we have in the quality of their management, of their

servicing and of their underwriting. Q. Why? What does that tell you? Let's say you determine
that they have high quality originations, a high quality
origination department, what does that tell you as a matter of

risk?
Brewer - cross Page 128

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1 would be a common set of meetings. 2 Q. Let me ask you to turn the page to the next page of this 3 document, if you would be so kind, Mr. Brewer. 4 Now we are looking at AGM OO 36296. Are you there? 5 A. Yes. 6 Q. At the top there is a Roman Numeral III, on-site operations 7 review of the seller-servicer. Do you see that, sir? 8 A. Yes. 9 Q. There is a discussion starting with the last sentence in 10 the paragraph there, the review includes the following: 11 Interview key personnel, review underwriting 12 guidelines and procedures, evaluate management strategy, 13 direction and vulnerabilities, review servicing operations, 14 review quality control procedures. Do you see that? 15 A. Yes. 16 Q. The bullet point -- well, overall what do you understand 17 the purpose of making these efforts? What was it designed to 18 do from FSA's perspective? 19 A. Understanding our clients. 20 Q. Why do you want to do that, Mr. Brewer? 21 A. To get a sense of their quality, of their management, of 22 their prospects, the risks involved in dealing with them. 23 Q. When you say to get, to get an understanding of the risks 24 involved in dealing with them, please be more specific what you 25 mean by that.

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A. High control of controls, which I think is the language of
the questioning you have here, that would tell you that you
ought to expect that -- you would be more confident that losses aren't going to be wildly different from what you're expecting.

That is all. Q. Okay. It says here review underwriting guidelines and
procedures as part of the on-site operations review of the

seller-servicer. What is it that FSA is trying to understand and
determine by reviewing the underwriting guidelines and

procedures of the insured, here Flagstar? A. We're trying to understand what the underwriting guidelines are and how they go about originating loans. Q. Why? A. Because if we don't know what the underwriting guidelines
are, we have no way of what losses are going to be. We would have been unable to anticipate losses, to predict them. If we don't know how those underwriting guidelines are managed at least from what senior management tells us, it would be cause

for concern. Q. Let's go back to the page before this one that we were just looking at in the overview section.
The third bullet point, file diligence and appraisal review, describe for me, please, sir, if you will, what the

file diligence is referring to in that bullet point.
(32) Pages 125 - 128

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SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
CAAJASS5 Brewer - cross Page 129 CAAJASS5 Brewer - cross

October 10, 2012
Page 131

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A. That refers to a process similar to what was undertaken in

1 potentially be perpetrated upon FSA, correct? 2 A. That would be serious. 3 Q. What else is it that you're trying to determine, the tape and reach various other conclusions about what type of 4 understanding that might be one purpose of the file diligence. loan it was, that kind of thing. 5 Let's talk about the other things, the other risks that FSA is Q. Well, it is your understanding, correct, sir, that the file 6 trying to protect against by having file diligence. diligence included more than just comparing information to the 7 What else is FSA doing when they perform a file data tape, correct? 8 diligence and they ask a third party firm to re-underwrite the A. Yes, there was scoring as we talked about in that FICO/DTI 9 loans to the originators underwriting guidelines? model before. Sometimes there were scores given for credit, 10 A. To be clear, we didn't do the file diligence. A third ability to pay and collateral and all of that which you'll see 11 party firm gave us a result of a sampling of the loans that later on, yes, and adherence to one of the guidelines. 12 they made and gave us the results of their work. Q. Sir, to be specific, what is being discussed here is file 13 We are looking for that the loans are there, the loans diligence that included, among other things, re-underwriting 14 exist, which is what I said before, that there was -- they files to the originators, here Flagstar's underwriting 15 provided us with some rough scoring of the borrower quality, guidelines, correct? 16 both with respect to collateral and borrower and debt to A. No, I don't think that is what they did at all, but there 17 income, I think, and they drew an assessment about whether, in was an attempt to determine, in the view of the third party 18 the view of that diligence firm, the loans met the underwriting reviewing the file, whether it met the seller's underwriting 19 guidelines. memos. 20 Q. They were attempting to understand and report back to FSA Q. The appraisal review that's referred to there, what do you 21 whether they determined whether there were any material defects understand the appraisal review is referring to? 22 in the loans, correct? A. I'm not sure really. I think it was a reasonableness check 23 A. I think "defects" is -- we were asking them -- they on the appraisal, but actually I don't, I don't know. 24 provided some fairly specific answers to some fairly specific Q. The file diligence that we were just talking about, why is 25 questions. I think "defects" is a very broad term.

the case of Flagstar, where a diligence firm would look at actual loan files and compare those, the data in those files to

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1 it recommended to be performed in your underwriting guidelines? 2 Why is FSA doing it? 3 A. Well, the first thing we're worried about is are there 4 loans backing up what is on the tape. 5 When you enter into a securitization, you are 6 financially driven by what is on that computer tape. The 7 coupons and the loans, the par amounts outstanding, the 8 geographic distribution, whatever it is you're looking for, 9 that drives the economics of the securitization. 10 So trying to be sure that the information there 11 matches the underlying loans is critical to that process. You 12 want to be as sure as you can that those loans exist, that the 13 borrowers are there. That is -- I forget what your question 14 was exactly, but that is the biggest piece. 15 Q. Okay. Let me just make sure I understand what you mean by 16 that. When you say the biggest piece is to make sure that the 17 loans are there, that the borrowers exist, please be clear. 18 What is the possibility that you're protecting against 19 when you say to make sure that the borrowers are there and 20 assuming the loans exist? 21 A. There are no loan files, that would be the worst thing that 22 could happen, to do a hundred million dollar securitization and 23 you find out there are no borrowers, there are no loans and 24 they never existed. 25 Q. That would be a very significant type of fraud that could

1 Q. Okay. What would be a better term? 2 THE COURT: I am sorry. We need to conclude for 3 today. So we will pick up tomorrow. Let me tell you the 4 schedule tomorrow so we can avoid some of the delays that we 5 had today. 6 I have a matter at 9:00 o'clock. I think it will be 7 over by 9:30, but in excess of caution so that you don't have 8 to sit around as you did today, why don't you plan to start at 9 9:45. 10 We will go from 9:45 to 11:00. I have a short matter 11 at 11:00. I am quite confident that will last 15 minutes. 12 Then we'll pick up at 11:15 and we'll go to 1:00. 13 I have one telephone conference at 2:00, so lunch will 14 be from 1:00 to 2:15. Then we can go without a break to 4:15, 15 and that's when I have some other matters at the end of the 16 day. So I think we'll be able to accomplish more tomorrow than 17 we were able today. 18 Is there anything that counsel needs to raise with the 19 court? 20 MR. AARON: Just for scheduling purposes, is it your 21 intention -- counsel have put together video clips of 22 deposition testimony -- is it your intention, your Honor, to 23 watch the tapes or accept the designations in some other 24 manner? 25 THE COURT: How long are they?

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SOUTHERN DISTRICT REPORTERS

(33) Pages 129 - 132

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
CAAJASS5 Brewer - cross Page 133 CAAJASS5 Brewer - cross

October 10, 2012
Page 135

1 MR. BUCHDAHL: Our first designation of Matt Roslin is 2 a little under 10 minutes. 3 THE COURT: I can watch that. 4 MS. RENDON: We have more of the FSA employee who is 5 still currently employed at FSA who oversaw the due diligence 6 process. We were planning on putting him on through videotape. 7 We can go back and cut some of that based on some of the 8 testimony we were able to elicit from Mr. Brewer, but it is my 9 estimate that may play for as much as two or two and a half 10 hours. 11 MR. BUCHDAHL: Just to be clear, and I don't know if 12 they knew this, but he has left the company since the time of 13 his deposition. He no longer works -- I don't know if that 14 changes anything, but I want to be clear for the record. 15 MS. RENDON: This is the first I am being told of 16 that. 17 THE COURT: I don't think that changes anything. 18 MS. RENDON: It is very key testimony. 19 THE COURT: Let's see when we get to that. I prefer 20 to watch it here in court only because then I see it in the 21 order in which it affects -- one party or the other wants to 22 present their proof. It depends in part how we're doing in the 23 time-frame of the trial. We'll reserve on the second one till 24 we get to the defense case. 25 MR. BUCHDAHL: I have a two minute legal application I
CAAJASS5 Brewer - cross

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

MS. RENDON: Your Honor, the FSA and counsel has
introduced as evidence of losses here claims that they have paid. In fact, we heard this morning introduction of servicer

reports that shows that claims were paid, and there is an
effort by FSA to demonstrate some type of analogy between

claims paid to their damages and losses in this case. I think it is very fair for the defense to be able to
demonstrate that to the extent there were claims paid, it has absolutely nothing to do with the purported material breaches of loans. It has everything to do with faulty risk modeling, under-assessing post-transaction events, all of which relate to

items that FSA as an insurer assumed the risk on.
So while there is an attempt to demonstrate that the claims are a result of these origination breaches or at least that's the way you make the mental leap from what they're
claiming is the breach to what they're claiming is damages, it is eminently fair for defense counsel to demonstrate, in fact, the reason for those claims being paid has nothing to do with origination errors which is appropriate and probative whether

or not there is material breaches, but rather is a result of
faulty risk modeling that failed to consider post-transaction events, such as a drop in the housing market that caused there

to be losses to FSA. THE COURT: No, no, no. The drop in the housing market is a separate issue, I think, but if an insurance
Brewer - cross Page 136

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1 can do in the morning. 2 THE COURT: We'll do it now, but let's ask, I know our 3 witness would prefer to stay and watch the legal application, 4 but we'll let him go. Please be back at 9:45 morning. 5 THE WITNESS: Yes. 6 (Witness excused) 7 THE COURT: All right. You have a legal application? 8 MR. BUCHDAHL: Your Honor, I want to follow up on the 9 relevance objection that was made by my partner during the 10 course of this cross. We have heard a lot about loss modeling. 11 I certainly understand why it is a part of counsel's opening. 12 What I don't see is any analytical connection between 13 the loss modeling that was done by Assured and what your Honor 14 identified this afternoon as the critical issue in this case, 15 which is were there misrepresentations or breaches of 16 warranties here. 17 Because I don't think that anything that could be 18 proven about what loss modeling was done by either side that 19 would bear on the question of whether there were breaches of 20 reps and warranties, I would just move to preclude any further 21 testimony on that. It will streamline these proceedings and I 22 don't think it is at all relevant for the reasons that were 23 giving your Honor a little bit of pause earlier today. 24 THE COURT: So I am troubled by this. What is the 25 relevance?

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company estimates that, in my hypothetical, that it will have on average a $2 million payout for matters that it is liable to

under the contract on a billion dollars of insurance or
something like that, and it then pays out the $2 million when the claim is made, and then it discovers that the claim was

fraudulent in my hypothetical, the fact that it estimated it
would be paying $2 million would be neither here nor there. It

still would be entitled to recover for a claim that was fraudulent. So here if the insured breached certain
representations and warranties; and, therefore, had riskier loans involved in what was being insured, then what was
represented to be insured, the fact that the insurance company had estimated on what it believed would be the risk was a loss

of X, Y or Z or the possibility of a loss of X percent or Y percent seems to be neither here nor there. It seems to me it

is irrelevant. Now, it is relevant, of course, if the increased
riskiness of what was insured was a function not of any
misrepresentation, but of some third force such as the decline, general decline in the marketplace or something else, that is a

different issue. I don't see what -- I am still missing what the relevance is of whether, of how they calculated their risk

and whether they did it right or wrong or whatever. MS. RENDON: Your Honor, I think picking up on what
(34) Pages 133 - 136

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SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
CAAJASS5 Brewer - cross Page 137 CAAJASS5 Brewer - cross

October 10, 2012
Page 139

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1 2 3 4 of the closing. It is indicative of the issues associated with 5 what those risks were. 6 In fact, what we're going to see -- and I'll make this 7 as an offer of proof -- is that there was a recognition that 8 LTV loan-to-value ratio, a known issue in these transactions 9 was, in fact, a significant risk aspect of HELOCs, and that is 10 because there were second-lien positions that by definition 11 have high LTV -12 THE COURT: What is relevant on a breach of warranty 13 and representation case from a defense standpoint is not what 14 was considered material, but what wasn't considered material. 15 If there was some aspect of how they calculated their 16 risk that would show, notwithstanding his testimony that, in 17 fact, they could care less whether loan guidelines were adhered 18 to or something like that, that would be relevant, but the fact 19 that they did consider something as material doesn't exclude 20 the fact that they considered something else as material. 21 MS. RENDON: I think what I am trying to say, your 22 Honor, is that it demonstrates, in fact, that LTV is a risk 23 factor, yet it was discounted by them. That's the third force 24 that your Honor was referring to, that that's that third risk 25
Brewer - cross

you're saying what is relevant, it is apparent I think already from testimony we have heard and certainly testimony that we will hear, including from Mr. Brewer, that the risk modeling process is demonstrative of what was material risk at the time

THE COURT: I don't see what -MS. RENDON: Maybe I can just finish? THE COURT: Please, go ahead. MS. RENDON: Two sentences. THE COURT: Absolutely. Even add three or four if you like. MS. RENDON: Thank you. I appreciate your generosity, your Honor. THE COURT: Any time. MS. RENDON: After the close of the transaction, so
you have prior to the transaction LTV being the risk factor, you have FSA not modeling for that properly, and then right after, immediately after the closing of the 2006-2 transaction, in 2007 and 2008 you have a historic slump in the housing

market itself which plays right into the failure to have properly risk-modeled for it. It caused there to be these types of strategic defaults that Ms. Walzak, their liability

expert, identifies as -THE COURT: I do have to interrupt because I think we are talking at cross-purposes here. MS. RENDON: Sorry for that, your Honor, about the case. THE COURT: If they were stupid enough to have a
flawed model of calculating their risk, too bad for them. But

I don't see what that is -- that doesn't in any way prevent
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1 them from recovering for material breaches of 2 misrepresentations or warranties. 3 If you were able to -- what was giving me pause and that, that would be true regardless of how they went about 4 the only reason I didn't sustain the earlier objections, was I calculating their risk. 5 thought you were trying to demonstrate through some of these MS. RENDON: I don't think that's true, though, your 6 documents and so forth that while they didn't take account of Honor, because the way they went about calculating their risk 7 it, they implicitly recognize that there was what I have been was by intentionally handicapping the material risk which was 8 calling a third force that was a source of risk. That maybe is high LTV. 9 relevant as part of showing that, in fact, this is a legitimate THE COURT: So what? If they made a hundred errors in 10 and expected cause of loss separate and apart from the breach their risk calculation, so what? 11 of warranties and representations. If the real cause of the losses they incurred was some 12 That is the very most, and even that I think is third force, not the misrepresentations allegedly they made or 13 tangential. You're going much beyond that. You're going into the breach of warranties allegedly they made, sure, that is 14 how they, in fact, went about calculating a risk, why it was a relevant. 15 wrong way of calculating risk from your standpoint. This I do MS. RENDON: That is it, your Honor, that is the 16 not see as being relevant at all. point. 17 MS. RENDON: Your Honor, when you say what is the THE COURT: What does it have to do with how they 18 third force that caused there to have to be claims paid calculated their risk? 19 separate and distinct from what is alleged the material breach, MS. RENDON: That is exactly what the increase of loss 20 the issue is that by doing loss modeling, the way the loss being the third element is the combination of the fact that 21 modeling works, you project a prospected loss figure. That is these are HELOCs, they're second-lien, they're particularly 22 driven from the models. You then structure a transaction, a sensitive to LTV. FSA intentionally underrated or whether it 23 securitization transaction based on that expected loss figure. was intentional or not, they underrated that risk in their loss 24 If you miscalculated in what your expected loss is, modeling. 25 and here the RMG loss model ended up being handicapped by over

factor coming into play and creating material risk in the loan

profile. THE COURT: But that would be, assuming you can prove

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SOUTHERN DISTRICT REPORTERS

(35) Pages 137 - 140

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
CAAJASS5 Brewer - cross Page 141 CAAJASS5 Brewer - cross

October 10, 2012
Page 143

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

50 percent its output, it causes the entire securitization
structure to be created and structured improperly. That's what causes there to be claims paid because once the securitization

structure itself is not permitting there to be sufficient cash flows through the securitization, that is, in fact, when the insurer has to kick in payments through the securitization

stream. Part of the third force that is causing there to be
claims paid by FSA is a result of the slumping economy that is resulting in there being these issues on the loans and because

they modeled incorrectly and structured the transactions
improperly, there is not sufficient credit enhancement in the structures to make it such that FSA doesn't have to pay a

claim. So it is all part of that third force that culminates
together to cause them to have to pay claims. That has nothing to do, these are all risks that are subsumed and undertaken and

are the responsibility and the risk allocation between the

parties. These are the risks that belong in the insurer corner. THE COURT: All right. You're saying that because of
the way that, in your view, they miscalculated their risks,
they didn't provide the cushion that they otherwise would have provided, so they suffered losses that they otherwise wouldn't

have suffered if they had calculated their risk properly.
Brewer - cross

1 been revealed to be a full-blown attempt to relitigate the 2 summary judgment decision because your Honor was very clear 3 that Assured doesn't have an obligation here to prove what 4 caused the claim to be paid. We don't have an obligation to 5 prove what caused any claims we made on these policies. 6 What we have to demonstrate is the breach of reps and 7 warranties, in your words, materially increase the risk of 8 loss, right? 9 If you think about what they're saying now, the old 10 argument is now becoming the new argument. They're saying you 11 paid claims because you modeled loss improperly. This is no 12 longer what this trial is about, your Honor. We are trying to 13 enforce a narrow contractual remedy of repurchase. In order to 14 do so, we have to prove by your Honor's ruling that the 15 breaches of the reps and warranties, which we will show 16 materially increased the risk of loss, not what caused the 17 claim. 18 The leap from this breach of the repurchase remedy to 19 our damages is because our expert will demonstrate that had 20 they repurchased the loans properly, we never would have paid 21 any claims at all regardless of what errors we made in modeling 22 the transaction. There would have been plenty of cash in there 23 had they simply repurchased the loans. 24 What counsel is trying to talk around is the 25 repurchase remedy because the repurchase remedy is driven, as
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But where in the contracts do you get any requirement

that they have to calculate their risk properly? MS. RENDON: It is not under the contracts that they
have to calculate the risk properly. What I would say, though,

is under the contracts, this being the cause of loss is not a rep or warrant for which Flagstar is responsible. It is the agent of loss that they are trying to get recovery on that has

absolutely nothing to do.
You can walk through that list of whatever is 62 reps
and warrants, you will not be able to construct any reading of

that construct, of that contract that would make it the obligation of Flagstar to make up for the failures in the
structuring of the transaction that the insured did by its own

decisions that it made in its loss modeling process.
And so what I am demonstrating is that you cannot try

to fit the contracts around the scenario that are actually
driving the exact claims that are now trying to be repackaged

into reps and warrant breaches. You just can't do it. It is not Flagstar's responsibility. These are post-transaction

events to which no rep or warrant speaks. THE COURT: What I hear you saying is what is commonly
referred to as loss causation, but let me hear from plaintiff's

counsel. MR. BUCHDAHL: Your Honor, as I feared -- I shouldn't
have said that. What started as an objection to relevance has

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your Honor has already ruled, by a finding: A, that there was a breach of representation or warranty; and
B, that that breach materially increased the risk of

loss.
The more counsel speaks, the more clear it is that all this discussion of loss modeling has nothing to do with the
repurchase remedy and has everything to do with attempting to

relitigate that decision on loss causation that is already in

our favor. MS. RENDON: Your Honor? THE COURT: Yes, go ahead. MS. RENDON: If may address that? THE COURT: Then this will be offered because I have other matters. MS. RENDON: You did indicate you needed to break.
My understanding of the summary judgment decision that your Honor rendered was that it was not necessary for FSA to demonstrate that the breach led to the exact cause for default.

So if the allegation was that there was some type of fraud by the borrower, we didn't have to show is that exact fraud by the borrower that would cause that loan to default. I

don't think that it all speaks to a third agent, totally unrelated to the loans being the reason and being the
explanation for the losses that are trying to be alleged are

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SOUTHERN DISTRICT REPORTERS

(36) Pages 141 - 144

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al.,
CAAJASS5 Brewer - cross Page 145

October 10, 2012

1 running from the loan pool. It is not the loan pool. It has 2 everything to do with the economy, the slumping housing market 3 and the effects that that had and the failures in the loss 4 modeling. 5 That is different than the issue I understood the 6 court was addressing as far as causation of the loan. We were 7 arguing as soon as the loan performs more than twelve months, 8 they couldn't demonstrate the breach resulted in the default of 9 that particular loan. This discussion about what is driving 10 the overarching losses in the pools themselves is a separate 11 discussion that I didn't understand your Honor to rule on or 12 preclude for the purposes of trial here today. 13 THE COURT: I will reflect on all of this overnight 14 and give you a ruling in the morning so that we can have 15 guidance throughout the rest of the trial. So now I ask you to 16 vacate the tables so we can go forward. 17 (Court adjourned until Thursday, October 11, 2012, at 18 9:45 o'clock am) 19 20 21 22 23 24 25
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INDEX OF EXAMINATION Examination of: RUSSELL BREWER Direct By Mr. Subramanian Cross By Ms. Rendon . . . . . . . . . . .38 Page

. . . . . . . . . . . . . .92 PLAINTIFF EXHIBITS

Exhibit No.

