FILED: NEW YORK COUNTY CLERK 12/10/2012

NYSCEF DOC. NO. 3920

INDEX NO. 602825/2008 RECEIVED NYSCEF: 12/10/2012

EXHIBIT 17

In The Matter Of:
MBIA INSURANCE CORPORATION v. COUNTRYWIDE HOME LOANS, INC., et al.
   ___________________________________________________

R. GLENN HUBBARD ‐ Vol. 1
July 30, 2012

   ___________________________________________________

CONFIDENTIAL

CONFIDENTIAL R. GLENN HUBBARD - 7/30/2012
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C O N F I D E N T I A L SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK -----------------------------------x MBIA INSURANCE CORPORATION, Plaintiff, -againstCOUNTRYWIDE COUNTRYWIDE COUNTRYWIDE COUNTRYWIDE and BANK OF Index No. 08/602825 HOME LOANS, INC., SECURITIES CORP., FINANCIAL CORP., HOME LOANS SERVICING, LP AMERICA CORP.,

Defendants. -----------------------------------x July 30, 2012 9:33 a.m.

Videotaped deposition of R. GLENN HUBBARD, taken by Plaintiffs, pursuant to Notice, at the offices of Quinn Emanuel Urquhart & Sullivan LLP, 51 Madison Avenue, New York, New York, before GAIL F. SCHORR, a Certified Shorthand Reporter, Certified Realtime Reporter

and Notary Public within and for the State of New York.

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CONFIDENTIAL A P P E A R A N C E S: QUINN EMANUEL URQUHART & SULLIVAN LLP Attorneys for Plaintiff 51 Madison Avenue New York, New York 10010 BY: PHILIPPE Z. SELENDY, ESQ. -andTHOMAS J. LEPRI, ESQ. (philippeselendy@quinnemanuel.com) (thomaslepri@quinnemanuel.com)

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GOODWIN PROCTER LLP Attorneys for Defendants Exchange Place Boston, Massachusetts 02109 BY: DAVID J. APFEL, ESQ. (dapfel@goodwinprocter.com) -ANDGOODWIN PROCTER LLP Attorneys for Defendants 901 New York Avenue NW Washington, D.C. 20001 BY: DAVID I. FREEBURG, ESQ. (dfreeburg@goodwinprocter.com) ALSO PRESENT: JOSEPH MASON

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DAVID SANDERS, Videographer Merrill Legal Solutions

09:35:11 09:35:11 09:35:16 09:35:18 09:35:18 09:35:22 09:35:26

CONFIDENTIAL Goodwin Procter, on behalf of the Countrywide defendants and the deponent, Glenn Hubbard. MR. FREEBURG: David Freeburg of Goodwin Procter, also on behalf of the Countrywide defendants and the deponent. THE VIDEOGRAPHER: Will the court reporter, Gail Schorr of Merrill Legal Solutions, please swear the witness. R. GLENN HUBBARD, called as a witness, having been first duly sworn by the Notary Public (Gail F. Schorr), was examined and testified as follows: EXAMINATION BY MR. SELENDY: Q. Dr. Hubbard, would you please state your full name and address for the record, please. A. Sure, my name is Robert Glenn Hubbard, and my address is .

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CONFIDENTIAL THE VIDEOGRAPHER: This is the video operator speaking, David Sanders, of Merrill Legal Solutions, 225 Varick Street, New York, New York 10014. Today is July 30th, 2012, and the time is 9:33 a.m. We are at the offices of Quinn Emanuel, 51 Madison Avenue, New York, New York, to take the videotaped deposition of Professor R. Glenn Hubbard, in the matter of MBIA Insurance Corporation versus Countrywide Home Loans, Inc., et al., in the Supreme Court of the State of New York, County of New York, index number 08/602825. Will counsel please introduce themselves for the record. MR. SELENDY: Philippe Selendy of Quinn Emanuel, for plaintiff MBIA. MR. LEPRI: Tom Lepri of Quinn Emanuel, also for plaintiff MBIA. MR. APFEL: David Apfel from

R. GLENN HUBBARD - CONFIDENTIAL (Hubbard Exhibit 1 for identification, expert report of Robert Glenn Hubbard dated February 12th, 2012.) (Hubbard Exhibit 2 for identification, expert rebuttal report of Robert Glenn Hubbard dated July 3, 2012.) Q. I'm going to show you two documents that we've marked as Hubbard Exhibit 1 and 2. The first states expert report, dated February 12th, 2012 and the second states expert rebuttal report, dated July 3, 2012. Can you confirm whether those are your initial and rebuttal reports in this matter? A. Yes, they appear to be. Q. And did you write your own reports? A. Yes. Q. Is it fair to say that you're known as an advocate of deregulation? A. No, I wouldn't say that at

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R. GLENN HUBBARD - CONFIDENTIAL all. Q. Is it your view that certain regulations actually encouraged the growth of high risk mortgage lending? A. Yes, I -- if your question is was regulation in part responsible for changes in the housing industry, the answer to that question is yes. Q. And which regulations do you believe encourage the growth of high risk mortgage lending? A. Well, in particular, the expansion by the government sponsored enterprises of guidelines, as I think identified by many economists. Q. Is your only publication relating to the mortgage sector the 2009 article that you cite several times in your reports? A. In my refereed work that's true. I've done a lot of work in housing policy, but yes, that's my scholarly paper. Q. Okay. Is Exhibit 1 of your

R. GLENN HUBBARD - CONFIDENTIAL the business school, and I'm also dean of the business school. Q. Is it correct that you also serve as an advisor to Mitt Romney? A. That's correct. Q. In what capacity? A. On the economics side. Q. Do you give any advice relating to the housing markets to Mr. Romney? A. I do. Q. Does that advice include what regulation you believe to be appropriate or inappropriate in the housing markets? A. It certainly encompasses public policy toward housing and the future of housing finance and regulation, yes. Q. What ties do you have today to the financial services industry? A. I'm not sure what you mean by the question. Q. Have you served on the board of financial services companies?

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R. GLENN HUBBARD - CONFIDENTIAL expert report an accurate list of your publications? A. There are probably things that I've done since this was done, but more or less, yes. Q. Do you have any formal education in statistical sampling? A. Well, as an economist, yes. Q. Could you describe your education in statistical sampling? A. Well, courses in statistics and in econometrics. Q. Is it fair to say that you offer no rebuttal report to Dr. Cowan's report in this matter? A. I do have comments on what Dr. Cowan did, but what I'm testifying to is what you see before you. I didn't offer a report on Dr. Cowan. Q. What are your current professional responsibilities? A. I'm a professor of economics on the faculty of arts and sciences at Columbia. I'm a professor of finance in

R. GLENN HUBBARD - CONFIDENTIAL A. Yes, I currently do. Q. Okay. Which companies? A. Met Life, which is a large insurance company. And KKR Financial, which invests in debt instruments. Q. How are you compensated for your directorships? A. With director's fees. Q. What are those? A. Both in stock and in cash. I really don't recall off the top of my head. They're on EDGAR, you could easily obtain them. Q. For the MetLife is it about $250,000 a year? A. That's probably about right. Q. Is it also correct that you sat on the board of Capmark, a major commercial mortgage lender until shortly before its bankruptcy? A. That's correct. Q. In that position did you have any responsibilities relating to the commercial mortgage lending operations of

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R. GLENN HUBBARD - CONFIDENTIAL Capmark? A. That's a management responsibility, but I was certainly on the board at that time. Q. In an interview with Fortune magazine, you were asked the following question: "The financial crisis proved there was a breakdown in leadership and ethics. Where should corporate America go from here?" And you answered "I actually think pure fraud and ethics issues were important in the crisis but not central." In what respects, in your view, were pure fraud and ethic issues important in the crisis? A. Well, I think if you read the totality of that interview what I go on to say is that in every business cycle there are bad actors at the peak. So that is not unusual. Rather, what was unusual about this business cycle were other economic factors that I go on to describe in the