Received

458 and 459 451 198 90 465 464 99 100 76

. . . . . . . . . . . . . . . . .43

. . . . . . . . . . . . . . . . . . . . .48 . . . . . . . . . . . . . . . . . . . . .52 . . . . . . . . . . . . . . . . . . . . .60 . . . . . . . . . . . . . . . . . . . . .67 . . . . . . . . . . . . . . . . . . . . .67 . . . . . . . . . . . . . . . . . . . . .75 . . . . . . . . . . . . . . . . . . . . .78 . . . . . . . . . . . . . . . . . . . . .86 DEFENDANT EXHIBITS

Exhibit No.

Received

AYP AYQ AYR

. . . . . . . . . . . . . . . . . . . . 100 . . . . . . . . . . . . . . . . . . . . 114 . . . . . . . . . . . . . . . . . . . . 119

Min-U-Script®

SOUTHERN DISTRICT REPORTERS

(37) Pages 145 - 146

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., 18:19;132:23 acceptable (2) 29:2,7 acceptance (1) $1.5 (1) 84:4 115:15 accepted (2) $14 (1) 33:15;115:12 28:4 accepting (1) $14.7 (1) 34:16 42:22 accompanied (1) $2 (3) 91:12 136:2,4,7 accomplish (1) $30,000 (1) 132:16 17:5 accordance (1) $450 (1) 50:11 28:2 according (1) $500 (1) 30:24 46:23 account (2) $75 (1) 34:12;140:6 28:6 accountability (1) $80 (1) 11:14 34:22 accountable (1) $92,000 (1) 20:23 58:6 accounting (1) $93,000 (2) 42:13 58:8,9 accrued (1) 69:12 A accumulating (1) 103:17 AA (2) accurate (4) 102:7,20 19:23;82:24;85:20; AA' (1) 122:19 101:24 achieved (1) AAA (8) 110:1 12:22;39:16;40:8; acknowledges (2) 102:7,20;109:13; 37:1,8 110:6;111:6 acquired (2) AAA' (1) 46:6,14 101:24 acquisition (1) AARON (1) 46:16 132:20 acting (1) ability (15) 93:25 7:19,19,19;8:19; actual (10) 10:6,9;26:23;27:10; 23:13;35:11,13;38:1; 30:3,4,5,13;36:17; 54:23;72:22;73:7;85:6; 80:18;129:11 91:24;129:3 able (15) actually (22) 6:15;8:24;9:19,22; 17:18;19:21,23; 22:17;38:3;55:10; 23:20;24:6;25:7,18; 90:10;127:9;132:16, 29:17;30:12;31:6,20, 17;133:8;135:7;140:3; 22;33:9;35:6;73:21; 142:10 81:23;85:6;101:11; above (2) 103:10;119:14;129:24; 82:15;107:15 142:16 ABS (1) add (2) 48:4 28:7;139:5 absolute (1) adding (1) 10:19 7:8 Absolutely (6) addition (2) 20:16;24:10;64:4; 14:21;120:21 135:9;139:5;142:8 additional (4) abstract (1) 4:18,21;7:18;30:13 54:25 address (4) accept (2)

October 10, 2012 2:21;6:3;58:1; 144:13 addressed (3) 76:22;115:18;116:3 addressing (1) 145:6 adhered (2) 50:25;137:18 adherence (1) 129:12 adjourn (1) 91:24 adjourned (1) 145:17 administered (1) 117:4 admission (1) 87:5 admit (1) 100:19 admitted (4) 114:17;116:19,21; 119:7 advantage (1) 20:18 adversary (5) 8:10;70:7;95:9,11,15 affect (1) 59:4 affected (1) 36:23 affects (1) 133:21 affirmed (1) 124:9 afoul (1) 74:12 afternoon (4) 10:18;90:1;92:20; 134:14 again (16) 20:7;23:10;36:1; 51:4;54:16;55:13; 59:12,22;62:13;66:2, 19;80:3;87:18;92:23; 110:5;115:7 against (7) 15:8;16:12;33:7; 40:25;61:22;130:18; 131:6 agent (2) 142:7;144:23 AGM (3) 76:2;120:14;126:4 AGN00277942 (1) 101:19 AGN00277943 (1) 105:19 ago (1) 57:12 agree (5) 7:5;9:17;59:18;92:8; 121:4 agreed (6) 4:7;25:14;33:15; 96:8,10;119:17 agreement (33) 47:24;48:2,10,11,12; 51:11,12,15,17,23,25; 52:5,13;53:2,10;56:20, 21;57:5,7,8,9,10;58:18; 60:14,15;61:2,22;62:8, 20,21;63:11;64:6,16 agreements (1) 56:24 ahead (15) 3:13;41:25;42:7; 43:14;56:18;59:21; 81:21;86:4;87:12; 88:10;91:6,8;105:14; 139:3;144:12 Ah-huh (4) 82:2;112:4;118:11; 120:19 air (1) 24:23 akin (1) 108:17 allegation (1) 144:20 allegations (7) 5:9,13;8:8,24;29:8; 90:23,24 alleged (5) 5:17;77:3,9;140:19; 144:25 allegedly (2) 138:13,14 allocation (1) 141:18 allow (5) 5:19;55:9;59:20; 60:17;88:9 alluded (2) 23:9;122:21 almost (4) 11:4;23:17;37:18,20 along (2) 31:15;87:9 although (4) 17:25;45:19;58:10; 85:19 always (3) 75:3;80:12;82:23 amended (1) 108:13 AMG (1) 82:5 among (1) 129:14 amount (10) 4:7;14:21;16:21; 20:14;34:21,22;41:10; 60:11;68:22;92:3 amounts (5) 5:16;42:21;43:17; 56:10;130:7 analogous (1) 82:19 analogy (3) 24:9,10;135:5 analyses (2) 4:13;10:14 analysis (15) 3:16,19,20;4:3;5:2; 6:23,25;7:18;10:8; 28:8;35:3;74:5;101:23; 102:19;113:11 analytic (1) 37:22 analytical (1) 134:12 analytics (2) 27:24;28:7 analyzed (3) 72:4;73:3;110:4 Andre (2) 100:2,8 annoyance (1) 4:17 anticipate (2) 33:19;128:17 apart (2) 38:1;140:10 A-plus (2) 26:23,23 apologies (1) 82:4 apologize (8) 2:8,11;46:1;54:6; 69:22;74:22;90:4;93:1 apparent (5) 2:23;5:3;60:8; 117:12;137:1 apparently (2) 8:11;72:10 appear (1) 102:21 appearing (3) 123:11;124:2,10 appears (4) 3:3;8:8;115:14; 117:9 Appendix (1) 62:23 appetite (1) 27:18 application (16) 49:7;56:3;57:12,19, 23,25;59:3;60:5,8; 67:23;70:5;90:9; 107:15;133:25;134:3,7 applied (4) 50:17;104:16,18; 111:6 apply (2) 33:20;125:6 applying (1) 103:11 (1) $1.5 - applying

$

Min-U-Script®

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., appraisal (7) 121:1,20;122:6; 128:23;129:21,22,24 appraisals (1) 16:25 appraiser (1) 49:5 appreciate (7) 10:4;23:10;38:4; 95:20;118:6;119:24; 139:7 approach (18) 6:5,7;28:21;32:3; 34:2,20;35:5,15,22; 72:6;84:20,20;99:16; 104:4;109:25;110:5; 111:1;115:19 approaches (3) 4:14;84:12;90:8 appropriate (6) 35:8;67:22;68:23; 90:25;92:3;135:19 appropriateness (1) 35:21 approval (1) 50:24 approved (7) 14:25;44:24;47:18; 71:13;72:16;75:15; 118:24 approving (2) 74:21;124:23 approximate (1) 109:25 approximately (2) 90:14;99:7 area (3) 16:5;81:14;97:6 areas (3) 47:15;115:23;120:24 arguably (1) 95:14 arguing (1) 145:7 argument (6) 19:11;20:3;117:7; 118:3;143:10,10 arguments (1) 19:8 arise (1) 41:19 arithmetic (1) 56:6 Arizona (1) 36:25 around (10) 92:12;93:17,20; 105:4;118:14;120:6; 122:11;132:8;142:16; 143:24 arrangement (1) 53:2 arrive (1) Min-U-Script® 23:7 articulate (2) 36:25;119:23 aside (2) 91:1;96:2 aspect (2) 137:10,16 asserted (1) 71:23 assertion (1) 8:12 assessment (2) 127:3;131:17 asset-backed (6) 39:8,10;46:24;94:1, 2;96:12 assets (3) 13:11;39:12;52:1 assigned (1) 40:8 assigning (1) 79:2 assistance (1) 95:22 associated (8) 3:2,15;27:4;34:10; 66:4,21;117:11;137:5 assume (3) 8:5;21:1;55:15 assumed (3) 56:14;115:20;135:12 assuming (5) 8:20;55:23;117:19; 130:20;138:3 assumption (1) 55:9 Assurance (2) 46:8;112:6 assure (1) 13:20 Assured (105) 4:23;6:9;11:14,21; 12:5,9,23;13:18,25; 14:10,16,19,20,24; 15:2,7,11;17:13,22; 18:14,16,20;19:11,13; 20:1,9,21,23;22:24; 23:12;24:6;25:5;31:3, 4,21;33:4;38:3;39:1,2, 4,19,23;40:18;41:1; 42:20;43:16,18,20,23; 44:10,25;45:15;46:4,5, 13,14,15,19;48:10; 49:12,20;50:12,18,21, 25;52:4;53:4;54:15,19, 21;55:6,16;57:7;58:17; 59:9;61:16,17,22;62:3, 15;63:14,19;65:1,19; 67:20;68:13;69:13; 70:24;72:13;77:3,9,9; 82:13;93:6,9,12,14,15; 94:12,17;96:17,22; 100:9;134:13;143:3 Assured's (8) 20:10;23:22;24:4; 39:6,14;40:1;54:10; 65:13 attempt (4) 95:21;129:18; 135:13;143:1 attempted (2) 45:18;116:13 attempting (4) 71:19;127:19; 131:20;144:8 attempts (1) 98:6 attorneys (1) 68:12 attorney's (5) 69:2,7,11,12,15 attract (1) 12:21 attributes (1) 34:18 audience (1) 3:13 August (2) 100:2;109:9 authors (2) 107:19,20 available (1) 109:13 average (8) 82:14;83:1,3,15,24; 84:12;85:22;136:2 averaged (3) 34:5;73:10;101:5 averaging (5) 34:20;35:5,15,22; 101:16 avoid (1) 132:4 award (1) 18:20 aware (2) 58:12;65:19 awfully (1) 75:2 awkward (1) 99:24 AYP (2) 99:22;100:23 AYQ (5) 112:3,5;114:21,22; 116:19 AYR (4) 118:8,12;119:7,11 34:13,15;36:1;41:7; 57:11;58:19;60:13; 81:24;89:6;90:5;92:13, 23;96:19,25;98:6; 128:21;131:20;133:7; 134:4 background (4) 46:2;60:18;62:2; 119:15 backing (2) 44:3;130:4 backup (4) 69:24;70:7,9,15 back-up (1) 68:1 bad (3) 14:2;15:13;139:24 balance (1) 12:15 balloon (1) 44:3 ballpark (1) 105:12 Baltimore (1) 17:8 Bank (14) 12:10;13:8;45:6,7; 48:4;49:15;60:21;61:7, 9,13,14;63:10;66:16; 86:10 banker (1) 71:4 banks (1) 12:11 based (23) 27:15;30:20;34:17, 18;63:14;65:13;71:15; 72:3;73:19;79:19,20; 82:16,22;85:2,5,12; 86:2;104:12,13; 107:10;124:8;133:7; 140:23 basic (1) 27:23 basically (3) 29:3;33:18;34:5 basis (4) 25:3;69:22;74:14; 75:15 Bates (1) 76:1 BBB (2) 40:6,9 Beach (1) 17:8 bear (2) 72:9;134:19 Beard (3) 26:15,17;27:1 became (1) 93:13 becoming (2) 94:17;143:10

October 10, 2012 before-the-fact (1) 54:25 began (1) 65:1 beginning (1) 15:8 begins (1) 22:3 behalf (2) 39:4;64:19 behaved (1) 84:5 behavior (2) 84:6;85:14 behind (6) 11:16;13:2;14:12; 31:13;64:10;65:2 belief (2) 78:21;121:15 belies (1) 23:24 belong (1) 141:19 Below (2) 63:3;79:15 Bench (3) 2:7,15;11:6 beneath (1) 114:9 beneficiary (2) 48:11;52:5 benefit (4) 30:9;39:13,15;61:11 best (7) 24:5;30:10,16;31:6; 33:1;94:23;104:25 better (7) 2:9;20:11;35:24; 84:24;116:25;125:20; 132:1 beyond (4) 37:25;41:10;90:21; 140:13 bias (3) 34:13;85:17;86:3 biased (1) 34:12 big (1) 113:15 biggest (2) 130:14,16 bill (3) 24:16;26:21;33:7 billion (6) 14:8;46:23;115:2,3, 15;136:3 billions (1) 12:11 binder (14) 41:3;42:23;47:20; 51:20;57:1;66:13;67:7, 18;74:17;78:1;86:6; 99:22;112:3;118:8 (2) appraisal - binder

B
back (37) 7:8;12:1;14:5,11,18; 15:10;18:13;24:6,22; 25:7,8;26:3;29:2,10; 31:4,22;32:13;33:1;

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., binders (2) 38:13;99:17 bit (13) 18:19;29:12;40:5; 44:21;45:11;46:2,3; 64:10;84:13;86:19; 90:21;122:23;134:23 blatantly (2) 45:22,23 board (10) 112:7,11,19;113:1,3, 18,21,23;116:15;117:9 body (4) 3:17;24:3,14;26:13 Bohan (4) 30:11;77:25;78:14; 123:21 bold (1) 108:9 bond (1) 12:22 bondholders (1) 17:21 bonds (3) 12:23;39:7;46:24 books (2) 12:17;45:5 bore (1) 73:3 bored (1) 98:13 borrower (21) 13:9;27:10;44:18; 49:23;55:5,15,17;56:2, 5,13;60:7;71:8;73:17; 79:2,3;84:8;103:17; 131:15,16;144:21,22 borrowers (11) 36:11,15;51:9;64:20; 80:17;85:12,15; 130:13,17,19,23 borrower's (2) 13:15;80:18 Boston (1) 102:6 Both (4) 23:6;84:21;93:9; 131:16 bottom (3) 37:3;87:19;118:25 bought (1) 15:10 brand (2) 5:13;8:23 breach (31) 5:9,14;6:22,23;8:9, 24;10:14;11:23;17:12; 27:22,24;28:2,5,6; 29:8;30:9;31:8;32:24; 54:23;98:9;135:16; 137:13;138:14;140:10, 19;143:6,18;144:2,4, 19;145:8 Min-U-Script® breached (11) 11:20;12:2,3,4; 14:14;16:14,15;62:8,9; 98:11;136:10 breaches (20) 11:24;12:5;19:1; 23:25;30:12;33:5; 52:13;53:4;54:8,10,14, 21;134:15,19;135:9,14, 20;140:1;142:18; 143:15 break (10) 21:4;74:23,25;75:5, 7;89:2,6;90:13;132:14; 144:16 Brewer (60) 6:8,20;14:23;15:1,7; 25:14;34:3;35:16;38:8, 9,18,19,23;41:3;42:9, 17;43:15;47:20;53:9; 54:20;55:4;61:2;65:19; 66:13;67:18,24;68:5; 70:23;71:12,15;72:12; 74:6,17;75:14;76:5; 86:6,17,19;87:3,14; 92:17,20;93:6;97:4,8; 99:1,21;100:24;103:5; 114:3,10,13,24,25; 115:19;118:10;126:3, 20;133:8;137:3 B-R-E-W-E-R (1) 38:18 Brewer's (3) 66:6;71:25;72:20 bricks (1) 117:15 brief (2) 114:14;115:1 briefly (1) 122:20 bring (4) 2:20;10:5;73:6; 74:10 broad (4) 7:20;8:1;84:4; 131:25 broke (1) 45:12 brought (1) 65:7 Brown (1) 38:18 bubble (14) 17:2;35:18;115:18, 18,21;116:3,5,7,10,16; 117:9,14,17,23 BUCHDAHL (26) 2:19;3:9;4:17;9:7, 21;10:17;11:9,12; 22:25;24:8;68:18;69:5, 9,20;70:8;74:22;75:3; 91:5;92:5,8,12;133:1, 11,25;134:8;142:24 build (1) 117:15 builder (1) 49:5 building (1) 117:15 bullet (9) 105:24;122:17; 123:9;124:12;125:18, 21;126:16;128:23,25 burden (1) 38:3 Burns (2) 31:21;32:1 Bush (1) 33:8 business (3) 39:6,7,13 busy (1) 91:25 buy (4) 11:25;12:23;14:5; 18:13 23:10;25:11;27:10; 28:1;32:12,13,13,13; 36:19;38:25;39:6,9,21; 40:5;41:7,10;42:17,19, 23;43:4,15;44:1;45:25; 47:20;49:19;50:5; 51:20;53:9;54:9;55:13; 56:16;57:11;59:4,10, 22;62:25;65:7,10,25; 66:13;67:18,24;68:20; 69:2;70:3,20;71:1,19; 73:6;74:17;76:1;79:3; 81:18,24;82:7;83:25; 86:6,17,20;87:10,14, 18;88:18;90:18;91:12, 18;92:10,24;95:15,18, 25;104:3;112:21; 113:15;117:4;125:10; 127:10,12;130:12; 132:4,14;133:3,7; 134:1;138:3;139:2; 142:9;145:14,16 cancer (2) 24:24,25 C canon (1) 91:18 caprice (1) calculate (2) 62:12 142:2,4 carcinogens (2) calculated (11) 24:23;25:1 15:24;18:2,8;31:20; care (2) 32:22;34:7;68:22; 127:2;137:18 136:23;137:16;138:19; Case (64) 141:25 2:2,5;3:23;11:13; calculating (5) 12:16;13:5;14:20; 138:5,7;139:24; 15:18,19;16:12;18:4, 140:14,15 16,24;19:14;20:5,20; calculation (3) 22:8;23:16;24:5;31:21; 32:11;82:11;138:11 33:21;37:24,25;38:4; California (1) 39:18,20;42:1;46:3; 36:25 47:17;48:4;51:7;52:2; call (11) 53:25;54:17,18;64:24; 4:16;9:8;11:3;14:22; 67:20,23;68:14,17; 16:4;17:14;21:5;32:3; 72:23;73:18,23;74:10; 35:23;38:7;68:20 76:23;77:4,9;85:4; called (11) 86:3,22;98:8,9;104:16; 2:2;6:9;31:4;38:10; 109:20,22;117:4,20; 46:8;65:9;77:25;97:22; 124:15;129:2;133:24; 101:19;112:12;120:17 134:14;135:6;137:14; calling (2) 139:22 64:19;140:8 cases (2) calls (3) 36:10;121:9 38:8;55:7;125:7 cash (2) came (6) 141:4;143:22 30:7;32:10;40:23; category (4) 64:11;84:7;98:5 26:24;27:8;69:11,15 campaign (1) Caucasian (1) 33:7 57:19 Campbell (3) causation (4) 100:2,4,8 24:2;142:22;144:9; can (107) 145:6 5:8,9,15;6:1,3,12,13, cause (8) 14,24;7:8,9,10;8:7; 117:24;128:19; 10:20,21;19:5,13;21:4;

October 10, 2012
138:12;140:10;141:16; 142:5;144:19,22 caused (11) 19:1,2;24:23;32:4; 35:9;135:22;139:16; 140:18;143:4,5,16 causes (2) 141:1,3 causing (3) 25:1;37:10;141:8 caution (1) 132:7 CEO (1) 83:11 certain (8) 32:4;41:10;53:17,21; 79:2;98:10;118:4; 136:10 certainly (6) 8:8;32:17;73:6;96:8; 134:11;137:2 cetera (1) 109:14 chair (1) 38:19 challenge (2) 70:16,17 chambers (1) 89:4 chance (2) 84:23;127:6 change (1) 46:12 changed (2) 46:14;93:15 changes (2) 133:14,17 channel (2) 73:24;74:9 chapter (5) 118:13;119:17,20, 25;120:4 characteristics (4) 28:19;33:11;37:6; 80:13 characterization (2) 16:1;113:19 characterizations (1) 16:2 charge- (1) 37:19 Charles (1) 100:2 Charlie (1) 100:8 chart (3) 82:7,9;90:23 Chase (1) 16:8 check (3) 71:8;73:16;129:23 checked (3) 16:11;19:22,23