R. GLENN HUBBARD - CONFIDENTIAL proceeding in which you've had your deposition taken? A. It's the only one in which I've had my deposition taken, yes. Q. And are you offering expert services in other RMBS matters? A. I am not presently, no. Q. Have you previously served as a testifying or consulting expert for Countrywide? A. I have. Q. In connection with which matters? A. I'm not sure if I can disclose. MR. APFEL: I think he can say the number of matters, you know, and you can explore questions along those lines, but not the specifics. MR. SELENDY: I'll accept that. Q. How many other Countrywide matters? A. I would say one and a bit.

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R. GLENN HUBBARD - CONFIDENTIAL interview and would happily do so for you. Q. So your view is that it's not uncommon for there to be fraud at every peak of every business cycle? A. Cycles generally work that way, yes, there are bad actors in every cycle. Q. Have you had your deposition taken before? A. I have. Q. In what matters? A. A number of matters over many years. Q. Okay, over the last five years, what matters have you had your deposition taken in? A. I'm going from memory because apparently it doesn't come in reports in New York State, but certainly some antitrust matters, matters relating to mutual fund fees, plus this proceeding. That's probably about, about it. Q. Is this the only RMBS

R. GLENN HUBBARD - CONFIDENTIAL The reason I say a bit is one didn't go very far and then one that actually produced a report. Q. Were any of those regulatory matters? A. I'm not sure what you mean by regulatory. Q. Were any of those in response to investigations of Countrywide as opposed to civil litigation brought by private parties? A. No, no, civil litigation. Q. Have you worked as an expert for Bank of America before? A. I have a little bit. There was a thing that I started for them but it never went to deposition or trial. Q. That was not in connection with RMBS? A. No. Q. All right. So the only other RMBS matter you've been involved in is another one for Countrywide; is that fair?

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R. GLENN HUBBARD - CONFIDENTIAL A. That's correct. MR. APFEL: Two. A. Well, that's why I said one and a bit. One was started, but yes. Q. And in the other one and a bit, did you, did you offer testimony relating to the effect of housing prices on mortgage loan performance? A. I didn't, if I'm understanding the way you're using the word, I didn't offer testimony, I didn't have a deposition, but I certainly wrote that in the report. Q. Okay. So you wrote a report but the matter was resolved before you testified? A. I'm not even sure what I can say. MR. APFEL: I think you can say, I think you can answer that question for both the matter and the bit matter. A. Sorry. So not, not a live proceeding.

R. GLENN HUBBARD - CONFIDENTIAL bought or sold a mortgage-backed securities? A. I have not. Q. Is it fair to say that mortgage-backed securitizations are not your specialty? A. I'm not sure what you mean by that. If you're asking me do I have experience structuring mortgage-backed securities, I already told you no, I'm not a practitioner. As someone who has studied it, been on the Boards of Directors of firms that are players, I certainly have great familiarity, but I'm not a practitioner, if that's your question. Q. Are you an expert in mortgage-backed securitizations in your view? A. I don't know what you mean by that. Q. Okay. A. Insofar as you're talking the economic analysis, yes. If you're

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R. GLENN HUBBARD - CONFIDENTIAL Q. So this then will be the first matter in which you actually give testimony on the effect of housing prices on mortgage loan performance? A. Yes, sir. Q. Have you in the past ever given any opinions on the effect of unemployment on loan performance? A. No, sir. Q. So this will also be the first occasion on which you give such testimony? A. That's correct. Q. Is that also true with respect to the effect of loan characteristics such as the CLTV on loan performance? A. Correct. Q. Have you ever worked in the mortgage banking industry? A. No, sir. Q. All right. I take it you've never underwritten a loan? A. I'm not an underwriter, no. Q. And you've never structured or

R. GLENN HUBBARD - CONFIDENTIAL talking about expert in structuring deals, I'm not a practitioner. Q. So you have general economics expertise which you've applied to this sector; is that fair? A. That's fair. Q. And other than your general economic training and whatever you've gleaned from sitting on the boards of companies, you don't have any particular expertise in mortgage-backed securitizations, correct? A. As a practitioner, no, I do not. Q. I take it you don't have any expertise in servicing loans, correct? A. As a practitioner, no. Q. And with respect to housing markets, your familiarity, again, would be through your general economic abilities, right? A. Yes, and through the research I've done on housing finance. Q. What research have you done on

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R. GLENN HUBBARD - CONFIDENTIAL housing finance other than in connection with your 2009 article? A. That is my research on housing finance. Q. When were you first retained by Countrywide in this matter? A. I don't know the exact date. My recollection would be perhaps spring of 2010. Q. How are you being compensated? A. I'm being compensated at an hourly rate for my work. Q. Do you know your hourly rate? A. Yes, it's $1200 an hour. Q. What was your assignment? A. My assignment in the first report was to examine the consequences of macroeconomic effects on the housing market during the period at issue, and to address from the perspective of an economist the allegations from MBIA that there had been misrepresentation about the quality of loans on the part of Countrywide.

R. GLENN HUBBARD - CONFIDENTIAL the loans that it included in the securitizations? A. Yes. Q. And there was also a process by which Countrywide examined the loans that it purchased from other originators for inclusion in securitizations? A. Correct. Q. Did you make any factual inquiry into the nature of either the process of origination or the process of due diligence by Countrywide? A. I'm not an underwriter in this proceeding, so neither of the assignments that I told you would require such. Q. In other words, you sought to give an opinion as to the effect of performance on the Countrywide loans by various factors, correct? MR. APFEL: Objection. A. Well that's not quite what I said. I think what I said was two parts. One, the importance of macroeconomic effects, and second, the allegations that

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R. GLENN HUBBARD - CONFIDENTIAL Q. Did your assignment change with respect to your rebuttal report? A. Well, no and yes. I mean no in the sense that it's still the same body of work. Yes in the sense that I was now also asked to respond to work that had been presented since my first report. Q. Okay. What assumptions, if any, were you asked to make in conducting your assignment? A. I was asked to -MR. APFEL: The initial, the initial assignment? MR. SELENDY: Yes. A. I was given the assignment, but I wasn't asked to make assumptions. Q. Did you make any inquiry into how Countrywide actually originated its loans? A. I'm not sure exactly what you mean by that. Q. You understand there was a process by which Countrywide originated

R. GLENN HUBBARD - CONFIDENTIAL MBIA made about misrepresentation, alleged misrepresentation on the part of Countrywide. Q. And it's fair to say that you gave your opinions without any inquiry into how Countrywide actually originated its loans or how Countrywide examined the characteristics of the loans that it purchased from other originators, correct? MR. APFEL: Objection. A. I'm not an underwriter. As an economist, what I can do is look at the implications of the claims made by MBIA and its experts. Q. So is that a yes in response to my question? A. You have to tell me the question again. MR. APFEL: Objection. Q. It's a fairly simple question. You gave your opinions without any inquiry into how Countrywide actually originated its loans, correct?

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R. GLENN HUBBARD - CONFIDENTIAL A. I did not underwrite. Q. Have you ever worked on a case for investors? A. I'm not sure what you mean by that. Q. Today you've said that you have worked for Countrywide and for Bank of America. You've also testified that you've sat on the boards of various financial services institutions. My question is have you ever worked for investors as opposed to for the banks? A. Yes, I have. Q. In what cases? A. There was a case, I think it goes back prior to your five year question, for the Merrill Lynch funds, involving the HBOC/McKesson merger. But it was, the funds were the plaintiff and I was their witness. Q. Have you ever worked for insurance companies such as MBIA? A. As an expert, no.