SOUTHERN DISTRICT REPORTERS

(3) binders - checked

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., checking (3) 19:19;123:13,15 checklist (1) 28:15 chief (8) 14:23;15:1;39:3; 46:18;47:6,9;98:20; 119:5 choice (1) 95:3 choose (1) 95:5 chosen (1) 124:4 circumstances (1) 56:12 claim (16) 11:17;12:25;14:11, 11;17:22;33:25;62:8, 12;71:20,23;136:5,5,8; 141:14;143:4,17 claimed (1) 17:5 claiming (2) 135:16,16 claims (35) 12:6;14:10;18:14,16; 27:25;28:3,6;33:4; 35:1,4,5;40:19,25; 41:1;42:20;43:16,18, 20,23;70:5;117:4; 135:2,4,6,8,14,18; 140:18;141:3,9,16; 142:17;143:5,11,21 clause (1) 110:19 Clayton (9) 30:10;71:7;76:6,12, 25;77:1,3,8;123:21 Clayton's (3) 71:8;77:12,18 clean (3) 24:15;26:21;31:23 clear (13) 3:22;4:22;31:1;72:1; 88:9;97:25;119:19; 130:17;131:10;133:11, 14;143:2;144:6 cleared (2) 78:21,22 clearing (1) 76:12 clearly (3) 17:25;31:8;86:25 CLERK (2) 38:16;89:3 clever (1) 32:8 client (1) 11:14 clients (3) 33:13;126:19;127:4 Clinton (1) Min-U-Script® 33:7 clips (1) 132:21 close (8) 3:22;4:5,11,19; 32:18;37:13;93:22; 139:10 closed (6) 4:4;36:10;94:10; 117:8,18;120:11 closer (2) 38:20;105:3 closing (6) 24:7;27:20;30:7; 78:22;137:5;139:13 Cochran (1) 35:13 coded (2) 76:10;78:19 collateral (25) 11:22;12:4;23:3; 24:4;26:13,25;27:1; 34:19;40:24;44:2;45:7; 80:18;120:25;121:19, 22;122:4,16,19,20,24, 25;123:8,24;129:11; 131:16 collect (1) 64:18 collected (3) 68:13;80:7;106:9 colloquy (1) 90:12 combination (2) 33:9;138:21 coming (9) 6:18;7:23;8:25; 17:21;25:4;44:5;45:4; 49:17;138:1 committee (37) 25:13,15;26:19; 35:13;47:11,18;71:13; 72:15;73:9;74:21; 75:16;83:11;94:5; 98:24;99:11;100:11, 13;112:7,10,11,12,12, 13,14;113:8,16;114:8, 9,14,25;115:12,17; 116:2,4;118:18; 123:23;124:23 committees (1) 14:25 common (6) 45:9;58:10;59:3; 82:16;109:8;126:1 commonly (1) 142:21 company (33) 13:21,22,22;30:23; 41:9;45:4;46:5,8,15; 47:7,13;61:16;65:13; 74:11;76:20;79:22,24; 83:7,8,9,13;84:4; 87:22;88:19;93:8,13, 20;94:8;96:6;113:23; 133:12;136:1,13 comparable (1) 108:13 compare (4) 51:15;56:24;90:22; 129:3 compared (5) 13:9,10;95:22; 103:19;104:3 comparing (2) 73:14;129:7 comparison (1) 31:9 complete (1) 20:4 completed (1) 123:22 completely (1) 22:16 compliance (1) 76:13 comply (1) 13:6 component (2) 104:4;108:9 composed (1) 107:5 computation (1) 81:19 computed (1) 82:10 computer (2) 80:10;130:6 concentrated (1) 37:8 concern (9) 35:14;49:17,19,21; 51:8;54:25;58:13; 116:18;128:20 concerned (3) 4:13;49:22;96:13 concerning (3) 66:18;71:14,24 concerns (1) 2:14 conclude (2) 127:12;132:2 concluded (1) 85:3 conclusion (2) 68:24;83:4 conclusions (3) 23:7;80:16;129:4 condition (6) 25:3;63:19,20;64:5, 8;118:4 conditions (3) 30:6;63:2,7 conducted (2) 19:12;63:14 conducting (2) 108:14;110:21 conference (3) 11:2;21:5;132:13 confidence (5) 16:2;59:4;85:8,20; 127:20 confident (4) 11:3;127:8;128:3; 132:11 confines (1) 5:20 confirm (1) 79:19 confused (1) 103:10 connected (1) 22:8 connection (13) 13:14;20:7;55:12; 65:5;66:3,20;96:11; 101:6;110:15;114:21; 116:22,23;134:12 conservative (4) 17:24;18:5;85:16; 86:3 consider (3) 92:2;135:21;137:20 consideration (2) 35:12;84:10 considered (6) 27:19;121:6,24; 137:15,15,21 considering (3) 35:14;103:24;113:9 consistency (1) 28:21 constituted (1) 3:17 constitutes (1) 30:16 construct (2) 142:10,11 consumer (1) 82:17 contact (1) 29:13 contacted (1) 4:12 contained (3) 11:23;61:8;81:1 contemplated (1) 41:18 contemporaneous (5) 27:16;29:9,20;30:18; 33:2 content (1) 10:22 contents (1) 122:19 context (7) 24:18;54:2;62:14; 76:19;102:7;103:12; 104:18

October 10, 2012 continue (3) 5:14;118:1,5 Continued (5) 21:8;52:17;89:8; 96:15;106:15 continuing (1) 68:19 contract (14) 11:22;14:16;17:19; 19:3,10;20:5,8,15; 50:5;52:4;53:9;64:8; 136:3;142:11 contracts (8) 14:6;72:22;77:13,19; 142:1,3,5,16 contractual (3) 20:18;60:21;143:13 contradicted (1) 16:20 contrary (2) 124:3,11 contrast (3) 29:12;84:18;90:22 control (5) 13:8;126:14;127:1, 14;128:1 controlled (1) 29:10 controls (7) 30:19;127:1,5,10,12, 16;128:1 convenience (1) 68:25 conversation (1) 104:5 conveyed (1) 11:5 copy (2) 87:10;95:8 corner (1) 141:20 Corp (1) 86:10 corporate (2) 47:15;93:12 correctly (1) 72:4 counsel (31) 4:23;5:18;7:19;9:5, 7;10:1;11:5;21:1,5; 22:2,4,12,14;31:21; 42:7;45:21;53:23; 59:16;69:18;72:25; 73:23;76:1;90:13;93:3; 132:18,21;135:1,17; 142:23;143:24;144:6 counselor (2) 81:21;86:4 counsel's (1) 134:11 counted (1) 32:4 country (1) (4) checking - country

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., 29:18 counts (1) 10:14 couple (3) 47:15;110:8;115:16 coupons (1) 130:7 course (8) 30:1;80:5,11;85:14; 90:15;95:15;134:10; 136:18 court (233) 2:1,3,20;3:5,11,13; 4:12,16;5:5,18;6:4,12; 7:2,13,22;8:1,10,21; 9:3,8,19,22;10:1,10,16, 19;11:1,11,13;15:17; 18:17,24;19:3,8;20:25; 21:4;22:1,6,12,20; 23:4;38:6,14,15,19; 39:9;41:7,14,18,22,25; 42:3,5,7;43:5,7,9,11, 14;45:19,21,23;48:8; 49:11;50:3,22;52:10, 16;53:7,23;54:3,16,22; 55:9,12,20,25;56:5,11, 15,18;57:11,18,22; 58:2;59:12,18,23;60:2, 17,24;61:19;62:5,11, 16;63:17,23;65:9,15, 17;66:5,8,23;67:2,4,11, 13,15;68:5,7,10,25; 69:1,8,17,23;70:1,14, 21;71:18;72:2,14,17, 24;73:6;74:23,25;75:5, 8,12,20;77:6,16,21; 78:8;79:10,12,15,18; 80:1,9,21;81:2,4,13,17, 21;82:3,7;83:2,6,8,14, 19,23;84:13;85:8,18, 24;86:4,14;87:7;88:8, 24;89:2,6;90:3,9,11; 91:1,14;92:4,6,10,11, 15;93:3;95:2,7,9,23; 97:14,18,21,22;98:7, 17;99:19;100:22; 103:2;104:23;105:6, 11,14;110:17;114:21; 116:21;117:1,19,25; 118:3;119:10;124:20; 125:3,5;132:2,19,25; 133:3,17,19,20;134:2, 7,24;135:24;137:13; 138:3,10,18;139:1,3,5, 9,19,23;141:21; 142:21;144:12,14; 145:6,13,17 courtroom (2) 3:7;10:22 court's (2) 5:15;7:19 cover (1) 17:21 Min-U-Script® covers (2) 108:1;119:22 create (1) 28:14 created (4) 96:18,24;99:17; 141:2 creating (2) 3:19;138:1 credit (40) 12:17,21;26:22;27:9, 10,17;33:22;35:12; 36:3;39:15;47:11,18; 56:3;75:17;76:12; 80:15,17;82:16;83:10; 84:8;85:14,15;87:24; 88:21;98:23;99:11; 102:6;103:18,19,25; 112:18,20;113:1,2,5,8, 13;114:8;129:10; 141:12 creditor (2) 36:16,19 creditors (1) 34:14 creditworthy (1) 55:18 crisis (1) 19:2 criteria (8) 36:3;44:17,20; 120:23,24;121:4,6; 122:4 critical (5) 13:17;15:4;64:2; 130:11;134:14 cross (1) 134:10 cross-examination (5) 10:5;65:8;91:21,23; 92:18 cross-examinations (1) 23:9 cross-examined (1) 31:21 cross-examining (1) 9:23 crossing (1) 90:19 cross-purposes (1) 139:20 crystal (1) 88:9 CSFB (3) 101:24;102:4,20 culminates (1) 141:15 current (3) 5:24;18:7;31:4 currently (7) 94:6,12;101:25; 108:14;110:16,20; 133:5 cushion (2) 35:9;141:23 cut (1) 133:7 98:5,12 decides (1) 95:11 decision (5) 25:16;30:5;143:2; 144:9,17 D decisions (7) 26:14;29:19;36:12; damage (1) 114:8;117:10;122:13; 70:5 142:14 damages (13) decline (4) 4:6,13,14,15;12:7; 36:8;115:20;136:20, 17:15,23;18:20;23:6; 21 69:3;135:6,16;143:19 deed (1) data (13) 9:14 73:1;80:6,7;105:25; deem (1) 106:2,5,9;122:24,25; 70:3 123:11;124:10;129:3,8 deeper (3) date (10) 2:22;28:8;46:3 34:24,25;35:6;44:5, 6,8;63:12,12;88:15,16 default (21) 19:2;36:4,12;37:11; dates (1) 44:7,7,9;56:14;59:5; 30:2 85:13;121:22,23; Daubert (1) 122:8;127:6,9,11,13, 29:7 14;144:19,22;145:8 Daubert-like (1) defaulted (3) 2:14 3:16;18:7,9 Dave (1) defaults (7) 114:10 5:17;33:11;36:20; day (6) 37:4;82:17;122:13; 6:18;20:20;31:4; 139:17 32:16;93:23;132:16 defect (1) days (4) 17:12 5:22;70:15;79:3; defective (6) 90:5 6:21;12:3,5;14:4; DC (1) 15:9;18:9 17:8 defects (11) deal (15) 7:7,9,10,21;16:24; 2:7;7:15;14:21; 23:2;24:3;26:7;131:21, 36:11;42:20;43:16; 23,25 47:5;51:13;56:21,22; defendant (2) 64:6;72:7;77:23,24; 11:19;18:24 82:11 defendants (1) dealing (5) 22:1 102:12;115:6;120:5; Defendant's (5) 126:22,24 100:23;112:5; deals (12) 114:22;118:12;119:11 13:6,18;14:9;15:5; 18:1;20:10;39:19;40:1, defendants' (1) 99:25 18;47:2;102:16;110:6 defense (16) debate (2) 18:25,25;21:1,5; 82:23;104:2 22:2,3,14;69:17;71:23; debt (4) 72:1,25;91:2;133:24; 13:9,10;60:11; 135:7,17;137:14 131:16 defenses (3) debts (2) 18:23,23;38:5 16:25;17:7 define (2) December (5) 28:10;56:11 3:23,24;4:4;87:23; definitely (1) 88:19 91:15 decide (2) definition (1) 36:15;92:13 137:11 decided (5) delay (1) 35:19;84:11;96:5;

October 10, 2012 2:11 delays (1) 132:4 deliberations (1) 65:14 delineate (1) 29:1 demand (2) 18:3;66:1 demands (1) 69:14 demonstrate (10) 10:6;135:5,8,13,17; 140:5;143:6,19; 144:19;145:8 demonstrates (1) 137:23 demonstrating (1) 142:15 demonstration (1) 114:18 demonstrative (4) 5:4;7:14,17;137:4 demonstratives (5) 2:23;6:17,19;7:7; 9:10 denied (1) 2:13 deny (1) 25:3 department (7) 46:21;47:14;94:6,9; 96:18,24;127:24 departments (1) 97:8 depend (1) 55:20 depending (1) 123:21 depends (2) 55:22;133:22 deposition (13) 3:24;4:8,10,12,22; 14:21;31:13;36:2; 92:21;95:9,15;132:22; 133:13 depositor (3) 61:8,10;63:11 derived (1) 33:17 describe (10) 39:9,21;40:5;44:1; 65:25;69:5;71:1;82:7; 125:19;128:24 described (6) 40:16;52:1;105:8,10; 122:16;123:9 description (1) 113:6 designation (3) 99:25,25;133:1 designations (1) 132:23 (5) counts - designations

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., designed (4) 3:19;26:7;110:2; 126:17 detail (3) 40:5;49:19;69:6 detected (1) 26:7 deteriorated (1) 36:11 determination (3) 83:3,9;123:25 determine (7) 80:15;82:9;122:12; 127:22;128:10;129:18; 131:3 determined (3) 82:25;83:2;131:21 determining (1) 103:25 developed (2) 82:21;120:22 developer (1) 49:5 developments (1) 113:12 Dexia (4) 35:20;96:6,8;114:8 diagnostic (1) 24:14 dialogue (1) 29:22 difference (1) 69:1 differences (1) 58:6 different (22) 4:14;6:18;14:6; 23:21;30:2,15;32:4; 34:3;38:2;49:22;62:7; 66:23;77:25;81:11; 83:20;90:14;104:20; 121:11;125:10;128:4; 136:22;145:5 difficult (4) 40:4,9;45:4;49:25 difficulty (1) 6:7 dilemma (1) 35:9 diligence (62) 19:10,12,14,16,18; 20:1,3;24:6;26:17; 27:14,16;29:9,20;30:3; 33:2;34:19;71:3,6,24; 72:3,23;73:2,14,16; 74:2,4,7;76:24;77:18; 78:14;79:18,21;80:22; 102:1;108:17;109:18; 120:8,25;121:1,9,20, 20;122:5,5;123:10; 124:13,14,25;125:15, 17;128:23,25;129:2,7, 14,25;131:4,6,8,10,18; Min-U-Script® 133:5 direct (10) 9:9;31:22;38:21; 60:20;61:22;91:6,17; 97:3,24;101:2 directing (1) 91:20 direction (3) 5:15;55:23;126:13 directly (2) 16:20;86:2 directors (6) 112:8,11,19;113:18, 23;116:15 disagreeing (1) 8:11 discounted (1) 137:24 discoveries (1) 98:3 discovers (1) 136:5 discovery (7) 3:23;4:3,5,9,11,19; 32:18 discretion (1) 29:3 discuss (1) 76:5 discussed (11) 9:12;35:17;66:21; 84:14,15;90:17; 101:10;104:6;107:12; 121:4;129:13 discussing (5) 51:18;75:25;76:6; 78:13;100:11 discussion (15) 84:24;85:1,9,25; 101:14;104:2;110:15; 114:14;115:1,5,8; 126:9;144:7;145:9,11 discussions (2) 97:15;117:22 disparate (1) 35:16 dispersed (1) 29:17 disregard (1) 45:23 distinct (3) 4:4,21;140:19 distinguish (2) 7:2;18:6 distinguished (1) 97:10 distribution (1) 130:8 divergence (1) 84:22 divorced (1) 19:9 doctor (3) 24:13,15;26:21 document (39) 25:12;30:4;42:10,12, 17,19,25;47:23;48:3; 51:22;57:4;66:15;67:9; 74:19;75:23;78:3,11, 20,24;79:1,2,8,12;86:9, 17,24;87:3,4,14;95:24, 25;96:1;100:19; 102:25;114:2,16; 118:21;125:22;126:3 documentation (1) 30:13 documented (3) 32:11;76:17,21 documents (14) 14:21;15:15;38:13; 41:3;53:23;61:8;62:19; 71:13,16;79:5,6,9; 87:10;140:6 dollar (1) 130:22 dollars (9) 12:6,8,12;14:8; 17:23;18:21;87:22; 88:12;136:3 done (18) 17:20;39:16;40:1,3; 70:23;72:8;73:8,8,15; 75:10;80:12;94:15; 110:1,2;121:9;123:21; 134:13,18 double (3) 24:15;110:6;124:7 Doug (1) 119:2 down (11) 18:22;57:19;63:9; 88:17;89:4;105:5; 108:8;115:16;116:12, 18;118:24 down-turn (1) 33:10 Dr (7) 2:17;4:22;15:21,21; 17:14;18:7,11 drastically (2) 27:22;30:14 draw (1) 80:16 drawn (2) 42:21;43:17 drew (2) 15:22;131:17 driven (3) 130:6;140:22;143:25 drives (1) 130:9 driving (2) 142:17;145:9 drop (2) 135:22,24 DTI (1) 102:25 due (31) 19:10,14;20:1,3; 24:6;26:17;27:13,16; 29:9,20;30:2;33:2; 34:19;72:3,23;73:2,14, 16;74:2,4,7;77:18; 78:14,20;79:18;80:22; 108:17;109:17;120:8; 123:10;133:5 duly (1) 38:11 during (15) 10:5;22:4;29:14,20; 30:2;36:9;44:18;69:13; 79:3;90:15,18,25;91:6; 103:19;134:9

October 10, 2012 elicited (1) 74:14 eliminate (1) 84:9 else (7) 8:14;10:23;72:11; 131:3,7;136:21;137:21 embedded (2) 7:16;8:8 eminently (1) 135:17 employed (6) 93:6;104:14;108:5; 109:18;127:16;133:5 employee (5) 35:23;86:25;109:2,6; 133:4 employees (4) 26:1,10;74:3;100:7 employment (1) 92:24 end (6) 17:16;20:20;32:23; 68:16;70:1;132:15 ended (4) 34:1,20;74:2;140:25 enforce (3) 15:5;19:13;143:13 enforced (1) 19:5 engage (1) 19:25 enhancement (1) 141:12 enhancements (1) 33:22 enough (4) 17:21;22:15;40:23; 139:23 ensuing (2) 115:5,8 ensure (5) 28:20;120:23;121:7; 123:10,13 enter (1) 130:5 entered (6) 14:10;62:3,6,8,11; 93:12 entering (1) 19:12 entire (5) 4:14;26:13;29:18; 91:18;141:1 entirely (2) 5:10;31:2 entitled (4) 17:23;68:16;70:17; 136:8 entity (2) 48:4;100:10 enumerable (1) 60:2 (6) designed - enumerable

E
earlier (8) 70:1;90:17;97:10; 101:2;108:17;122:21; 134:23;140:4 early (3) 74:23;93:25;94:24 easier (2) 38:14;125:10 economic (1) 19:2 economics (2) 17:16;130:9 economy (5) 17:3;27:6;33:8; 141:9;145:2 editor (2) 118:23;119:2 effect (1) 10:21 effectively (3) 3:18;93:22;96:7 effects (2) 116:13;145:3 efficiency (1) 73:22 effort (1) 135:5 efforts (3) 7:20;123:10;126:17 either (8) 6:20;72:9;80:19; 81:13,14;84:19; 104:24;134:18 electronic (1) 123:1 element (4) 64:2;71:20,22; 138:21 elements (5) 57:25;69:3;75:17; 121:12;124:5 elicit (3) 71:17;72:20;133:8