R. GLENN HUBBARD - CONFIDENTIAL question. Your first question was about misrepresentation of quality. Now it's about misrepresentation of a practice or standard. Those aren't the same thing, but... Q. Do you agree with me that you have no direct knowledge of the extent of Countrywide's misrepresentations regarding its underwriting practices? MR. APFEL: Objection. A. I would disagree with that. I think the benchmarking exercise that I did gets at the very core of how an economist would test for whether that allegation were true. Q. Okay. You would characterize that in your view as direct knowledge? A. Of the implications which is what you directed me to 5 (ii), yes. Q. You actually don't know the percentage of Countrywide's loans that were affected by misrepresentations, do you, sir? MR. APFEL: Objection.

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R. GLENN HUBBARD - CONFIDENTIAL Q. Now coming back to your initial report. If you could turn to paragraph 5, which is on page 3, in subsection 2 of paragraph 5 you state you were asked "to assess the impact, if any, of Countrywide's alleged misrepresentations of its loan origination and underwriting practices on the performance of the loans underlying the securitizations." Do you see that? A. Yes, sir. Q. And you've just said that you didn't actually reunderwrite the loans at issue in this case, right? A. For this report I had no access to underwriting or reunderwriting. I did in the second report. Q. So you have no direct knowledge of the extent of Countrywide's representations regarding underwriting practices, right? MR. APFEL: Objection. A. Now you've changed your

R. GLENN HUBBARD - CONFIDENTIAL A. Well that as you know is at issue in this proceeding. What I can do as an economist is say do a set of loans appear to have this sort of departure from underwriting guidelines. In the second report you've actually given me more information and I can look directly at that, and did. Q. What you do not do, sir, is test the amount of losses that were actually caused by misrepresentations because you don't look at actual misrepresentations in your reports, what you do is instead, design various ex post scenario analyses built on certain modeling assumptions, right? MR. APFEL: Objection. A. I disagree with virtually the entirety of everything you just said. Q. Go ahead and explain why. A. The way an economist would address this is underwriting standards, guidelines, whatever you want to use, are about observable variables, FICO scores,

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R. GLENN HUBBARD - CONFIDENTIAL CLTV, whatever variables you wish. What an economist can do is say, controlling for everything was there any evidence of under-performance. A second thing an economist could do would be to actually look at an underwriter's take on defects and test whether the defects matter. That I was able to do in the second report and not the first report. Those are the two things an economist can do. Neither one of those did your experts do. Q. When you say controlling for everything, what do you mean? A. In other words, controlling for other factors that would affect loan performance. Q. Factors other than misrepresentations, is that what you mean? A. Correct. Q. And you admit there's little question that in any pool involving

R. GLENN HUBBARD - CONFIDENTIAL exactly the exercise you mentioned. I also did a more detailed set of exercises with controls, but yes, that's true. In the second report I did an expanded set of exercises. Q. What was the purpose of your comparison? A. Well, again, it's about benchmarking. So if, if the allegation is that Countrywide's underwriting practices as opposed to stated guidelines were somehow deficient, it ought to be the case that if one controls for other variables that would affect loan performance, that there's a systematic under-performance of Countrywide. That's what it means to have underwriting practices that differ from underwriting standards. Q. Are you making any assumptions about the non-Countrywide securitizations and loans when you use them as a control group for your benchmarking exercise? A. Only that they're appropriate

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R. GLENN HUBBARD - CONFIDENTIAL thousands of loans there will be some incidents of misrepresentation or improper underwriting, right? MR. APFEL: Objection. A. I think it's highly likely. It could be a combination of borrower fraud, errors, it could be a lot of things, but I think I say explicitly in the report that that's there. Indeed, MBIA's own due diligence looks for that. Q. You would agree in general, I take it, that improper underwriting will have an effect on loan performance; is that fair? A. That's correct and testable, yes. Q. Okay. So when you say it's testable, what you did in your initial report fundamentally was to compare the performance of the Countrywide securitizations and loans with nonCountrywide securitizations and loans; is that fair? A. That's part of it. I did

R. GLENN HUBBARD - CONFIDENTIAL to do so. Securitizations around the same time and the same range of data, yes. Q. How did you determine whether the non-Countrywide securitizations and loans were properly comparable? A. Well, I used the same data as the, as an issue for the securitizations in this case, 2004 to 2007. And I looked at ranges, data where ranges were similar to the ranges in the Countrywide securitizations. Q. Is it fair to say that your comparison is based on disclosed borrower and loan characteristics? A. Yes. Q. And what borrower and loan characteristics do you identify as material to loan performance? A. Well, perhaps we can go through together. Should we talk about the pool or the loan or which? Q. Well I could direct you to page 25, paragraph 45 of your report

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R. GLENN HUBBARD - CONFIDENTIAL where you list a series of factors under the heading "Factors impacting loan performance." A. All right, those are basically the factors that I use. I explain how I do them in the -- in the report. But things like house price changes and unemployment which are macro factors and then other more micro factors, loan size, credit scores and what-not. Q. So the variables that you identify as material to loan performance include, among others, equity which is based on the CLTV ratio, loan documentation borrower credit score, and whether the property is owned or occupied? A. Yes. And there's more than that, but -- Exhibit 22 lists all, but. Q. The values you use for your regression analysis were the values actually reported by Countrywide and other mortgage originators; is that right?

R. GLENN HUBBARD - CONFIDENTIAL be using equation A to model something when in fact equation B and the formulation there is the true underlying model. Q. Okay. And if the data itself is faulty, would you agree with me that you're going to have problems with the outputs of your regression model unless you can correct for the data that's input into it? MR. APFEL: Objection. A. Not necessarily. It depends whether it's simply noisy or systematically biased, and indeed that's testable, which is what I do. Q. Did you adopt any measures to test for error in your regression analyses? A. I'm not sure what you -that's not a well posed question, so. Q. Okay, you just stated it's testable, it's testable whether the data errors are simply noisy or systematically biased. Did you in fact run any such

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R. GLENN HUBBARD - CONFIDENTIAL A. I'm not sure when you say the values. You mean the data? Q. The data, yes. A. Yes. Q. If these are variables I'm referring to the data as the values corresponding to those variables? A. Yes. Q. So let me ask you as a general rule, is it fair to say that if you take flawed inputs for a regression model then you can expect that there will be flawed outputs unless you run a correction to deal with the errors? MR. APFEL: Objection. A. It really depends on what kind of measurement issue you're talking about, whether it's model misspecification, omitted variables, noisy data. We could talk about any of those if you like. Q. When you refer to model misspecification, what do you mean? A. Model misspecification would

R. GLENN HUBBARD - CONFIDENTIAL test on data error in your regression analyses in this case? A. Well, what I can certainly conclude even from the first report that if you think that you have these noisy variables, then again, you would not expect to see the pattern I got in the data. If Countrywide had simply misrepresented, you would not expect to see that pattern. I also have since the second report done analyses in response to all of the issues raised by Dr. Cowan and Dr. Mason and find them all unpersuasive. Q. Okay. Let's have an answer to my question, please. In your initial report do you anywhere disclose any tests that you ran for data error? MR. APFEL: Objection. A. I think I just answered that. If you -- if you think that there's some systematic data error for Countrywide, then you would expect to see the under-performance that I don't find. In