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., envisioned (1) 125:21 equally (1) 19:9 equals (1) 28:17 equity (4) 12:16;87:24;88:13, 21 error (2) 13:13;49:2 errors (4) 16:23;135:19; 138:10;143:21 especially (1) 36:20 essence (1) 85:25 essentially (3) 10:7;51:16;56:25 establish (8) 9:19,22;71:19;92:24; 96:20;98:2;117:14,19 established (2) 52:2;96:25 establishes (1) 60:20 estate (6) 115:17;116:3,5,16; 117:9,16 estimate (10) 20:10;41:21;51:6; 85:13;101:12,23; 108:15;110:22;115:22; 133:9 estimated (4) 86:19,21;136:6,14 estimates (3) 20:12;82:14;136:1 estimating (1) 55:18 estimation (3) 82:18;85:6;109:12 et (1) 109:14 eternal (1) 42:3 EV3 (1) 29:24 evaluate (1) 126:12 evaluating (2) 26:16;103:18 eve (2) 4:10,25 even (18) 5:23;7:19;8:2,2; 10:7;18:15,17,18; 22:13;24:20;39:12; 46:15;70:2;90:18; 95:13,16;139:5;140:12 evening (1) 92:2 Min-U-Script® event (5) 23:13;76:11;77:1; 78:15,19 events (4) 23:20;135:11,22; 142:20 Everybody (1) 20:13 everyone (1) 95:8 evidence (51) 12:10;14:9;15:10; 16:19,22;18:23;19:8; 20:9;22:8,14,16;24:5; 25:15;30:11,16;33:1; 42:16;43:3,13;48:6,9; 52:8,11;54:23;55:10; 59:13;60:22,25;66:10, 25;67:5,16;70:2;71:19; 74:12;75:18,21;78:6,9; 86:12,15;87:4;100:20, 23;114:17,22;116:19; 119:8,11;124:3;135:2 exact (9) 3:17;6:5;25:25; 33:14;36:4;37:8; 142:17;144:19,21 exactly (7) 23:16;90:3;103:13; 104:17;109:21;130:14; 138:20 exaggerated (1) 17:1 examination (3) 32:7;38:21;93:1 examiners (1) 16:10 example (8) 56:17;57:16,18;58:3, 4;72:5;73:10;76:16 examples (3) 17:3;54:9;91:10 exceeded (1) 41:20 exception (2) 2:13,17 exceptions (1) 76:13 excerpt (1) 25:11 excerpts (1) 28:11 excess (3) 40:24,24;132:7 exchange (2) 9:13;30:20 exchanging (1) 9:13 exclude (1) 137:20 excluded (5) 3:7;5:21;8:15,16,17 exclusion (1) 3:1 Excuse (2) 9:22;97:14 excused (1) 134:6 executed (1) 73:20 executive (10) 14:23;25:11,13; 26:18;74:11,20;75:14; 78:4;113:7;125:14 exhibit (55) 2:17,19,22;3:1,15; 5:2,5;9:11;41:5;42:9, 16,25;43:2;47:21;48:6, 9;52:8,11;57:2;60:13, 22,25;66:15,24;67:5,9, 16;68:3,8;69:4,18,20; 74:19;75:18,21;78:6,9; 82:3,4;86:7,11,15; 87:6;90:24;99:25,25; 100:1,23;112:2,5; 114:22;118:1,7,12; 119:11 exhibits (5) 31:17,18;43:12; 68:21;99:18 exist (4) 130:12,17,20;131:14 existed (2) 117:10;130:24 existence (1) 97:9 existing (1) 23:2 expect (6) 40:18;41:8,9,11,17; 128:3 expectation (2) 79:19;80:23 expected (28) 33:17,19;40:23;42:1; 56:4;72:6;79:19,20; 81:11,14,19;82:10,11; 84:17;85:17;86:3; 100:25;101:24;103:22; 104:5,13;106:3; 108:10,12;115:21; 140:10,23,24 expecting (2) 51:4;128:4 expense (1) 36:18 expenses (9) 67:20,22,24;68:16, 18;69:6,16;70:6,12 experience (11) 2:11;16:12;27:25; 28:3,6;35:4;82:22; 85:7;107:10;108:2; 111:16 expert (35) 3:9,11,17,24,25;4:6,
6,8,18,23,24;5:3,19,25; 6:10,12;8:14,15;9:10; 10:9;15:20;16:5;17:15; 23:4,5,6,19;24:18; 32:18;37:17;69:10,15; 90:13;139:18;143:19 experts (4) 2:14;5:22;22:9; 37:24 expert's (4) 3:20;6:20;8:13;9:9 explain (5) 6:14;28:22;88:10; 97:7;117:6 explaining (1) 2:25 explains (1) 37:23 explanation (2) 117:5;144:25 exploring (1) 71:25 exposures (1) 113:10 expressed (1) 4:17 extend (1) 24:10 extent (3) 101:14;103:6;135:8 extreme (2) 83:20,21 extremely (1) 56:9 eye (1) 50:23 eyes (2) 32:16;35:17

October 10, 2012 factual (2) 23:17;86:2 factually (1) 86:2 failed (4) 11:19;20:22;45:17; 135:21 failure (1) 139:15 failures (2) 142:12;145:3 fair (10) 82:16;97:23;99:9; 103:18;113:19;116:14; 118:17;122:3;135:7,17 fairly (3) 8:25;131:24,24 faith (1) 50:10 fall (2) 69:14;106:11 falling (7) 27:6;36:13,24;37:3, 9,15,19 falls (2) 37:25;106:10 false (1) 22:11 familiar (3) 84:9;112:14;118:18 familiarity (1) 84:3 fancy (1) 17:16 far (3) 36:3;105:13;145:6 fast (1) 102:18 faulty (4) 23:1;33:12;135:10, F 21 favor (1) face (1) 144:10 90:4 feared (1) fact (53) 142:24 3:4;4:18;5:9;6:9,13; federal (1) 7:14,24;8:1,25;9:21; 91:18 14:14;15:14;18:14; fees (7) 19:25;20:14;23:17; 12:13;69:2,7,11,12, 24:1;25:25;30:19;33:4; 12,15 34:12;35:7;41:1;56:7; 57:20;59:3;60:5;65:9; felt (1) 98:13 98:11;115:11;116:7,9; few (4) 117:9;123:19,25; 18:22;70:15;90:5; 124:9,17,24;125:15; 95:11 135:3,17;136:6,13; 137:7,10,18,19,21,23; FICO (54) 34:4,14;36:21;82:15, 138:21;140:9,14;141:5 16;85:4,5;101:3,9,13, factor (5) 14;102:9,20,24,25; 34:10;115:21; 103:7,18,22,25;104:3, 137:24;138:1;139:11 4,5,12,13,14,20,22; facts (5) 105:7,11,12,25;106:2, 8:16;38:1;46:3;74:9, 3,5,9,10,11,11,13; 13 (7) envisioned - FICO

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., 107:1,2,8,8,15,17; 108:2,4;109:16,16,21; 110:4;111:3,11,12 FICO/DTI (12) 100:25;101:23; 103:6,12;106:12; 108:10,12;109:11,21; 111:1,15;129:9 field (1) 15:21 figure (4) 31:15;32:21;140:21, 23 figures (1) 70:16 file (50) 16:19,20;29:25; 45:15;76:6;77:12,24; 79:4,8;80:7;102:1; 103:19;104:1,3; 108:13,14,15,16,20,23; 109:5,7,12;110:1,2,12, 21,21,25;111:19,25; 112:1;120:25;121:20; 122:5;123:1;124:4,5,8, 9;128:23,25;129:6,13, 19,25;131:4,6,7,10 filed (1) 14:19 files (10) 18:18;19:19;71:4; 90:15,20;110:14; 129:3,3,15;130:21 filing (1) 65:16 finances (3) 57:13;58:16,22 financial (5) 41:13;46:8;57:24; 58:1;112:5 financially (1) 130:6 financings (1) 47:12 find (13) 2:10;8:12;16:13; 40:9;65:1;70:16;76:25; 77:3;91:6,19;103:15; 124:3;130:23 finding (3) 29:23;30:7;144:1 findings (4) 18:20;28:21;30:10, 25 finds (2) 28:1,4 fine (5) 12:24;45:25;62:13; 91:14;99:19 finish (1) 139:2 finished (1) 31:22 Min-U-Script® firm (8) 71:3,3,6;77:25; 129:2;131:8,11,18 firms (4) 25:25;26:1,2;60:3 firm's (1) 119:20 first (45) 2:4;4:8;6:8;8:10; 12:10;13:5;14:22;15:6; 17:25;18:3;19:10;27:5, 14;28:23;36:19;38:7; 47:4;64:5;76:14;79:22; 80:21;87:16,21;88:17; 91:17;99:21;101:18; 102:6,7,15,21;103:12, 16;104:16;105:24; 110:6,19;114:7; 120:15,24;122:17; 123:9;130:3;133:1,15 first-day (1) 30:10 fit (1) 142:16 five (3) 16:21;75:8;103:17 fix (1) 35:23 Flagstar (94) 11:19,25;12:2,10,14, 17;13:1,12,16;14:3,15, 17,18;15:3,9,10,12; 16:14;17:18,25;18:8, 12,19;20:3,6,22,23; 23:2;29:14,22;33:13; 39:19;44:10,15;45:1, 14;47:2;48:3,4;49:15; 50:1;51:1;52:13;53:3, 4;54:9;60:21;61:14,23; 62:4;64:13,15,22,25; 65:20;66:16;68:14; 70:12;71:24;72:21; 77:13;86:10,20;87:4; 88:4,11;101:6,16; 102:10,12,16;103:8,14; 104:6;107:5,9;108:18, 25;109:18,22;111:9,10, 22;120:8;123:5,16; 124:9,15,16;125:14; 128:11;129:2;142:6,12 Flagstar-originated (1) 82:19 Flagstar's (11) 11:16;13:6,15;19:7; 20:12;26:4;45:13; 78:21;88:5;129:15; 142:19 Flagstar-sponsored (1) 47:5 flawed (3) 23:4,6;139:24 Florida (1) 36:25 flows (1) 141:5 focus (5) 37:24;81:23;87:10; 121:13,14 focused (1) 87:7 Focusing (3) 60:13;71:1;121:15 folks (1) 36:21 follow (1) 134:8 followed (1) 50:16 following (2) 58:20;126:10 follows (2) 38:11;117:20 foolish (2) 22:14;69:9 force (7) 136:20;137:24; 138:13;140:8,18; 141:8,15 foreclose (1) 36:17 foreclosure (3) 36:18;115:21,22 forget (1) 130:13 Forgive (1) 10:1 form (2) 40:23;93:12 former (1) 35:23 forms (1) 23:3 forth (2) 61:11;140:6 forward (3) 4:25;82:25;145:16 found (13) 14:12;16:24;17:12, 20;18:11;34:19;45:16; 76:23;77:1,8;79:4; 124:3,11 foundation (3) 92:25;97:18,20 four (6) 4:14;6:25;14:22; 20:11;44:5;139:5 fourth (1) 10:17 fraction (1) 18:15 fraud (25) 13:13,15,15;16:10, 19,22,24;19:24;20:2; 30:24,25;31:6;32:24, 24;44:17;49:2,16,22; 51:9;58:11;71:8;73:17; 130:25;144:21,22 fraudulent (4) 14:2,4;136:6,9 frequency (1) 115:22 front (4) 28:11;41:3;95:25; 118:12 frustrating (1) 2:10 FSA (86) 25:9,13,21,22;26:6, 10,16;27:18,19;29:22; 30:5,14;31:3,4;33:13, 17;35:2,12,20,23; 37:23;46:9,10,12,12; 47:6;61:11,15;74:3; 93:8,9,13,17,20,23,25; 94:16,19;96:5,6,7,10, 17,17,22;98:24; 103:19;104:14;106:6; 108:5;109:2,6;111:18, 22;112:10,15;113:17, 20,21,23;116:15; 117:10;118:14;119:18; 120:22;121:6;123:6, 10;124:23;128:9; 130:2;131:1,5,7,20; 133:4,5;135:1,5,12,23; 138:23;139:12;141:9, 13;144:18 FSA's (12) 26:22;30:18;34:19; 115:1,19;117:16; 119:21,25;120:4; 121:15;122:7;126:18 fulfilling (1) 89:5 full (12) 18:20;24:13;61:12; 87:8;108:14,16,20; 109:12;110:21;111:19, 22;120:15 full-blown (1) 143:1 fully (1) 8:24 function (1) 136:19 fundamentally (1) 11:13 funny (2) 25:4;81:9 further (2) 89:1;134:20 future (1) 116:12

October 10, 2012 97:23 gave (6) 9:14;26:21;28:12; 101:2;131:11,12 GDP (1) 115:25 general (12) 8:13;45:8;47:12; 59:18;60:17;69:15; 73:11;105:6;113:5; 125:18,23;136:21 generally (6) 36:7;52:12;112:16; 120:7;121:12,14 generic (1) 27:3 generosity (1) 139:7 geographic (1) 130:8 George (1) 33:8 get-go (1) 18:1 gets (2) 13:19;39:15 given (9) 7:21;8:12,23;27:3; 35:15;40:8;90:16; 127:9;129:10 gives (2) 28:15;36:6 giving (9) 7:20;36:22;70:2; 84:16,17;85:10; 125:18;134:23;140:3 goes (10) 9:14;36:7;43:24; 58:13,14;109:1,11; 111:18;115:16;127:8 Good (16) 2:3;9:14;11:11,12; 22:20;27:10;38:23,24; 43:20;50:10;70:21; 72:7;92:20;98:17; 127:5,10 good-faith (1) 7:20 grade (4) 27:3;103:19,25; 120:22 graded (1) 26:5 grades (3) 26:23,23;27:11 grading (1) 26:22 granting (1) 113:1 great (2) 26:2;36:11 greater (2) 85:8,19 (8) FICO/DTI - greater

G
gain (1) 45:7 game (1)

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., Griggs (1) 3:18 ground (4) 8:17;22:6,7;97:15 grounded (2) 22:9,16 grounds (5) 8:17;95:13;97:19,21; 117:2 group (15) 28:13;29:17;76:6; 79:24,24;82:22;94:2,3, 4;96:8,10,20;100:7; 106:6,8 grouping (1) 93:9 grow (1) 68:23 guarantee (1) 39:11 guaranteeing (3) 39:7,10;101:25 Guaranty (11) 11:15,16;14:24;39:1; 41:13;61:16;93:7,10, 15;111:19,23 guess (5) 9:25;68:11,14;69:17; 91:17 guidance (1) 145:15 guidelines (33) 8:13;13:7,7;26:5,5,6; 28:25;44:21,23;50:11, 16,25;51:5;108:22; 118:14,19;119:18,20; 120:1,5;121:10; 126:12;128:6,10,12,15, 18;129:12,16;130:1; 131:9,19;137:18 guts (1) 98:13 guys (1) 92:10 guy's (1) 98:13 79:10,13 Hang (1) 125:3 hangnail (1) 24:19 happen (3) 20:10;36:20;130:22 happened (12) 16:20;17:18;19:14; 23:13;25:7,24;26:20; 29:20,23;33:3;37:23; 71:2 happening (3) 22:22;24:17;79:6 happens (4) 25:5;36:20;37:2; 52:13 happy (4) 67:25;75:3;97:7; 117:6 hard (2) 18:19;83:16 hardest (1) 37:16 hated (1) 98:12 hazy (1) 80:4 head (2) 8:11;118:17 headed (1) 6:4 header (1) 53:14 health (3) 13:22;24:16;26:22 hear (14) 17:4;19:10;20:6; 21:5;22:1;23:8;25:14; 32:2;75:6;84:15;97:14; 137:3;142:21,22 heard (7) 2:25;17:1;22:24; 44:20;134:10;135:3; 137:2 hearing (4) 22:22;29:5;38:5; 90:22 hearsay (4) 66:10;69:22;71:17; 95:16 heart's (1) 10:22 heaviest (1) 37:9 heavy-handed (2) 34:2;35:25 heightened (1) 34:17 HELOC (8) 82:19;84:7;85:6; 87:25;88:22;115:2,15; 120:2 HELOCs (10) 12:16;27:2,3;33:11; 34:10,17;120:6;122:8; 137:10;138:22 help (5) 120:23;121:7,16,21; 122:10 helped (2) 17:2;122:7 hereby (1) 61:10 herein (1) 61:12 herring (1) 20:4 herself (3) 16:8,11;24:21 high (20) 6:10;16:16;18:13; 27:4;34:14;36:21; 84:18,21;85:10; 106:13;107:1,8,17; 111:12,15;127:23,23; 128:1;137:12;138:9 higher (9) 27:22;31:8;34:8; 35:4,8;81:20;84:8,8; 85:22 highest (1) 117:16 highlighting (1) 5:16 highly (1) 103:12 hired (4) 19:15;24:18;25:25; 71:4 hires (1) 26:2 historic (2) 33:10;139:14 historical (6) 34:4,13;82:18,20; 85:5;86:1 historically (3) 34:12,14,15 history (2) 85:2;92:24 hit (5) 33:24;37:2,9,14,16 hold (2) 9:5;20:23 Holdings (1) 112:6 Holzinger (3) 114:10,13,25 home (7) 12:16;16:7;59:2; 87:24;88:13,21;91:8 homes (1) 60:2 hondle (1) 92:10 Honor (148) 2:19,21;3:10,14; 4:17;5:7;6:15;7:5,10, 25;8:4,19;9:7,17,21,25; 10:4,13,18,25;11:9,12; 20:20;21:3,6;22:2,21, 23;24:1;27:23;29:24; 31:1,12;32:17,21;37:7; 38:4,12;42:15;43:2,6,8, 10;46:1;48:5,7;49:10; 50:2,19;52:7,9,15;53:6, 22;54:1,12;55:7;59:11, 15,17;60:1,16,23; 61:18;62:1,10,13,17; 63:16,22;65:3;66:2,19; 67:1,19,25;68:3,4,11, 15;69:5,22,25;70:10; 71:10;72:12,20;73:5, 14;75:10;77:5,15,20; 78:7;82:5;86:24;87:2; 88:7;90:7,8;91:5,22, 25;92:12,16;95:6,20; 96:3;97:2,7,13;98:1, 16;99:17,20;100:20; 102:23;103:1;114:15; 116:24;117:2,6,21; 118:2,6;119:9;124:18; 125:9;132:22;134:8, 13,23;135:1;136:25; 137:23,25;138:7,16; 139:8,21;140:17; 142:24;143:2,12; 144:1,11,18;145:11 Honor's (2) 6:6;143:14 hope (3) 10:5;42:3,4 hopefully (1) 37:25 hopes (1) 74:22 hour (2) 10:23;89:5 hours (1) 133:10 houses (1) 59:5 housing (22) 17:2;27:6;33:10; 35:18;36:13,24;37:3,9, 15,19;115:20,23;116:7, 9,16,18;117:14,23; 135:22,24;139:14; 145:2 huge (2) 16:13,21 hundred (5) 12:7;17:23;18:21; 130:22;138:10 hungry (2) 75:2,3 hypothetical (2) 136:1,6

October 10, 2012

I
idea (1) 127:5 identified (3) 17:13;95:14;134:14 identifies (1) 139:18 identify (1) 91:11 identifying (1) 15:8 ie (1) 109:13 ignore (2) 23:13;24:12 ignored (1) 117:23 II (1) 38:18 III (1) 126:6
I-know-it-when-I-see-it (1)

H
half (4) 3:13;89:5;95:1; 133:9 hand (1) 38:14 handicapped (1) 140:25 handicapping (1) 138:8 handled (1) 64:22 hands (1) 122:11 handwriting (2) Min-U-Script®

29:6 immediate (1) 26:12 immediately (5) 24:7,12,19;25:8; 139:13 impacted (1) 54:14 impeach (2) 95:7,22 impeachment (1) 95:13 impermissible (1) 45:20 implicit (1) 75:1 implicitly (1) 140:7 implies (2) 56:3;58:10 imply (2) 58:5;81:12 importance (1) 62:14 important (16) 10:2;17:24;18:17; 19:18;49:12;50:12,15, 18,20,24;58:25;59:7,9; 61:17;62:3;96:8 importantly (1) 23:12 impossible (1) 51:6 impression (2) 70:8;102:15 improper (5) 6:10;45:22,23;54:3; 95:3 improperly (3) (9) Griggs - improperly