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R. GLENN HUBBARD - CONFIDENTIAL the follow-up, when your experts make a series of complaints, whatever you want to call them, I have since then responded in my mind to each of those. Q. All right. With respect to your initial report, and I do require an answer to this question, do you anywhere disclose any tests that you ran for errors in the data that you put into your models? MR. APFEL: Objection. Q. And if you do, I'd like you to direct me to the page in your report where you show such a test. MR. APFEL: Objection. A. The question you asked as asked is not well posed. The answer to the question I think you're asking, because it's the one you asked a couple of questions ago, is the test, the benchmarking itself necessarily gets at that. If you're asking me about something specific, we can have that

R. GLENN HUBBARD - CONFIDENTIAL Q. What you did, sir, was assume that the data for your control group was accurately reported, correct? A. Yes. Q. All right. And you nowhere ran any tests to determine whether the data for your control group was not accurately reported, correct? A. So far as I'm understanding your question, I don't even know what you would do, but... Q. You don't even know how to test for that you're saying? A. I can ask a question that I could answer, but I can't answer yours. Q. Is it fair to say that you did not run any test on the accuracy of the data in the control group that you used in your initial report? A. I don't -MR. APFEL: Objection. A. -- think that's fair for the reason I have been answering and will continue to answer all morning if you'd

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R. GLENN HUBBARD - CONFIDENTIAL conversation. If you want to talk about omitted variables, you want to talk about this, you want to talk about that, maybe a specific question would help. Q. I think you do understand my question, I think you're not answering it, sir, but we will come at it a different way. MR. APFEL: Objection. Q. In your report, your initial report, while you talk about your benchmarking comparison to what you state is a control, you nowhere run tests to determine if the data in either the non-Countrywide securitizations or the non-Countrywide loans is incorrectly reported; isn't that correct? MR. APFEL: Objection. A. Now you're asking a different question. Is the -- are there data errors? What I'm saying is that if there are systematic data errors on the part of Countrywide, that should have shown up in what I did. That's --

R. GLENN HUBBARD - CONFIDENTIAL like to continue. Q. Please identify anywhere in your initial report where you ran any test on the validity of the data in the non-Countrywide securitizations and non-Countrywide loans? A. If you think there's systematic issues with Countrywide, there's a predictable effect that you would get in the benchmarking and I don't find it. Q. That's not my question, sir. And I think you know that. With respect to the data that you used in the non-Countrywide securitizations, and the non-Countrywide loans, is there anyplace in your report where you ran any test on the validity of such data? MR. APFEL: Objection. A. Again, I'm just not sure what you have in mind. Q. The answer is no, isn't it, sir, there's nothing in your report to

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R. GLENN HUBBARD - CONFIDENTIAL test the validity of such data? MR. APFEL: Objection. A. I honestly don't understand your question. Q. Sir, the point of taking the control group and of assuming as you did that the data was valid was so that you could test whether the Countrywide data appeared to be valid or not, right? MR. APFEL: Objection. A. No, as you just asked the question, that's not the exercise. Q. You were testing the performance of the Countrywide securitizations against the non-Countrywide securitizations? A. That is true, yes. Q. And from that you were drawing an inference about the validity of the Countrywide data, correct? A. That is not true. Q. All right. So your testimony is that you were not drawing any inference about the quality of the

R. GLENN HUBBARD - CONFIDENTIAL Q. You understand your obligation is to answer my questions to the best of your ability, including as the questions change, as they will throughout the course of the day? A. I promise to be as nonlinear as you would like me to be. Q. That's not my question, sir. Can you respond truthfully and comprehensively to my questions today? MR. APFEL: Objection. A. That's insulting. The answer is of course yes. Q. That's what I'm asking you to do. All right. So let's take a look at your examination of the control group. A. Okay. Q. In paragraph 10 of your report, you conclude "Had the loans in the securitizations been originated using poorer underwriting standards than those used by other lenders, one would expect the loans to have experienced a higher level of default and delinquency than