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., 141:2,12;143:11 improve (1) 121:16 inappropriate (1) 32:19 inartful (1) 95:21 include (9) 3:9;6:10,10;22:10; 47:1;51:17;62:20; 120:2,24 included (16) 4:1,13,14;5:8;6:24; 13:21;25:10,18,19,22, 23;68:1;115:21;122:4; 129:7,14 includes (4) 3:11;69:10,12; 126:10 including (6) 12:3;49:4;93:8; 121:5;127:16;137:3 income (11) 13:9;17:6;19:20; 55:5,16,24;56:3,7; 57:17;60:12;131:17 incomes (1) 17:1 inconsistent (4) 29:8;95:14,16; 110:23 incorporated (1) 121:11 incorrectly (1) 141:11 increase (5) 57:24;115:1,14; 138:20;143:7 increased (7) 17:13;19:6;54:10; 115:24;136:18;143:16; 144:4 increasing (2) 116:9,16 incurred (2) 67:20;138:12 indemnity (5) 57:5;58:18;60:14; 61:21;64:6 indicate (4) 55:17;56:13;57:15; 144:16 indicated (9) 24:1,8;72:21;91:25; 93:17;98:20,23;103:5; 123:19 indicates (3) 24:22;110:11,19 indicating (1) 107:16 indicative (1) 137:5 individual (5) Min-U-Script® 28:18;50:17;58:11, 14;90:15 individuals (1) 26:15 industry (1) 16:6 inefficiencies (1) 4:9 infected (1) 17:9 inference (1) 75:1 inflated (1) 16:25 information (13) 30:14,20;79:20; 80:20;81:1;83:17; 103:14;123:11;124:1, 10,11;129:7;130:10 inherent (1) 27:4 initial (4) 29:23;104:8,10,11 initials (1) 72:6 innocently (2) 56:5,9 input (2) 30:14,18 insidious (1) 7:17 insight (2) 27:16,17 inspection (1) 45:16 instance (4) 56:16;59:6;73:13; 123:5 instances (2) 16:18;17:12 Instead (1) 34:16 instructed (2) 22:13;96:7 insurance (33) 11:17;12:6,22;13:21, 22,22,24;24:9,11; 26:14;39:14,19,23; 40:10,16;41:9,9,13; 45:4;47:1,4;49:7;57:5; 58:18;60:14,19;61:21; 64:6;113:14;120:6; 135:25;136:3,13 insure (4) 25:14,16;26:18; 33:15 insured (11) 24:23;27:19;46:22; 112:22;127:16;128:11; 136:10,12,13,19; 142:13 insurer (6) 24:12;33:14;123:6; 135:12;141:6,19 insurers (1) 25:6 insurer's (1) 24:14 insuring (6) 82:22;94:13,16,19; 96:5,11 integrity (3) 123:11,13;124:1 intend (1) 72:10 intended (1) 86:3 intends (2) 22:4;90:20 intention (2) 132:21,22 intentional (1) 138:24 intentionally (2) 138:8,23 interaction (2) 29:21;30:12 interactions (1) 97:11 interest (9) 12:7,21;18:4,4; 39:17;40:24;88:1,3,6 interesting (2) 37:5;97:15 Interestingly (3) 34:23;35:11,20 interest-only (1) 44:4 interests (3) 24:5;87:23;88:20 interim (2) 44:7;90:8 internal (1) 65:13 Internet (2) 24:22;29:19 interpret (2) 81:7;102:8 interrupt (1) 139:19 interrupting (1) 102:17 interruption (1) 11:1 interruptions (2) 2:6;10:21 interview (2) 29:14;126:11 into (50) 2:24;3:5;8:25;12:9, 12,18;14:10;17:21; 19:12;23:15,23;27:16, 18;28:8;34:11;40:18; 42:16;43:3;46:3;48:6; 49:17,19;52:8;53:2; 60:22;62:3,6,8,11; 66:10,25;67:24;69:15; 71:25;75:18;78:6;84:7; 86:11;87:3,12;91:23; 93:12;100:19;116:19; 119:7;130:5;138:1; 139:15;140:13;142:18 introduce (2) 55:10;66:9 introduced (4) 2:24;4:15;7:11; 135:2 introduction (2) 7:13;135:3 inverse (2) 37:18,21 investigate (1) 65:1 investigated (1) 17:6 investigation (1) 63:14 investigator (2) 17:4,7 investment (2) 59:6;120:22 investor (2) 11:18;12:21 investors (3) 39:11;40:11;46:11 invoices (4) 68:1,13;70:10,19 involved (7) 49:6,23;69:14;73:16; 126:22,24;136:12 involvement (1) 73:19 involves (2) 98:8;125:19 irrelevant (4) 20:4;53:24;66:9; 136:17 irritating (1) 2:10 Isaac (1) 103:18 issuance (7) 24:13,20;25:8;63:2, 8,12,13 issue (31) 2:22;3:3;5:7,19;6:6; 13:4;24:2;29:25;37:1, 11;47:17;53:24;54:17; 62:9;64:11,24;67:24; 68:18;72:9,10,11; 76:18;86:21;99:11; 101:6;134:14;135:25; 136:22;137:9;140:20; 145:5 issued (7) 44:10,25;47:1,5; 63:20;70:24;77:10 issuer (4) 39:13,15;52:2;

October 10, 2012 124:15 issues (13) 20:5;28:14;30:8,17; 54:18;76:21;78:20,24; 90:17;98:4;105:22; 137:5;141:10 italics (1) 107:24 item (1) 122:16 items (3) 5:4;121:5;135:12 iterative (3) 29:11,21;30:20

J
January (5) 4:8;15:8;18:2;65:24; 66:16 job (1) 39:2 John (1) 3:18 Joseph (3) 4:6;17:15;23:5 JP (1) 19:15 Judge (2) 58:20;91:19 judge's (1) 122:21 judgment (2) 143:2;144:17 July (1) 99:8 jump (2) 22:24;91:23 June (1) 70:12 jury (2) 22:13,13 justify (1) 31:7

K
keep (3) 10:7;102:18;109:20 key (6) 13:5,12;73:15;124:5; 126:11;133:18 keyword (1) 55:25 kick (1) 141:6 kind (14) 2:6;13:21;14:1; 44:14,19;54:21,25; 59:14;64:19,20;69:14; 126:3;127:3;129:5 kinds (9) 13:11,19,20;33:14; (10) improve - kinds

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., 36:7;77:8;113:7; 121:15,21 knew (4) 17:25;20:2;63:20; 133:12 knowledge (17) 45:6;65:4,11;68:7,8; 71:11;73:7,8,22,25; 74:8,13;87:1,8;97:5; 124:19;125:6 known (2) 15:13;137:9 knows (3) 65:10,12;83:23 2:10 least (12) 6:15;24:1;70:4; 85:21;93:22;98:14; 105:6;123:9,24; 125:21;128:19;135:14 leave (1) 33:3 led (11) 16:9;29:8;30:14; 32:5;34:20,22;35:8; 65:25;114:13,25; 144:19 left (2) 29:3;133:12 legal (5) 22:6,7;133:25;134:3, 7 legitimate (1) 140:9 lender (2) 44:24;76:15 lending (3) 76:12,15;85:12 less (3) 6:25;59:5;137:18 letter (4) 15:11;63:3;66:16,18 lettering (1) 99:24 letters (1) 66:22 level (13) 6:10;13:9,10;16:2; 34:8;74:8;76:11;77:2; 78:15,20;127:9,14,14 levels (2) 27:13;117:16 Leverage (1) 60:11 leveraged (2) 60:8,10 liability (6) 3:17;5:3;33:13; 37:17;90:13;139:17 liable (1) 136:2 lied (2) 25:2;57:12 lien (12) 27:2,5;36:15,16,19; 102:7,16,21;103:12; 104:16,18;110:6 lies (1) 56:3 lieu (1) 103:25 life (4) 13:21;24:9,11;29:20 light (1) 75:1 likelihood (1) 49:25 likely (4) 35:1;56:14;59:5; 84:22 limine (2) 2:12;23:10 limit (3) 14:1;115:2,14 limitation (1) 49:4 limited (5) 8:13;20:1;36:16; 107:14;112:6 limits (1) 114:9 line (10) 27:24;28:24;71:19; 87:24;88:21;95:10; 97:3;117:25;118:3,5 lines (2) 12:16;31:15 Lipshutz (2) 15:21,21 list (6) 37:5;69:20;90:18; 91:3;92:1;142:9 listing (1) 78:15 litigation (2) 24:18;73:15 little (18) 18:18;28:13;29:12; 40:5;44:21;45:11;46:2, 3,23;59:20;64:10; 84:13;86:19;90:21; 119:15;122:23;133:2; 134:23 live (5) 11:19;14:22;20:22; 90:22,25 lived (2) 11:15;20:21 LLC (1) 48:4 loan (78) 4:1;5:16;6:21;7:7,9, 11,21;11:24;13:6; 15:17;16:19,20;17:9,9, 10;18:7,7;23:1;24:3; 27:17;28:18,19;29:25; 30:8;33:2;34:18;37:19; 44:18,24;49:3,6,8,17, 21,24,25;50:10,17; 52:14;58:7,11,14;59:3, 4,7;60:4,8;79:3,4,7; 80:11,13,14;85:9; 90:15,19;103:19; 111:19,25;112:1; 118:14;119:18;123:2, 3,11;124:4,10;129:3,5; 130:21;137:18;138:1; 144:22;145:1,1,6,7,9 loans (141) 3:16,16,17;4:1;5:2; 6:24;11:21;12:3,5,12, 14,15,17;13:2,14,19, 20;14:1,1,2,4,12,17,17; 15:8,9,13,14,15,18,22, 23,24;16:9,11,13,15, 21,22,25;17:18;18:9, 13;19:5,17;23:14,23, 25;24:4;25:10,19,20, 22,24;26:3,4,9,22;27:2, 18;28:5;30:24;37:13, 16;40:24;44:6,11,13, 16;45:5,9,12,16;48:3, 15,21;51:4;53:5,17,17, 21;59:5,5;64:10,11,14, 15,18,24;65:2,20; 70:23;76:10,10;77:1; 78:19,20,22;80:16; 82:17,20;84:5,7;87:25; 88:13,21;91:2,3;92:13; 96:19,25;98:6;108:21; 119:22;120:1;123:1,4; 125:25,25;127:2,7; 128:13;130:4,7,11,12, 17,20,23;131:9,11,13, 13,18,22;135:10; 136:12;141:10;143:20, 23;144:24 loan-to- (1) 27:4 loan-to-value (3) 34:11;85:13;137:9 logistics (2) 28:7;74:7 long (7) 32:2;46:4;93:2,6; 99:2;110:7;132:25 longer (5) 2:8;19:13;100:9; 133:13;143:12 long-winded (1) 6:5 look (36) 5:14;7:12;16:10; 19:16;23:14,20;25:7; 27:23;29:15;31:11; 32:12,13;34:6,13,15; 35:3;37:6,12;38:1; 42:9;50:4;56:5;63:9, 19;70:15;76:8;87:14; 91:18;103:16;105:24; 113:2,3,5,10;120:14; 129:2 looked (13) 4:1;5:3;14:11;17:5; 19:20,20,24;56:20; 96:1;103:8;112:22,22; 121:18 looking (20) 5:4;28:23,24;48:14; 51:11;78:15;85:17; 87:16;88:17;105:21; 110:17;111:14;112:24; 113:8;120:17;121:19;

October 10, 2012 126:4;128:22;130:8; 131:13 lose (1) 96:13 losing (1) 96:11 loss (74) 17:13;20:7,8,10; 33:18,24;34:2,7,8; 41:17;45:11,12;49:21, 25;54:11,14;55:19; 56:4;79:19,20;80:23; 81:8,9,11,19,23;82:10, 11,14,20,21;84:17,18; 85:6,17;98:4;100:25; 101:14;103:23;104:5, 13;106:3;108:10,12; 109:11;115:22;117:11, 12,22;134:10,13,18; 136:14,15;138:20,24; 140:10,20,20,21,23,24, 25;142:5,7,14,22; 143:8,11,16;144:5,7,9; 145:3 losses (32) 20:9,14,17;33:19; 34:23;40:22;41:20; 49:24;51:6;72:7;80:5; 82:24;86:20,21; 101:12,24;107:12,25; 108:15;110:22;117:24; 122:11;128:3,16,17; 135:2,6,23;138:12; 141:24;144:25;145:10 lost (2) 3:13;11:18 lot (11) 17:16;18:4;19:10; 31:12;57:22;73:24; 74:9;84:3;85:1;90:7; 134:10 low (6) 84:17,20;85:15,20; 106:12;111:15 lower (7) 28:5;34:21,22;39:17; 40:7;85:3;127:6 low-level (1) 10:13 LTV (8) 34:11;117:13;137:9, 12,23;138:9,23;139:11 lunch (4) 74:24;89:2,5;132:13 Luncheon (1) 89:7 lung (2) 24:24,25

L
lack (5) 30:16;97:18,20; 124:18;125:6 language (2) 62:25;128:1 languages (1) 120:20 large (3) 45:16;60:3;69:10 last (16) 3:14;5:1;9:8;22:3; 32:7;38:16;41:7;76:8; 88:17;89:4;111:18; 115:11;118:24;120:21; 126:9;132:11 later (16) 10:18;23:10;24:17; 25:15;26:1;27:22;29:7; 31:18;34:4;35:20;70:2; 87:11;92:1,25;115:16; 129:12 latter (1) 95:1 law (4) 60:3;89:3;91:18,19 lawsuit (5) 11:14;14:19;45:15; 65:16;98:14 lawyers (2) 19:7;69:13 lay (1) 54:13 lead (4) 17:2;31:23;59:17; 90:21 leading (2) 16:5;59:20 leads (1) 30:24 leap (2) 135:15;143:18 learn (1) 91:16 learned (1) 90:7 learning (1) Min-U-Script®

M
magnitude (1) 55:20 (11) knew - magnitude

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., main (3) 18:24,25;94:1 major (3) 73:18;105:21;120:24 majority (1) 69:6 makes (3) 2:15;61:10;100:24 making (7) 26:14;29:18;69:14; 88:15;98:6;117:10; 126:17 managed (2) 94:4;128:18 management (13) 47:6,9,13;98:5,20; 118:17;124:17;125:19, 24;126:12,21;127:20; 128:19 manages (1) 46:22 Manhattan (1) 16:8 manner (1) 132:24 many (9) 2:5;7:9,9,10,21; 42:19;43:15;104:13,13 marked (1) 53:14 market (10) 33:10;36:14;37:3,9, 15;40:9;135:22,25; 139:15;145:2 marketplace (1) 136:21 markets (1) 36:24 Maryland (2) 17:5,9 Mason (6) 4:6,22;17:15;18:7, 11;23:5 massive (1) 31:17 matched (2) 124:5,6 matches (1) 130:11 material (38) 5:14;23:2,25;27:19; 28:1,14;29:25;30:8,11, 17;33:5;54:24;55:6,16; 56:8,11;57:14,20,23; 58:5,17;59:1;60:6; 61:9;63:12;72:22; 131:21;135:9,20; 137:4,15,15,20,21; 138:1,8;140:1,19 materiality (10) 26:7;28:10,17,21; 29:19;54:19,19,22; 57:15;58:14 Min-U-Script® materially (7) 17:13;19:5;24:3; 62:9;143:7,16;144:4 materials (3) 29:15;40:15,17 math (3) 17:16;22:10;32:5 Matt (1) 133:1 matter (15) 9:2;24:2;32:9;33:4; 36:1;62:5;68:24;72:11; 83:5;89:4;117:7; 127:18,24;132:6,10 matters (10) 2:7;10:20;91:14; 112:18,20;113:2,5; 132:15;136:2;144:15 maturities (1) 44:3 maturity (4) 44:4,5,6,8 may (18) 2:21;8:17;10:18; 11:13;32:5;44:7,7; 55:12;58:11;59:21; 60:18;68:18;69:5; 103:1;118:5,10;133:9; 144:13 Maybe (6) 6:3,14;24:22;91:23; 139:2;140:8 mean (22) 15:25;31:12;33:9; 36:13;39:9;60:10; 61:25;64:17;80:9;81:7; 102:8,13,18;103:24; 104:24;108:4;109:16; 112:20;116:25;119:19; 126:25;130:15 meaning (3) 36:9;44:3;60:11 meaningless (1) 72:5 means (10) 3:2;15:25;27:9; 29:24;73:2;80:2,22,25; 81:6;88:11 meant (1) 53:20 measures (1) 73:10 mechanisms (1) 122:6 medical (1) 25:2 meet (5) 38:3;44:24;45:17; 51:5;125:24 meeting (1) 112:7 Meetings (4) 124:15,17;125:19; 126:1 member (8) 47:11,18;99:2,4; 100:13;123:23;124:22; 125:13 members (7) 75:16;83:10,12; 113:16,16,18,21 memo (9) 74:3,6;100:10,17,24; 101:10;102:12;105:17; 125:13 memorandum (1) 100:1 memory (2) 80:4;104:25 memos (2) 103:8;129:20 mental (1) 135:15 mention (2) 3:6;11:4 mentioned (4) 44:20;46:12;60:13; 61:21 mere (1) 117:18 merged (1) 96:17 merger (3) 31:5;93:13;99:6 Messrs (3) 114:13,25;115:19 met (5) 44:16;63:7;92:20; 129:19;131:18 method (3) 101:23;108:12; 109:11 methodologies (1) 23:7 methods (1) 101:11 metropolitan (1) 115:23 mic (1) 38:20 Michigan (1) 37:1 middle (1) 3:23 might (8) 6:15;23:1;41:19; 57:22;68:23;103:14; 105:1;131:4 million (21) 12:8;17:23;18:21; 28:2,4,6;34:22,24,25; 35:6;42:22;43:17; 87:22,24;88:12,19,21; 130:22;136:2,4,7 millions (1) 12:6 mind (2) 2:25;122:7 minds (1) 117:23 mini-deposition (1) 10:21 minimize (2) 121:21,23 minimum (2) 44:23;120:22 minute (10) 6:12;7:22,22,23;9:5; 43:5;57:12;80:19; 111:13;133:25 minutes (7) 11:4;35:12,13;75:8; 112:6;132:11;133:2 miscalculated (2) 140:24;141:22 misleading (2) 22:11,16 misrepresentation (12) 44:18;49:2;51:9; 55:5,15,21;59:14;60:6; 71:9;73:17;98:11; 136:20 misrepresentations (8) 58:17,21,24;59:8,24; 134:15;138:13;140:2 miss (1) 91:17 missestimated (1) 2:9 missing (2) 30:4;136:22 mistake (1) 56:6 Mm-hm (8) 39:25;41:6;42:18; 46:17;51:21;92:22; 101:21;103:21 model (67) 13:18;17:17,24;18:5, 8;20:7;33:24;34:4,4,5, 7,7,9,13,17,19;35:7,8, 24;81:9,23;82:15,15, 21,21;84:3,5,10,11,17, 21,25;85:10,11; 100:25;101:3,5,9,15, 15;102:20,24,25;103:6, 7,12,23;104:3,5,8,22; 105:9;106:3,12;107:8, 14,16,25;108:4;109:17, 21;111:3;116:13; 117:13;129:10;139:24; 140:25 modeled (3) 17:17;141:11;143:11 modeling (19) 20:8;33:12;34:2; 117:11,22;134:10,13, 18;135:10,21;137:3; 138:25;139:12;140:20,

October 10, 2012 21;142:14;143:21; 144:7;145:4 models (16) 13:23;34:3,4;81:10; 84:16,19,20;85:9,20; 101:5;104:13,13,20; 105:4;117:12;140:22 moment (3) 81:3;95:17;125:3 monetary (1) 17:15 money (4) 17:21;96:11,13;98:5 monitors (2) 46:22;94:9 month (2) 17:5;120:11 monthly (1) 42:13 months (3) 98:14;117:18;145:7 Moody's (1) 46:11 more (43) 2:15;11:3;23:8,12, 12;24:25;29:10,12; 30:10,19;35:7;40:5; 43:23;44:8;45:6;49:19; 56:3,14;60:7;68:23; 80:12;85:3,13,20;86:1, 2;110:9;112:21;113:4; 115:24;119:15,23; 122:1,23;125:20; 126:24;128:3;129:7; 132:16;133:4;144:6,6; 145:7 Morgan (1) 19:15 morning (16) 2:3,6,11;11:2,12; 38:23,24;90:17;92:9; 97:11;107:13;123:18; 134:1,4;135:3;145:14 mortgage (30) 16:3,6,8,8;36:15; 48:15,21;49:3,6,8; 50:10;53:17,17,21; 79:23;80:5,6,9,10; 82:22;84:2,5;100:7; 106:6,8;110:6;118:14; 119:18,22;120:1 mortgage-backed (6) 11:16;12:20;82:23; 94:13,16,20 mortgagor (1) 49:5 most (15) 12:11;18:1;27:23; 36:3,23;46:23;60:2; 67:21;82:24;84:1; 85:15;106:5,9;111:16; 140:12 motions (2) (12) main - motions

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., 2:12;23:9 motivations (1) 98:8 mouth (2) 37:17;85:24 move (10) 4:25;12:17;45:25; 74:15;77:23;98:16; 100:19;114:16;118:7; 134:20 MRC (7) 98:23;99:2,5;100:2, 11;123:23;125:13 Mrs (1) 27:21 MSA's (1) 115:23 much (20) 9:2;20:25;29:10; 31:8;34:8,21,22;35:4, 8;38:6;45:6;51:10; 84:7,8;85:13;91:12; 93:24;127:19;133:9; 140:13 multiplier (2) 33:20;35:7 municipal (3) 39:7;46:24;93:16 must (4) 19:4;44:24;76:16,23 myself (1) 4:17 neglected (1) 3:6 negligence (1) 49:2 neither (4) 11:6;98:15;136:7,16 Nelson (1) 15:21 nervous (1) 22:22 net (2) 115:1,14 Nevada (1) 36:25 new (23) 2:17;4:13,13,14;5:8, 13,17;6:10,23;7:3,9,10; 8:8,23;10:8,14;90:24; 94:14;96:18,24;98:5; 102:18;143:10 next (19) 2:5;15:20;16:4;21:8; 44:5;52:17;70:15; 81:18;89:8;90:5;92:4, 5;106:15;107:11,24; 112:2;118:7;121:11; 126:2 nice (1) 92:23 night (1) 22:3 NIM (2) 109:13;111:6 Nobody (3) N 17:5;20:2,13 non-agency (2) nagging (1) 87:23;88:20 33:3 none (2) name (5) 15:9;33:13 38:16,16;46:12,14; Nonetheless (1) 93:15 35:17 narrow (3) nonexpert (1) 8:2;105:5;143:13 8:16 natural (4) nonfinancial (1) 101:24;102:20; 59:3 109:13;113:2 nonmaterial (1) nature (4) 30:6 7:18;13:2;30:21; nonpayment (1) 102:10 27:7 nearly (3) non-primary (1) 14:8,13;17:2 59:24 necessary (3) nonsmoker (1) 15:24;90:25;144:18 13:24 need (15) nonsmokers (1) 2:4;7:2,15;12:25; 13:23 13:1;15:11;22:12;29:2; 38:19;69:17;70:6,14; nor (3) 98:15;136:7,16 84:15;87:11;132:2 normally (2) needed (3) 41:8;74:25 12:17,22;144:16 notation (1) needs (2) 87:10 13:18;132:18 noted (1) negative (1) 115:20 124:7 Min-U-Script® notes (3) 11:17;12:25;42:21 notice (1) 83:19 notices (2) 14:16;15:7 notwithstanding (1) 137:17 November (3) 118:15,24;120:6 number (20) 6:24;13:11;15:24; 16:16;32:23;33:18,18, 24;41:22;45:16;50:7; 69:10;76:1;79:3;85:10; 90:16;91:11;116:8,10; 121:17 numbered (1) 48:18 numbers (6) 16:13;19:20,22,23; 85:3;87:1 Numeral (1) 126:6 Numerous (1) 6:18 obtain (1) 30:13 obtained (1) 73:1 obvious (1) 40:15 obviously (1) 69:11 occasions (1) 41:11 occur (4) 41:22;65:23;112:1; 125:21 occurred (12) 4:16;5:24;7:18;26:8; 29:10;31:10;65:5; 111:25;123:15,19; 124:24;125:15 occurrence (2) 49:3;58:10 occurring (1) 30:3 o'clock (4) 11:2;89:4;132:6; 145:18 October (1) 145:17 off (2) O 12:17;76:14 offer (15) object (8) 5:25;9:8;42:15;43:2, 6:1;68:3;74:14;87:5; 7;48:5;52:7;60:22; 90:25;95:11;97:2; 68:20,20,24;75:18; 117:2 78:6;86:11;137:8 objected (2) offered (6) 69:21;97:6 7:14;8:14,15;69:2; objecting (1) 95:12;144:14 69:23 offering (6) objection (68) 7:3;40:15,16;66:24, 7:13;9:12;22:5,6,19; 25;67:11 43:5,6,9,10;45:19; offers (3) 48:7;49:10;50:2,19; 5:25;27:16,17 52:9,15;53:6,22;54:12; 55:7;59:11;60:16,23; officer (11) 14:24;15:1;39:3; 61:18;62:1;63:16,22; 46:19;47:6,10;54:20; 65:3;66:2,10,11,19; 65:13;72:13;98:21; 67:2,3,13,14;71:10,20; 119:5 75:19;77:5,15,20;78:7; 86:13,24;88:7;91:3,7; offs (1) 37:20 95:4,12,16,18;97:15, often (1) 17,20,21;100:21; 25:5 102:23;103:2;114:19; OK (7) 117:1;119:9;124:18; 39:24;42:4;46:16; 125:1,1,5;134:9; 95:19;98:16;105:18; 142:25 106:4 objections (2) old (2) 97:4;140:4 5:22;143:9 objectively (1) older (1) 22:10 84:10 obligation (5) omission (2) 12:4;45:21;142:12; 13:13;49:2 143:3,4 Once (5) observations (1) 20:7;33:8;92:21; 106:11

October 10, 2012 97:22;141:3 one (62) 2:9,12;6:21;11:1; 12:19;13:5,23,23;14:6, 7,7,18,23;15:12,23; 16:21,21;17:11;20:12; 23:17;25:18;31:17,18; 34:7;38:14;51:15; 54:18;59:2;60:5;73:15, 24,25;74:10;76:23; 79:5,15;81:9,20;83:19; 84:16;85:2,22;86:1; 93:23;99:20;101:5; 104:16,18,25;107:20, 24;115:2;117:12,14; 121:10;124:24;128:21; 129:12;131:4;132:13; 133:21,23 ones (7) 13:5;18:10;27:6; 28:14;85:21;92:13; 94:14 only (35) 8:25;11:1;12:2; 13:20;16:18;18:1,8; 20:12;26:4,24;28:3; 31:7;34:19,24,24; 36:18;58:7;59:12; 65:10,12;71:14;72:19; 96:17,22;98:2;101:13; 104:25;107:11,25; 108:5;109:12,17; 111:3;133:20;140:4 on-site (11) 120:25;121:9,19; 122:5;124:12,13,25; 125:15,17;126:6;128:7 OO (2) 120:14;126:4 open (4) 2:1;30:20;35:17; 41:4 opening (12) 11:6,7,8;21:1;22:4, 13,15,25;24:8;92:9; 117:7;134:11 operations (11) 120:25;121:19; 122:5;124:13,14,25; 125:15,17;126:6,13; 128:7 opine (1) 5:23 opinion (2) 8:6,7 opinions (11) 5:10;6:13,13;7:3,3,4, 20;8:2,2,3;9:8 opportunity (2) 4:21;8:23 opposed (3) 70:16;73:10;91:19 opposite (1) (13) motivations - opposite

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., 53:13 option (1) 109:13 order (7) 12:22;18:13,20; 44:24;58:6;133:21; 143:13 organization (2) 113:1,8 original (9) 3:20;5:12;6:25;9:9, 11,18;10:15;90:23; 91:12 originated (5) 15:12;23:14;50:10; 64:24;79:7 originating (1) 128:13 origination (12) 16:6;23:1,15;30:17; 49:6,16,24;58:12; 125:25;127:24;135:14, 19 originations (2) 98:4;127:23 originator (2) 50:16;123:4 originators (5) 96:19,25;108:22; 129:15;131:9 others (1) 114:1 otherwise (7) 23:18;39:18;69:9; 73:10;91:25;141:23,24 ought (2) 91:3;128:3 ourselves (1) 60:21 out (25) 2:15;5:12;15:9; 16:15;19:16;24:15; 25:4;27:24;31:15; 32:21;35:19;37:17; 60:19;65:7;70:16;73:6; 74:10;81:9;91:6,8,9; 103:15;124:7;130:23; 136:4 output (2) 34:16;141:1 outside (4) 16:19;45:5;88:9; 125:18 outsider (1) 49:17 outstanding (3) 44:2;46:23;130:7 over (15) 2:5;12:7;15:18;16:6; 17:23;18:20;30:1; 46:23;70:15;90:5; 95:16;96:22;103:17; 132:7;140:25 Min-U-Script® overall (2) 6:22;126:16 overarching (1) 145:10 overcollateralization (1) 33:23 overnight (1) 145:13 overreliance (1) 108:9 Overruled (2) 63:23;97:22 oversaw (1) 133:5 oversee (2) 46:21;109:7 overstates (2) 55:24;56:2 Overview (4) 101:19;103:16; 120:17;128:22 overwhelming (1) 14:13 own (11) 11:23;12:15,20; 15:14,15;32:16;34:19; 37:17;59:17;73:1; 142:13 owned (1) 88:3 106:5;107:25;108:8, 10;110:18,20;111:14, 18;115:5,9,11;116:6; 120:21;126:10 paragraphs (1) 48:18 parent (2) 35:20;96:6 parenthetical (1) 114:9 part (20) 10:8;13:13;15:4; 25:15;44:18;49:4,22, 23;70:5;73:18;77:18; 93:2;113:15;123:10; 128:7;133:22;134:11; 140:9;141:8,15 partial (1) 68:22 participated (2) 83:11,12 particular (7) 7:14;37:2;87:9;91:2; 97:9;102:12;145:9 particularly (5) 34:9,10;44:8;59:1; 138:22 parties (5) 11:23;14:5;98:8; 114:10;141:19 partner (1) 134:9 partners (1) 60:3 parts (1) 23:3 party (10) 49:6;57:8;71:3; 95:15;98:12;108:24; 129:18;131:8,11; 133:21 pass (1) 88:25 past (2) 76:20;103:17 patience (1) 38:5 patient (2) 24:14,19 Pause (6) 3:12;80:3;95:11; 125:4;134:23;140:3 pausing (1) 95:17 pay (22) 12:25;14:11;17:22; 18:16;25:5;26:23; 27:10,11;33:25;36:15; 40:18;41:8,10,12,17, 19;43:20,23;80:18; 129:11;141:13,16 paying (1) 136:7 payment (1) 39:11 payments (6) 34:24,25;35:6;64:19, 20;141:6 payout (1) 136:2 pays (1) 136:4 pen (1) 29:1 pending (1) 103:2 penny (1) 11:18 people (4) 12:23;24:21;46:21; 85:5 per (5) 5:16;7:7,9,11,21 perceived (2) 121:21;122:7 percent (31) 16:17;20:11,13;28:1, 4;30:25;31:1,7,7,11,12, 14,14,25;32:22;37:13, 16;81:2,12,15,19; 82:12,15,18;106:10; 115:20;127:10,13; 136:15,16;141:1 percentage (1) 18:13 percentages (2) 31:20;34:6 perfect (2) 37:18,21 perfectly (1) 127:10 perform (8) 24:13,20;30:24; 34:14,15;39:12;71:4; 131:7 performance (5) 82:20;85:4;120:23; 121:7,16 performed (8) 24:6;32:11;72:4; 74:4;102:1;120:9; 124:8;130:1 performing (9) 18:9;26:3,16;42:14; 110:11;112:23,25; 113:11;122:4 performs (1) 145:7 perhaps (3) 94:21;105:3;117:4 period (14) 30:2;36:9;90:19; 93:25;94:19;99:9,10; 100:15;104:14;108:5; 117:8,17;118:15;120:8 permission (1)

October 10, 2012 90:10 permit (3) 4:7,20;45:21 permits (2) 6:21;14:16 permitted (3) 5:23;6:2;59:16 permitting (1) 141:4 perpetrated (1) 131:1 person (4) 13:14;49:4;55:23; 84:18 personal (13) 65:4,11;68:7;71:11, 25;72:20;73:25;74:8, 13;87:1;97:5;124:19; 125:6 personnel (2) 96:24;126:11 perspective (1) 126:18 pervasive (2) 23:24;30:12 PhD (1) 17:15 phone (1) 4:16 physical (2) 110:14,24 pick (2) 132:3,12 picking (1) 136:25 piece (3) 103:11;130:14,16 pieces (1) 83:17 pile (1) 14:10 place (8) 12:10;15:6;19:21; 39:21;49:4;86:25; 95:25;127:2 places (1) 16:7 plaintiff (7) 11:8;38:7,8,10; 67:22;70:14;71:18 plaintiffs (3) 4:5;70:3;74:10 plaintiff's (20) 7:19;9:5;43:12;48:9; 52:11;57:1;60:25; 66:15;67:5,9,16;73:18, 23;74:19;75:21;78:9; 86:7,11,15;142:22 Plaintiffs' (5) 41:4;42:9,25;47:21; 48:6 plan (1) 132:8 (14) option - plan

P
page (44) 21:8;42:17,19;43:4, 15,15;48:12,22;50:5; 52:17;53:9,13,13;61:2, 6;62:23,25;75:23,25; 76:5,8;78:11,13,14; 81:18;82:5,8;86:17,20, 23;87:1,14;89:8;95:10; 101:18;105:16,22; 106:15;114:7;120:14, 15;126:2,2;128:21 paid (18) 11:17;12:6;18:14; 33:4;41:1;42:20;43:16; 135:3,4,6,8,18;140:18; 141:3,9;143:4,11,20 Palm (1) 17:8 palpably (1) 22:11 paper (3) 29:1;110:2,6 papers (1) 19:21 par (3) 115:2,14;130:7 paragraph (25) 48:24;76:8;78:15,18; 79:15;81:5;87:16,19; 88:17,18;101:22;

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., planning (1) 133:6 plans (2) 108:14;110:20 play (2) 133:9;138:1 plays (1) 139:15 please (14) 11:13;14:17;48:12, 22;63:9;76:9;78:11; 112:21;125:19;126:24; 128:24;130:17;134:4; 139:3 plenty (1) 143:22 pm (4) 90:2;92:12,14,15 point (21) 6:3;10:3;23:11,15; 32:19;50:24;57:11; 73:13;86:2;105:24; 114:20;118:18;122:17; 123:9;124:12;125:18, 21;126:16;128:23,25; 138:17 pointed (2) 15:9;87:9 points (3) 73:15;87:9;97:9 police (5) 7:20;8:20,21,22;9:3 policies (13) 15:2;17:14;39:24; 40:2,11,19;41:1;43:21; 44:10,25;47:17;70:24; 143:5 policy (12) 12:24;24:11,13,20; 42:21;43:17;63:2,8,20; 64:3;77:10;83:5 pool (9) 28:4,5;30:8;80:6; 107:4;108:21;122:11; 145:1,1 pools (17) 16:3;23:25;26:9; 30:15;33:2;37:6; 106:13;107:1,5,8,9,12, 17;108:1,6;111:12; 145:10 portfolio (8) 46:22;112:23; 113:10,12;120:23; 121:7,16;122:13 portion (2) 95:18;105:22 position (2) 47:4;73:9 positions (1) 137:11 positive (4) 94:21;103:11; Min-U-Script® 104:12,17 possibility (2) 130:18;136:15 possibly (1) 70:2 post- (1) 37:9 post-transaction (3) 135:11,21;142:19 post-trial (1) 67:23 potential (6) 29:24;35:5,18;37:10; 122:8,13 potentially (1) 131:1 powerful (1) 18:12 precedent (1) 63:2 preclude (2) 134:20;145:12 predecessor (3) 46:5;61:16;93:8 predict (3) 80:5;107:25;128:17 predicted (3) 34:8;84:5;107:12 predicting (1) 49:24 prediction (2) 88:15;127:9 predictive (6) 36:3;106:12;107:8, 17;111:11,15 preexisting (1) 25:2 prefer (3) 74:23;133:19;134:3 prejudice (1) 2:13 preludes (1) 93:3 premature (1) 8:12 premiums (1) 33:15 prepare (2) 68:5;91:12 prepared (2) 9:10;68:12 presence (1) 110:25 present (3) 114:1;116:10;133:22 presentation (1) 22:4 presentations (1) 51:17 presented (2) 26:17;94:4 presenting (1) 114:10 preserve (1) 70:4 press (1) 84:13 presumably (1) 79:13 pre-transaction (2) 71:24;73:16 pretty (3) 31:14;93:22,24 prevail (1) 67:23 prevent (1) 139:25 prevented (1) 18:15 previous (2) 72:17;125:5 previously (2) 11:5;94:25 prices (6) 37:19;116:8,9,12,17, 18 primarily (2) 37:4;102:16 primary (2) 59:2,5 principal (1) 44:4 prior (14) 3:22;4:5,19;19:12; 24:12,19;25:8;32:18; 63:7;76:22;78:22; 94:17;95:8;139:11 private (1) 17:4 probably (4) 24:25;38:14;89:4; 92:21 probative (1) 135:19 problem (3) 10:24;12:19;27:5 problems (8) 15:11,16;16:24;17:9; 18:1;19:17;77:3,9 procedural (1) 68:14 procedures (4) 126:12,14;128:7,11 proceed (1) 103:1 proceedings (1) 134:21 proceeds (1) 36:19 process (40) 4:9;26:8;29:11,11, 21,23;30:3,19;36:18; 44:19;49:16;58:12,13; 64:18;65:5;66:4,21; 69:13;71:8,14,24;73:7; 74:2,4;76:12;78:21; 80:7;97:5;108:16,17, 23;109:7,18;127:6,17; 129:1;130:11;133:6; 137:4;142:14 processed (1) 109:5 processes (1) 31:9 produce (1) 92:8 produced (9) 32:15,17,18,20; 68:13;69:20;70:9,11; 92:9 professional (1) 25:25 Professionals (1) 25:24 profile (3) 24:4;26:13;138:2 profit (1) 41:10 profits (1) 12:13 project (1) 140:21 projected (3) 33:21;34:23;35:5 promise (9) 11:15;12:25;13:1,24; 14:3,4,5;43:20;91:23 promised (1) 90:3 promises (13) 11:14,15,20;13:25; 14:1,2,6;16:16;20:22, 22;44:11,25;45:13 proof (4) 38:4;68:20;133:22; 137:8 proper (1) 28:20 properly (12) 16:1;69:2;73:2; 76:16,21;113:13; 139:12,16;141:25; 142:2,4;143:20 properties (3) 17:8;59:6,8 property (6) 13:11;36:8,11,14,24; 60:5 proportion (1) 14:13 proposal (6) 26:18;110:13;115:6, 9,12,14 propose (1) 95:10 proposed (2) 107:14;110:5 proposes (1) 111:1

October 10, 2012 proposition (1) 59:19 proprietary (1) 34:5 prospected (1) 140:21 prospects (1) 126:22 protect (3) 33:23;40:25;131:6 protecting (1) 130:18 protection (1) 40:23 prove (9) 14:20;15:19;18:25; 67:22;68:15;138:3; 143:3,5,14 proven (1) 134:18 provide (6) 61:22;70:6,20;92:15; 99:17;141:23 provided (17) 4:20;6:17;25:13; 26:6;39:19,23;45:18; 48:21;58:18;60:20; 90:18,18;91:3;111:22; 131:15,24;141:24 provides (3) 42:13;111:19;123:5 providing (2) 62:2;91:7 provision (3) 61:13,17;62:19 provisions (3) 54:2;62:3,14 prudent (1) 121:17 Prudential (1) 16:7 purchase (6) 14:18;47:24;51:11, 12,17;62:20 purchased (2) 40:12;96:17 purported (7) 3:15;5:13;23:2;24:2; 32:24;33:5;135:9 purports (2) 5:1;30:23 purpose (14) 42:12;48:2;49:9; 51:25;57:9,10;60:14; 75:14;96:18,21; 112:17,24;126:17; 131:4 purposes (5) 56:12;95:12,23; 132:20;145:12 push (2) 96:25;98:6 put (18) (15) planning - put

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., 4:3,5;9:4;11:16; 14:5;22:15;29:1;37:24; 54:3,23;57:23;59:13, 20;73:23;85:24;93:3; 96:2;132:21 puts (1) 57:19 Putting (4) 76:25;91:1;96:19; 133:6 30:9;39:17;127:11,13 rated (1) 103:12 rates (12) 6:22;27:23,24;28:6; 30:25;31:2,6,8;32:6,10, 24;79:21 rather (2) 84:11;135:20 rating (5) 12:21,22;39:15;40:8, 16 ratings (3) 39:16;40:6,7 ratio (2) 34:11;137:9 rationale (2) 30:5;83:14 ratios (1) 19:20 reach (1) 129:4 reaction (3) 104:8,10,11 read (19) 25:15;49:1;50:9; 61:6;62:25;63:9;76:8; 79:16;80:3;81:8;87:3, 11,21;88:18;95:10,18; 121:5;124:11;125:13 reading (1) 142:10 real (10) 23:22;29:20;115:17; 116:3,5,16;117:9,16, 23;138:12 reality (1) 29:9 really (14) 8:18;10:23;20:13; 37:23;46:22;49:23; 59:19;66:9;82:10;89:5; 91:22;105:2;127:13; 129:23 real-time (1) 91:24 reason (13) 5:18;19:25;23:16; 51:5;62:7;76:11;85:11; 96:10;98:14;122:4; 135:18;140:4;144:24 reasonable (1) 24:25 reasonableness (1) 129:23 reasonably (1) 5:20 reasons (4) 28:8;41:23;98:2; 134:22 Rebecca (2) 16:4;23:5 rebuttal (1) 3:20 rebutting (1) 72:9 recall (9) 76:18;83:14;92:21; 99:2;104:20,21,23,24; 125:16 recalls (1) 35:17 receive (2) 108:23;118:1 received (34) 2:23;3:15;4:10;5:1; 8:23;22:3;26:22;27:11; 43:11,12;48:8,9;52:10, 11;60:24,25;67:4,5,15, 16;75:20,21;78:8,9; 79:9;86:14,15;100:17, 22,23;114:21,22; 119:10,11 receiving (1) 74:3 recently (2) 81:8;94:15 Recess (2) 21:7;89:7 recipient (2) 65:10;74:6 recision (1) 79:1 recognition (2) 117:16;137:8 recognize (11) 42:10,25;47:23; 51:22;57:4;66:15;67:9; 74:19;78:3;100:4; 140:7 recollection (4) 94:23;95:21,23;96:2 recommended (2) 35:22;130:1 record (8) 31:23;80:10,13;82:3; 87:3,12;124:4;133:14 recorded (2) 87:22;88:19 recover (2) 17:23;136:8 recovering (1) 140:1 recovery (1) 142:7 red (1) 20:4 redundant (1) 93:1 refer (6) 39:23;46:15;80:12; 95:24;112:13;122:17 reference (11) 100:24;102:4;103:7; 105:7;108:20;114:1,2, 24;116:2;125:14,23 referenced (1) 125:22 references (1) 102:24 referred (9) 62:21;78:24;80:8; 102:24;103:7;104:22; 116:6;129:21;142:22 referring (9) 81:10;103:22;104:5; 109:3;116:7;124:14; 128:25;129:22;137:25 refers (4) 62:19;79:1;122:18; 129:1 reflect (3) 6:22;16:1;145:13 reflected (1) 115:8 reflective (1) 30:18 reflects (2) 6:23;7:1 refresh (2) 95:21;96:2 refreshing (1) 95:23 refused (1) 14:18 regarding (3) 11:21;53:16;68:8 regardless (3) 97:23;138:4;143:21 reimbursed (2) 35:2;43:18 reimbursement (1) 68:16 reiterated (1) 35:14 rejected (1) 18:24 rejects (1) 18:17 relate (5) 71:21,22;102:21; 120:24;135:11 related (3) 115:9;120:1;127:14 relates (1) 117:3 Relating (2) 48:15;57:13 relation (1) 49:7 relationship (4) 37:19,21;60:21;62:4 relative (4) 24:4;60:12;90:23; 108:18 relevance (14) 54:16;97:20,25;98:7; 114:19;117:3,5,20; 118:4;125:8;134:9,25;

October 10, 2012 136:23;142:25 relevant (22) 8:16;36:3;55:1; 72:22;73:11,12;95:18; 97:6,12,23;115:24; 117:17;118:3,5; 134:22;136:18;137:1, 13,19;138:15;140:9,16 reliability (1) 23:5 relitigate (2) 143:1;144:9 reluctant (1) 84:9 rely (3) 10:8;23:4;28:23 relying (1) 23:18 remedies (1) 20:18 remedy (14) 11:23,24;15:4;18:2, 6,11;19:4,13;20:17; 143:13,18,25,25;144:8 remember (4) 19:18;71:6;104:19; 105:3 remind (1) 22:12 reminded (1) 89:3 rendered (1) 144:18 RENDON (124) 2:21;3:14;5:7;6:3, 14;7:5,16,25;8:4,19,22; 9:17,25;10:4,13,25; 21:3,6;22:21;43:6,10; 48:7;49:10;50:2,19; 52:9,15;53:6,22;54:12; 55:7;59:11,16;60:16, 23;61:18;62:1,17; 63:16,22;65:3;66:2,19; 67:3,14;68:3;69:19,21, 25;71:10,17;73:5,21; 75:6,9,19;76:1,3;77:5, 15,20;78:7;86:13,24; 87:5;88:7;90:7,12; 91:22;92:16,19,20; 93:5;95:5,20;96:3,4; 97:6,7;98:1,16,18,19; 99:16,20;100:19; 103:1,4;105:15; 110:18;114:15,23; 116:19,24;117:6,21; 118:2,6,9;119:7,12,13; 124:21;125:9,12; 133:4,15,18;135:1; 136:25;137:22;138:6, 16,20;139:2,4,7,10,21; 140:17;142:3;144:11, 13,16 rep (2) (16) puts - rep

Q
qualify (2) 58:7,7 quality (13) 23:23;26:23;27:17; 33:1;80:15,17;84:8; 126:14,21;127:20,23, 23;131:15 quarter (1) 20:12 query (1) 75:1 quick (1) 37:24 quickly (1) 91:22 quite (3) 11:3;79:7;132:11 quote (1) 91:16 quotes (1) 115:18

R
raise (2) 23:10;132:18 raised (2) 24:3;58:12 raising (1) 2:13 Rakoff's (1) 58:20 rambling (1) 32:3 rampant (1) 23:24 ran (3) 74:3;94:2;113:23 random (5) 25:9,17;26:9;27:15; 108:21 randomly (3) 25:19,20,22 range (4) 106:10;107:2;108:1; 111:17 rapidly (1) 115:24 rate (8) 6:23;12:14;28:2,5; Min-U-Script®

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., 142:6,20 repackaged (1) 142:17 repayment (1) 88:13 repeatedly (1) 90:5 rephrase (1) 103:3 reply (1) 3:19 report (20) 3:24,25;4:3,11,20; 5:21;6:1,2;7:1;8:14; 9:9,11,18;10:11,11,15; 42:11;43:1;91:12; 131:20 reported (3) 86:20;87:4;123:24 reporting (1) 47:14 reports (1) 135:4 representation (11) 13:12;49:9,12;50:1, 7,12;61:10;63:15; 77:18;137:14;144:2 representations (27) 11:20,25;12:2;13:1, 4;14:14;16:14;19:1; 44:12,14,15,16;45:8, 17;48:15,20;50:4; 52:14;53:16;54:8;61:7; 63:10;64:2;77:13; 98:10;136:11;140:11 representative (9) 15:25;25:9,19,20,22; 26:9;27:15;54:20; 108:21 represented (5) 9:7;49:15;58:9;85:4; 136:13 representing (2) 49:15;59:13 reps (11) 13:17,19;15:3,5; 20:1;54:21;134:20; 142:9,18;143:6,15 repurchase (24) 12:4;14:17;15:4; 17:19;18:2,3,6,8;19:4, 13;20:17;65:5,20;66:4, 21;69:13;96:18;97:4, 11;143:13,18,25,25; 144:8 repurchased (3) 17:18;143:20,23 repurchases (2) 18:15;98:2 reputation (1) 26:2 request (2) 24:14;115:1 Min-U-Script® requests (1) 65:20 required (6) 11:6,25;17:19;64:4, 4;111:20 requirement (3) 76:15;120:22;142:1 requirements (1) 44:23 requires (1) 91:19 rereading (1) 101:12 rereview (1) 108:15 rescind (1) 79:3 research (3) 24:22;29:19;47:15 reserve (1) 133:23 reside (1) 45:5 residence (1) 59:2 residences (1) 59:24 residential (11) 79:23;82:21;100:7; 106:6,8;115:17;116:2; 118:13;119:18,22; 120:1 residual (5) 87:22;88:1,5,12,20 respect (9) 2:12;47:16;48:21; 49:3;51:8;70:6;72:1; 123:3;131:16 respects (2) 61:9;63:12 responsibilities (5) 46:19;47:8,9,16;52:3 responsibility (2) 141:18;142:19 responsible (6) 45:12;47:12;64:18; 79:24;125:24;142:6 rest (1) 145:15 result (18) 12:5;25:1;26:20; 31:4;35:1;39:17;45:7; 81:10,11;87:23;88:20; 116:14,16;123:18; 131:11;135:14,20; 141:9 resulted (2) 123:25;145:8 resulting (1) 141:10 results (16) 16:11;30:15;33:13; 35:16;76:6;78:14; 79:18;80:20,22;81:7; 108:13,15;109:25; 110:3,22;131:12 resumed (1) 92:17 retransfer (2) 53:17,20 return (1) 13:1 re-underwrite (1) 131:8 reunderwriters (1) 29:22 reunderwriting (6) 25:25;26:3,8;29:11; 31:8,9 re-underwriting (2) 108:21;129:14 reunderwrote (1) 26:4 revealed (1) 143:1 review (50) 30:24;70:23;71:4,8, 15;76:7;77:12;79:8; 80:7;103:20;104:1,3; 108:20;109:7,12; 110:1,2,12,14,21,25; 111:19,25;112:1,12,18; 120:25;121:1,19,20; 122:5,16,19;123:8,17, 18,19,25;124:8,9; 126:7,10,11,13,14; 128:6,7,24;129:21,22 reviewed (9) 3:18;68:21;71:13,14; 74:20;76:10;78:19; 118:21;123:17 reviewers (2) 28:22,24 reviewing (3) 50:23;128:10;129:19 reviews (7) 32:24;77:24;108:14, 16;110:21;122:6; 125:23 revolving (2) 88:21,22 Rick (1) 114:10 right (42) 2:3;10:16,21;13:19, 20;15:14;16:2;18:1; 19:20,20;20:13,25; 28:19;37:3;41:25; 53:11;56:1;59:24; 62:10;69:23;70:19; 73:4;79:1,15;80:1; 81:13;82:1;85:8;87:7; 91:23;93:21;110:10; 111:7,10,10;119:21; 134:7;136:24;139:12, 15;141:21;143:8 rights (5) 48:10;52:4;53:4; 57:7;61:22 risen (1) 116:8 rises (1) 29:1 risk (85) 13:8,18,22;14:1; 15:1;17:13;19:5;20:3; 24:3;25:13;26:13;27:4, 18;29:1;33:10,12;34:9, 16;36:4,18;41:18; 43:23;44:8;45:11,12; 47:6,9,13;49:21;54:10, 14;56:4;57:24;58:1,6; 59:4;98:20;100:11; 115:18;116:3,5,11,12, 16;117:14,17,23; 118:17;121:22;122:7; 123:23;124:22;127:15, 18,25;135:10,12,21; 136:14,23;137:3,4,10, 17,23,25;138:1,5,7,8, 11,19,24;139:11,24; 140:8,14,15;141:18,25; 142:2,4;143:7,16; 144:4 risk-free (1) 41:15 riskier (1) 136:11 riskiness (1) 136:19 risk-modeled (1) 139:16 risks (10) 33:14;44:1;73:3; 126:22,23;131:5; 137:6;141:17,19,22 RMG (23) 34:5,7,9,13,16;35:7; 72:5;79:22,23;81:9; 82:20;85:9,11;101:25; 103:17;105:7,7,9; 106:6,8,9;117:13; 140:25 RMG's (2) 79:19;108:1 role (3) 46:20;93:25;94:3 Roman (2) 114:7;126:6 ROR (3) 78:20,24;79:1 Roslin (1) 133:1 rough (1) 131:15 route (1) 31:24 row (1) 91:11

October 10, 2012 rule (3) 9:24;71:20;145:11 ruled (2) 19:3;144:1 rules (5) 5:25;13:7,8,9;74:12 ruling (2) 143:14;145:14 run (5) 18:4;74:2,11;92:23; 94:8 running (3) 23:25;105:4;145:1 Russell (7) 14:23;38:8,9,18; 92:17;114:2,10

S
sake (1) 54:2 sale (6) 48:3;51:23;52:1; 56:20,21;62:20 sales (1) 53:10 same (19) 35:3;37:20;43:1; 51:8,10,16;56:25; 61:11;69:11;101:9,15; 103:13;104:8,18; 107:24;109:21;110:18; 115:9;125:1 sample (9) 4:1;15:25;16:1,22; 25:23;26:12;27:15; 80:20;124:5 samples (5) 15:22;16:11;19:16; 25:9,17 sampling (2) 15:20;131:11 sat (4) 14:25;25:15;98:23; 99:11 satisfied (3) 63:21;116:22;118:4 saw (5) 23:9;79:12;105:7; 109:18;117:7 saying (21) 6:6;7:23;32:23; 72:25;85:19,19;88:5; 93:9;104:22,25;107:7, 10;109:20;116:22,24; 122:3;137:1;141:21; 142:21;143:9,10 scenario (2) 33:21;142:16 scenarios (1) 4:15 schedule (1) 132:4

SOUTHERN DISTRICT REPORTERS

(17) repackaged - schedule

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., scheduling (1) 132:20 scope (3) 97:16,20,21 score (1) 85:14 scores (11) 36:21;82:16,16;84:8; 85:15;101:13;103:18, 25;104:12;110:4; 129:10 scoring (2) 129:9;131:15 screen (1) 25:12 search (1) 73:16 second (18) 13:12;18:5;24:11; 25:19;27:2,14;36:15, 16;81:4;103:15; 104:18;105:1,3,16; 110:19;124:12;125:17; 133:23 second-lien (2) 137:11;138:22 seconds (1) 95:11 section (8) 48:14;53:14;101:18, 19,22;108:8;120:17; 128:22 securities (23) 11:17,22;12:20;13:3; 14:8,12;39:8,10,17; 40:6,8,12;44:2,3;46:23, 25;64:11;65:2,21; 82:23;94:1;121:23,25 securitization (19) 14:7;33:22;87:24,25; 88:13,20,22;94:13,17; 123:2,2;130:5,9,22; 140:23;141:1,3,5,6 securitizations (13) 12:12,16,18,24; 15:19,23;45:10;53:5; 79:6;94:20;96:12; 109:14;111:6 security (3) 39:13;46:8;112:6 seeing (1) 112:25 seek (1) 30:13 seem (2) 58:5;84:22 seems (4) 2:14;83:23;136:16, 16 selected (8) 24:21;25:9,18,19,20, 21,22,23 sell (1) Min-U-Script® 12:19 seller (2) 45:8;48:14 seller's (2) 50:11;129:19 seller-servicer (2) 126:7;128:8 selling (2) 12:11;41:14 sells (1) 41:9 sending (1) 65:19 senior (7) 14:23;74:11;83:10, 12;113:16;125:24; 128:19 sense (8) 2:15;19:22;26:12; 88:24;105:6;126:21; 127:1,19 sensitive (6) 18:12;34:9,10;85:13; 117:13;138:23 sensitivity (1) 34:17 sent (5) 14:16;15:7;66:16; 100:1,10 sentence (22) 80:2,21;81:4;87:17, 21;88:5,17,23;103:16; 107:7,11,16,24;108:4; 109:2,16;110:16,20; 111:18;115:11;120:21; 126:9 sentences (2) 115:16;139:4 Separate (8) 4:4,21;30:23;70:5; 135:25;140:10,19; 145:10 separately (1) 26:5 September (3) 112:6;116:14;117:17 series (1) 48:18 serious (1) 131:2 served (1) 11:21 Service (3) 46:11;64:16;73:9 serviced (1) 15:12 servicer (4) 64:14,17,18;135:3 servicing (9) 51:23;52:3;53:10; 56:20,21;62:20; 125:25;126:13;127:21 serving (1) 99:4 SESSION (1) 90:1 set (6) 22:3;25:19;44:23; 61:11;91:24;126:1 sets (1) 60:19 seven (1) 16:21 several (1) 45:20 shaking (1) 8:10 shall (1) 63:11 sheet (1) 12:15 short (2) 14:21;132:10 shortly (2) 36:9;99:10 show (20) 12:10;14:9;15:10,15, 17;18:23;19:5,9;20:9; 22:15;29:12;31:2,24; 60:7;62:14;99:18; 110:2;137:17;143:15; 144:21 showed (2) 80:23,24 showing (1) 140:9 shown (1) 73:3 shows (9) 23:22;27:19;30:19; 34:25;37:22;43:17; 86:23;117:21;135:4 side (3) 11:6;76:25;134:18 significant (9) 3:3;5:8,16;36:8;58:5, 13;96:11;130:25; 137:10 significantly (2) 23:6;59:4 similar (7) 49:3;78:14;80:23; 102:10;108:24;110:3; 129:1 simple (4) 9:4,15;17:17;20:21 simply (6) 19:4,19;29:6;68:21; 95:25;143:23 single (8) 11:18;14:18;15:12; 17:22;79:8;80:11; 115:2,15 sit (4) 5:22;18:22;27:5; 132:8 site (2) 109:2,6 sitting (1) 29:17 situation (3) 24:9;83:24;95:17 size (1) 12:15 slash (1) 102:25 slated (1) 25:10 slide (3) 6:21;9:1,1 slides (6) 7:8;8:6,7;22:3,5,8 slightly (1) 81:11 slowly (1) 38:17 slump (1) 139:14 slumping (3) 36:24;141:9;145:2 small (5) 4:7;18:15;19:16; 56:9;58:11 smaller (2) 28:5;47:7 smart (1) 36:21 smoke (1) 13:24 smokers (1) 13:23 so-called (2) 71:3;77:1 sold (3) 39:17;40:4;64:11 solely (2) 10:8;37:24 somebody (1) 35:22 somehow (6) 19:11,13;20:18; 30:22,23;32:3 someone (4) 57:12,18;83:23;88:9 sometime (2) 70:15;94:23 Sometimes (4) 5:22;79:6,7;129:10 somewhat (1) 47:7 somewhere (2) 32:11;81:14 soon (2) 79:7;145:7 sooner (1) 91:20 sorry (16) 6:4;31:3;58:23; 69:21;87:18;102:17;

October 10, 2012
104:23;105:11;113:21; 114:14;115:7;116:24; 118:23;119:23;132:2; 139:21 sort (3) 91:8,9;105:7 sorts (2) 17:1,9 sound (1) 23:23 sounds (1) 91:14 source (2) 103:14;140:8 speak (3) 53:23;74:6;83:20 speaking (1) 52:12 speaks (4) 86:25;142:20;144:6, 23 specific (14) 34:18;74:7;91:7,10; 96:25;97:11;112:21; 119:15;122:1,23; 126:24;129:13;131:24, 24 specifically (7) 25:21;26:6,16;82:19; 96:20;117:13;125:20 specificity (2) 90:21;113:4 spectrum (1) 127:4 speculation (1) 55:8 spell (1) 38:16 spent (1) 16:6 spin (1) 91:1 spoke (1) 123:18 spreadsheet (1) 91:11 springs (1) 42:3 square (2) 110:7,8 stand (3) 10:18;90:6,8 standard (2) 29:6;103:19 standpoint (3) 41:15;137:14;140:15 stands (1) 114:5 start (4) 15:14;98:6;119:15; 132:8 started (8) 5:4;14:10,10;18:4;

SOUTHERN DISTRICT REPORTERS

(18) scheduling - started

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., 93:17,20;98:2;142:25 starting (3) 18:2;91:15;126:9 State (1) 38:16 stated (1) 107:18 statement (9) 11:7,7,8;21:2;22:14, 15,25;122:3;125:18 states (8) 36:23;37:2,5,8,14, 16;115:24;116:17 statistical (2) 15:20;115:23 statistics (3) 15:21;37:13;123:3 staved (1) 18:14 stay (1) 134:3 Stiehl (1) 26:14 still (10) 18:7;32:12;44:2; 59:16;62:12;100:8; 107:22;133:5;136:8,22 stood (1) 127:4 stop (5) 93:3;96:5,7;108:14; 110:21 stopped (4) 94:16,19,22;99:4 store (1) 85:5 story (7) 23:1,21,21,22;27:21; 37:22;38:2 straightforward (2) 20:21;31:14 strange (1) 83:24 strategic (6) 33:11;36:12,20;37:4, 10;139:17 strategy (1) 126:12 stream (1) 141:7 streamline (1) 134:21 stressing (1) 115:22 strictly (1) 85:2 strike (1) 125:9 strong (2) 120:23;121:7 structure (4) 33:21;140:22;141:2, 4 Min-U-Script® structured (4) 40:22;47:11;141:2, 11 structures (1) 141:13 structuring (2) 33:17;142:13 struggle (1) 20:7 study (1) 108:23 stuff (2) 64:21;73:24 stupid (2) 33:8;139:23 subcommittee (1) 112:19 subheadings (1) 63:3 subject (5) 27:7;55:12;114:18, 21;116:21 submission (1) 4:18 submit (1) 71:12 submitted (3) 3:23,25;4:2 sub-prime (10) 82:22;84:2,4,11; 85:12,14;107:12; 108:1,6;111:4 SUBRAMANIAN (96) 22:2,7,19;38:8,12, 22;42:8,15;43:2,8; 45:25;48:5;50:20;52:7; 53:1,8;54:1,5,7,13,18; 55:2,3,11,14;56:19; 58:15;59:15;60:1,9,22; 61:1,20;62:2,10,13,18; 63:18,25;65:7,12,16, 18;66:6,12,25;67:6,12, 17,19;68:4,11,19; 70:10,19,22;71:12,22; 72:12,15,19;73:13; 74:15,16;75:10,13,18, 22;76:2,4;77:7,17,22; 78:6,10;81:22;82:4,6; 86:5,11,16;87:2,13; 88:14,25;97:2,13,17, 19;100:21;102:23; 114:18;117:2;119:9; 124:18;125:1 Subsection (2) 61:4;63:9 Subsequent (1) 3:25 subsequently (1) 79:9 substantial (3) 56:1;96:13;98:5 substantially (4) 40:7;41:20;55:23; 60:7 substantive (1) 70:17 substitute (6) 109:1;110:11,13,24, 25;111:1 substituting (1) 109:20 subsumed (1) 141:17 successful (1) 33:7 suffered (3) 12:7;141:24,25 sufficient (2) 141:4,12 sufficiently (1) 108:1 suggestion (1) 23:24 Suisse (1) 102:6 summaries (4) 4:3;5:8;9:13,13 summarizes (1) 82:9 summary (21) 3:15;5:2;7:20;8:1,2, 2;25:11;67:20;68:1,12; 70:11;74:20;75:14,16; 78:4;81:1;90:24; 123:17;125:14;143:2; 144:17 summation (1) 22:18 summer (1) 60:2 supervising (1) 16:7 supervision (1) 109:4 supplemental (2) 4:11,23 supported (1) 85:3 supporting (1) 102:19 supports (1) 101:23 supposed (1) 125:21 supposing (4) 56:5;57:12,18;62:6 sure (15) 11:9;13:19;55:2,15; 84:14;90:11;94:21,24; 129:23;130:10,12,15, 16,19;138:14 surprising (2) 28:8;69:8 surveillance (7) 14:24;39:3;46:18; 47:14;94:6,8,9 suspect (1) 28:9 sustain (2) 95:3;140:4 Sustained (20) 49:11;50:3,22;52:16; 53:7,23;54:17;61:19; 62:16;63:17;65:11,15, 17;66:5,11;68:10;77:6, 16,21;124:20 swear (1) 101:12 sworn (1) 38:11 system (3) 5:24;26:22;99:24

October 10, 2012 technically (1) 55:22 techniques (1) 122:10 telephone (1) 132:13 tellingly (2) 23:12;26:21 tells (2) 37:22;128:19 tend (1) 113:2 tendered (1) 30:11 tens (1) 12:6 term (2) 131:25;132:1 terms (9) 19:9;27:9;40:3; 51:15;60:19;68:14; 73:14;88:8;124:1 terrible (1) 127:12 test (1) 26:7 tested (1) 117:13 testified (6) 26:10,14,15;33:12; 38:11;94:25 testifies (1) 90:14 testify (14) 2:14;5:19;14:24; 15:1,4,7,22;16:9,23; 17:11;26:10;65:10,12; 91:9 testifying (7) 2:16;10:16;39:4; 90:14,20;91:2;97:4 testimony (35) 2:24;3:2,20,21;4:2,6, 19,23,24;5:12;6:11,21; 9:1;10:6;14:22;22:9; 23:4,19;32:9;36:22; 90:15,22,25;91:6;95:8; 101:2;109:22;117:3; 132:22;133:8,18; 134:21;137:2,2,17 theories (1) 4:13 therefore (6) 2:10;58:9;59:6; 80:25;106:11;136:11 third (20) 71:3;84:17;87:16,19; 101:22;108:24;128:23; 129:18;131:8,10; 136:20;137:24,25; 138:13,21;140:8,18; 141:8,15;144:23 third-party (5) (19) starting - third-party

T
tab (17) 41:4;42:23;47:20; 51:20;57:1;66:13;67:7, 18,19;68:2;74:17;78:1; 81:24,25;86:6;99:21, 22 tables (1) 145:16 talk (10) 29:7;34:3;46:2; 64:10;77:23;81:23; 86:19;124:12;131:5; 143:24 talked (2) 108:17;129:9 talking (21) 29:5;45:11;54:8,24; 55:4;58:21;77:14;81:7; 101:3,11;102:9,15,18; 103:6,11;105:24; 107:13;108:9;123:8; 129:25;139:20 talks (2) 105:21;120:20 tallied (1) 31:18 tally (1) 7:12 tangential (1) 140:13 tape (27) 79:20;80:6,9,10,12, 20,23;81:1,12;120:25; 121:19;122:5,16,19,20, 24,25;123:8,12,13,24; 124:6,10;129:4,8; 130:4,6 tapes (3) 80:12;124:1;132:23 team (4) 16:10;24:21;26:16; 28:13 teams (1) 19:16

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., 19:16;48:11;52:5; 71:14;74:4 Thomas (5) 100:2,4,8;107:20,22 though (6) 2:22;11:3;23:20; 35:3;138:6;142:4 thought (7) 2:8;7:23;51:7;85:16, 20,21;140:5 thousands (1) 16:9 three (19) 16:15;20:11;27:13; 34:2;44:5;72:5,17; 73:10;82:14;83:1,17, 17;84:12;85:22;97:19; 101:5;120:24;121:5; 139:5 throughout (5) 3:7;6:18;10:6;29:18; 145:15 thumbs (1) 24:15 Thursday (1) 145:17 tight (1) 106:10 tighter (2) 29:10;30:19 TILA (3) 76:11,14,18 till (3) 70:4;75:4;133:23 time-frame (1) 133:23 times (3) 20:14;72:17;115:23 title (1) 39:2 titled (1) 48:14 today (16) 17:17;22:22;35:10; 39:4;44:21;46:22;91:9, 16,25;108:18;132:3,5, 8,17;134:23;145:12 together (2) 132:21;141:16 told (10) 6:19;27:1;30:22; 31:17;32:12;40:11,14; 72:18;94:25;133:15 tomorrow (3) 132:3,4,16 tonight (1) 91:8 took (4) 34:2;39:21;81:19; 127:2 top (7) 27:5;61:6;62:25; 82:7;105:21;114:2; Min-U-Script® 126:6 total (5) 12:7;13:8,10;14:8,18 totally (6) 27:24;32:19,23,24; 62:6;144:23 towards (1) 50:24 traditional (1) 102:1 trailing (3) 78:20,24;79:5 training (1) 29:15 transaction (71) 14:7;16:15,16;19:12; 25:10,17,21;27:20; 28:2,3;33:17,22;34:23; 35:1,14;37:10,14,15, 20,21;42:11,13;43:1; 45:17;47:24,25,25; 49:18;51:12,24;52:1; 57:6;60:20;61:8;62:19; 71:1,5,7,13;72:16; 74:21;75:15,17;76:19, 22;77:2;78:5,23;80:11; 82:10;93:13;102:13; 111:19,23;115:2,15; 117:18;120:11;121:7, 10,11;122:8;123:5,22; 139:10,11,13;140:22, 23;142:13;143:22
transaction-by-transaction (1)

October 10, 2012 tried (3) 12:19;32:22;105:4 troubled (1) 134:24 true (14) 19:14;31:23;50:1; 61:8;63:11,15;98:3; 99:1,12,13;109:23; 127:17;138:4,6 trumps (2) 30:22,23 trust (6) 17:21;23:15;44:11; 52:2;64:19;88:1 trustee (1) 42:11 trusts (5) 12:12;23:3;64:12; 66:4;117:24 Truth (2) 76:12,15 truth-in-lending (1) 76:21 try (7) 2:5,9;28:25;31:13; 122:10;127:3;142:15 trying (38) 22:25;23:16,22; 31:15;32:8,8;36:4; 37:23;54:2;66:9;72:19; 73:23,24;74:9,13;80:5, 15,16;101:11;113:4; 117:14,15;121:13,14, 23;122:18;128:9,12; 130:10;131:3,6; 137:22;140:5;142:7, 17;143:12,24;144:25 Tuesday (3) 3:14;5:1;8:24 turn (30) 42:17,23;43:4;47:20; 48:12,22;50:5;51:20; 53:9;57:1;61:2;62:23; 66:13;67:7,18;74:17; 75:23;78:1,11;81:24; 82:5;86:6,17;99:21; 105:16;112:2;118:10; 119:14;120:14;126:2 twelve (1) 145:7 twice (1) 12:14 two (49) 2:5;6:19;13:5,22; 14:6;15:22;16:15; 17:24;22:5;25:17; 26:10,15;27:11,14; 30:15;31:3,9;32:16; 34:8,11,12;37:6,7; 39:20;51:17;72:21; 83:19;84:16;85:20; 86:21;98:14;101:6,16; 102:10;103:8;104:20; 107:9;109:18;111:22; 83:13 117:8,18;123:15; Underwriting (65) 124:8,16;125:23; 13:7,7;14:2;16:5,7,9; 133:9,9,25;139:4 18:18;23:23;26:4,20; type (10) 30:5,17;41:21;44:17, 32:5;43:1;47:12; 20,21,23;50:11,15,25; 79:25;107:4;109:17; 51:5;64:3,3;74:21; 129:4;130:25;135:5; 79:25;83:4;94:5;112:7, 144:20 10,12,12,13,14,18,20, types (8) 24;114:7;115:19; 10:14;16:23;54:14; 118:14,19;119:5,18,20, 58:16,24;77:3;125:23; 25;120:5,5,6;121:6,17, 139:17 24;126:11;127:2,6,17, typically (5) 21;128:6,10,12,15,18; 79:4;91:5;108:5; 129:15,19;130:1; 109:6;125:24 131:9,18 underwritten (3) 25:18;76:23;84:1 U undisclosed (2) 16:25;17:7 U104 (2) unique (4) 31:19,23 27:16,17;28:19; ultimately (1) 33:10 20:4 United (1) unable (1) 116:17 128:17 unknown (1) unacceptable (1) 24:21 29:1 unless (2) under (26) 91:17;103:2 5:24;17:19;26:22; unpunished (1) 27:23;29:7;33:24; 9:14 36:14;40:19;41:1; 42:21;43:17,21;48:10, unreasonable (1) 17:6 11;52:4,5,13;57:7; unrelated (3) 70:8;78:15;114:7; 90:9;127:13;144:24 122:21;133:2;136:3; unreliable (2) 142:3,5 32:23,25 under-assessing (1) unsound (1) 135:11 23:7 underlying (17) unsubstantiated (1) 23:13,17,20;39:12; 31:2 40:6,24;45:6;48:21; 51:4;53:5;65:20;70:11; unsupported (2) 23:8;29:8 80:16;87:1;106:2; unsurprising (2) 123:1;130:11 37:12,18 underpinnings (1) up (44) 74:7 10:5;11:10,15,19; under-predicted (2) 14:10;19:7;20:21,22; 20:9,17 24:15;25:12;28:7; underrated (2) 30:11;31:18,23;32:4, 138:23,24 10,23;33:18;34:1,20; understands (2) 35:24;38:14;41:4;44:5, 36:23;97:8 6;65:25;68:15;70:1,12; Understood (4) 74:3,23;80:19;81:11; 54:5;116:15;117:10; 84:1;107:11;115:22; 145:5 120:17;130:4;132:3, undertaken (2) 12;134:8;136:25; 129:1;141:17 140:25;142:12 underwrite (1) upon (14) 113:14 10:8;23:4,18;27:15; underwriter (2) 28:23;30:20;34:18; 19:15;94:1 45:16;60:19;75:15; underwriters (5) 104:14;115:20;124:8; 16:10;28:14,25;29:4; (20) Thomas - upon

113:11 transactions (64) 12:9;14:25;19:15; 24:7;25:9;26:18;27:12; 33:5,16;35:19;36:10; 37:7;39:16,20,21; 40:22;47:19;50:23; 54:11;65:6;72:13; 73:20;79:25;84:1,2; 86:21;94:4,9,13,17; 96:5,15;97:12;99:10; 101:6,16,25;102:4,7,9, 10,16,21,22;103:8,13; 104:6,17,19;109:13,19; 111:4,6,22;112:22,25; 117:8,11;123:16; 124:9,16,23;137:9; 141:11 transcends (1) 2:22 transcripts (1) 28:11 transpired (1) 33:6 trial (18) 2:7,15,17;3:8;4:25; 5:23,24;11:6;22:13; 68:19,20,24;69:3;70:2; 133:23;143:12;145:12, 15

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., 131:1 use (11) 2:20;22:4;23:6;26:9; 76:1;91:10;92:13; 101:23;102:19;104:3; 108:24 used (19) 5:11;6:20,25;35:7; 81:1,18;101:15; 103:14,25;107:25; 108:24;109:12,17,21, 25;111:3,5;122:10; 123:2 using (11) 9:10;38:13;80:6,19, 20;82:16,19;101:13; 102:9;108:15;110:21 usual (1) 108:1 utility (1) 35:21
111:16;129:18;131:18; 134:3 141:22 water (1) vigilant (1) 36:14 89:3 Watson (2) violation (3) 119:2,4 76:11,14,18 way (20) violations (1) 15:5;18:6;36:14; 77:2 40:22;59:19;67:25; voluminous (1) 73:8;77:8;82:17,24; 87:9 104:24;108:24;124:22; vulnerabilities (1) 128:16;135:15;138:7; 126:13 139:25;140:15,20; 141:22 ways (1) W 17:24 week (4) Wait (6) 3:14;4:8;5:1;9:8 6:12;7:22,22,22; weeks (1) 43:5;75:4 2:5 waive (1) weight (1) 30:6 85:21 walk (3) welcome (1) 54:2,3;142:9 11:7 walked (1) weren't (1) 27:13 9:9 Walzak (30) West (1) 2:18;3:3,19,22;6:8, 17:8 11,20,22;8:5;10:17; what's (1) 16:4,5,23;17:11,14; 31:13 18:18;23:5;26:1;27:21; whenever (1) 28:10;30:9,22,22; 105:6 33:12;36:2,22;37:8; Whereas (1) 90:13,20;139:17 29:19 Walzak's (4) whim (1) 3:16;4:1;5:2;29:13 62:11 wants (2) whole (5) 21:1;133:21 8:12;16:3;20:24; warn (1) 44:12;117:25 2:4 whose (1) warning (1) 79:10 4:22 wide (1) warrant (3) 35:17 142:6,18,20 wildly (1) warranties (34) 128:4 11:20,25;12:3;13:2, Williams (5) 17,20;14:14;15:3,6; 35:22;114:11,13,25; 16:14;19:1;20:2;44:13, 115:19 14,15;45:9,18;48:15, 20;53:16;54:9,21;61:7; window (1) 4:7 63:10;64:2;98:10; wish (3) 134:16,20;136:11; 11:8;41:16;74:10 138:14;140:2,11; withdraw (2) 143:7,15 74:15;105:11 warrants (1) withdrawals (1) 142:10 5:10 warranty (5) withdrawing (3) 61:10;63:15;98:10; 7:1,3,4 137:13;144:3 withdrawn (3) Washington (1) 2:19;5:6;22:19 17:8 withdrew (2) wasting (1) 9:11,15 10:2 within (6) watch (4) 5:20;9:9;16:1;83:8; 132:23;133:3,20;

October 10, 2012 84:4;106:10 without (12) 2:13;8:19;10:9; 13:17;40:1,9;44:25; 49:4;59:20;79:13; 101:12;132:14 witness (94) 2:16;6:9,13;7:24; 8:1;10:17;15:20;16:4; 23:18;38:7,10,13,18; 41:13,16,20,24;42:1,4, 6;54:4;55:13,22;56:2, 9,13,16;57:15,21,25; 58:4;59:17,22;60:4; 65:4,10,10;66:3,20; 68:6,9,21;69:10;71:10; 72:20;73:7,18,21,24, 25;74:10;79:11,14,17, 23;80:3,10,25;81:3,6, 16,18;83:4,7,10,16,22, 25;85:1,11,23;86:1; 88:11,25;90:5,8,10,19; 92:4,5;95:7,9,14,25; 97:5,22;99:16,18; 105:2,9,12;134:3,5,6 witnesses (7) 3:6,9,11;14:22; 15:14;23:17;55:11 witness-related (1) 69:16 wonderful (1) 22:17 word (1) 10:8 words (9) 5:11;18:22;20:8; 85:18,24;107:16; 109:6;120:4;143:7 work (8) 2:15;29:14;31:13; 38:25;39:1;46:7; 113:20;131:12 worked (2) 46:4,11 working (1) 46:10 works (4) 100:9;107:22; 133:13;140:21 world (1) 96:1 worried (1) 130:3 worse (3) 10:19;18:10;24:20 worst (5) 10:19;18:9;33:21; 37:14;130:21 wrap (2) 11:10;96:15 wrapping (3) 94:12,16;96:5 wrecked (1) 17:2 write (1) 12:24 writing (2) 12:14;14:6 written (4) 15:2;109:8,10; 110:24 wrong (9) 7:4;20:13;73:1; 84:19,20,21,21;136:24; 140:15

Y
years (14) 16:6,12;24:17,17; 27:22,22;44:5;46:5; 93:8,9;99:1;103:17; 116:8,10 yellow (3) 5:10,15;7:8 yesterday (2) 2:24;6:17 yield (1) 108:13 Yorker (1) 102:18

V
vacate (1) 145:16 vacuum (1) 29:18 validated (1) 79:20 validity (1) 35:15 value (5) 13:10;27:5;36:11; 80:17;88:12 values (5) 36:8,14,24;115:20, 24 variety (3) 44:12;47:7;59:1 various (5) 80:13;117:11; 120:20;123:2;129:4 vast (1) 69:6 vendor (1) 74:4 verify (1) 122:18 Veronica (1) 92:20 versions (1) 6:18 versus (1) 53:4 via (1) 104:1 video (1) 132:21 videotape (1) 133:6 view (8) 9:6;54:10,19;107:18; Min-U-Script®

Z
zero (2) 33:24;76:10

1
1 (3) 41:4;111:14;115:15 1.28 (2) 82:15;84:17 1.3 (1) 115:22 1.5 (1) 115:3 1.7 (1) 82:18 1.74 (1) 84:17 1:00 (6) 74:25;75:4,5,8; 132:12,14 10 (8) 11:3;20:14;53:13; 60:6;78:1;92:12,14; 133:2 100 (2) 78:6,9 10-K (2) 86:10;88:16 10-minute (1) 21:4 10th (2) 118:15,24 (21) use - 10th

SOUTHERN DISTRICT REPORTERS

ASSURED GUARANTY MUNICIPAL CORP. v FLAGSTAR BANK, FSB, et al., 11 (3) 53:9;86:6;145:17 11.2 (1) 88:19 11:00 (4) 11:2,10;132:10,11 11:15 (1) 132:12 12,000 (1) 15:18 122 (1) 5:14 125 (2) 25:18;76:10 126 (4) 4:1;5:2;28:12;31:19 13 (1) 50:5 14 (8) 30:25;31:7,11,14,24; 32:21;34:24,25 14th (2) 112:6;116:14 15 (1) 132:11 17 (1) 48:22 19.7 (1) 31:11 19.75 (5) 30:25;31:7,14,24; 32:22 198 (2) 52:8,11 1985 (1) 93:20 1986 (1) 93:18 1st (1) 99:8 82:11;87:23;99:11; 104:15;112:7,15; 116:15;117:17;118:15, 24;120:6 2005-1 (22) 25:17;27:14;28:2; 34:23,25;35:12,14; 37:20;42:11,20;48:1; 51:12,23;56:21;57:6; 64:12;71:1,7;88:1; 117:18;120:11;125:14 2006 (12) 12:11;14:8;16:15,22; 37:15;39:22;51:13; 77:23;86:10;88:19; 99:11;104:15 2006-2 (13) 25:21;27:15;28:4; 35:3;37:21;43:1,16; 56:22;64:6,12;77:24; 78:4;139:13 2007 (1) 139:14 2008 (4) 94:21,23;95:1; 139:14 2009 (9) 15:8;18:2;46:14; 65:24;66:17;94:24; 98:21;99:7,8 2012 (2) 70:12;145:17 23 (1) 115:20 250 (3) 25:20,22;78:19 26 (3) 46:5;93:8,9 26.1 (2) 87:22;88:12

October 10, 2012

4
4 (4) 43:4,15;51:20;82:18 4.32 (1) 82:12 4:10 (2) 91:15,25 4:15 (1) 132:14 40 (1) 127:10 400 (2) 15:23,24 42 (2) 62:23,25 451 (3) 47:21;48:6,9 458 (3) 42:25;43:2,12 459 (5) 41:5;42:9,16;43:7,12 464 (3) 67:9,11,16 465 (4) 66:15,24;67:4,5

106:11;107:2,11,15; 111:17 75 (2) 35:6;87:14 75.4 (1) 43:17 76 (4) 86:7,11,15,17

8
8 (7) 28:13,13;29:17; 67:18,19;68:2;81:14 8.05 (1) 81:19 800 (2) 4:1;16:10 85 (2) 16:17;28:1 85.95 (1) 106:10

9
9 (4) 74:17;81:24,25; 92:15 9.94 (1) 84:18 9:00 (1) 132:6 9:30 (1) 132:7 9:45 (4) 132:9,10;134:4; 145:18 90 (4) 57:2;60:13,22,25 900 (2) 14:17;15:8 97,000 (1) 56:7 98,000 (1) 56:7 99 (5) 74:19;75:18,21;82:3, 4

5
5 (5) 20:14;42:17;57:1; 61:2;75:5 50 (3) 35:6;37:13;141:1 500 (2) 106:11;111:17

6
6 (4) 66:13;78:19;82:5,5 6:30 (1) 92:1 60 (2) 37:16;46:21 600 (1) 87:24 6132213 (1) 76:2 62 (1) 142:9 65 (1) 48:24

2
2 (2) 42:23;127:13 2.04 (1) 53:14 2:00 (2) 89:4;132:13 2:15 (1) 132:14 2:30 (2) 89:6;90:3 20 (3) 28:4;90:14,16 2000 (1) 98:21 2004 (4) 99:13;100:2;104:15; 109:9 2005 (18) 12:11;14:7;16:16,21; 37:14;39:22;47:4; Min-U-Script®

3
3 (9) 47:20;75:23;76:11; 77:2;78:11,20;108:8; 110:18;111:18 3.02 (1) 48:14 3:05 (1) 90:2 30 (2) 16:6;105:4 302 (1) 88:21 31 (2) 87:23;88:19 316295 (1) 120:14 36 (1) 50:7 36296 (1) 126:4

7
7 (5) 48:12;67:7;81:14; 100:2;120:24 7.1 (2) 81:2,11 700 (5) (22) 11 - 99

SOUTHERN DISTRICT REPORTERS