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R. GLENN HUBBARD - CONFIDENTIAL Countrywide representations based on the performance of the Countrywide securitizations? A. The whole exercise here is about unobservables, that's what it means to go after underwriting, that's why I'm having a tough time understanding what your questions are. So the issue here is simply whether, conditioned on the observables, there's some unobservable under- or over-performance of Countrywide. That's what an economist can do. Q. Well, an economist has a responsibility if he's using a control group to ensure that is truly a control group; isn't that right? A. Now you're asking an entirely different question than you did. Q. I am asking a different question as I'm entitled to do. A. Fine. We'll keep changing the channel. Yes, of course that's -- and that's what I think I have done.

R. GLENN HUBBARD - CONFIDENTIAL loans in non-Countrywide securitizations." Do you see that? A. Yes, sir. Q. First of all, what do you mean by the term "poorer underwriting standards"? A. In other words, something that couldn't be detected from the right-hand side variables, so there's something unobservable about Countrywide. That's what it means to have shady underwriting. Q. When you refer to the right-hand side variable, what do you mean? A. The control variables, in either the pool regression or the loan level regression, those are controlling for observable variabilities but when you're questioning underwriting it's about unobservables. Q. Right. And in paragraph 21 you make a reference to loosening underwriting standards. Are you using

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R. GLENN HUBBARD - CONFIDENTIAL poorer and loosening as synonyms here, or do you mean them in different ways? A. No, they're, they're quite different. And this actually goes to a core of the economic issues at least as I see them in the case. Standards loosening are an observable variable. They're known to borrowers and lenders. Underwriting that departs from a stated standard is unobservable and that of course is what we're talking about here. Q. Right. Do you understand that this case is about Countrywide's failure to adhere to its represented underwriting standards? A. That is my understanding, yes. Q. Right. And so going back to paragraph 10, did you review the underwriting standards of the other lenders in your purported control group? A. If I'm understanding your question, no. Q. It is true though that you assumed that the other lenders did not

R. GLENN HUBBARD - CONFIDENTIAL that your regression analysis would tell you nothing about the extent to which Countrywide deviated from its underwriting guidelines? MR. APFEL: Objection. A. First of all, it's a hypothetical because there's absolutely no evidence -Q. It is a hypothetical? A. -- in this proceeding. So I don't even know -- it's not something I studied. It's not at all the facts in this proceeding. Q. You don't know one way or another whether that's true, correct? There's no evidence of that one way or another in this proceeding? A. Well, not quite so fast. Your experts have made a number of specific ways to get at that question and I'd be delighted to talk with you about any of those, but... Q. Is there any evidence that you address in your initial report on that

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R. GLENN HUBBARD - CONFIDENTIAL deviate from their stated underwriting standards? MR. APFEL: Objection. A. I didn't make any such assumption. Q. What you assumed was that the reported characteristics of loans and borrowers by such other lenders were accurate? A. No, sir. What I'm observing is MBIA has made an allegation about Countrywide and so the question is are the unobservables of Countrywide over- or under-explaining performance of some benchmark. That's what I'm doing. Q. Again, I want to just be clear about the benchmark, though, about the control group. And let me put it to you a different way. Suppose the benchmark group that you selected had also systematically deviated from underwriting guidelines in just the same way as Countrywide. If that were true, would you agree with me

R. GLENN HUBBARD - CONFIDENTIAL issue? A. I don't feel that I need to. Q. Is there any evidence that you address in your rebuttal report on that issue? A. Absolutely. Q. What evidence do you address in your rebuttal report as to whether there was systematic deviation from guidelines by the non-Countrywide originators? A. That's a slight change in question. So what I can do in the second report is look at Mr. Butler's sample of loans, so now we're only looking at Countrywide. So issues you have about benchmarks are irrelevant. Q. Then you misunderstood my question, because what I asked you about was whether there was any evidence that you looked at in your reports as to whether the non-Countrywide originators deviated from guidelines, and you originally testified not your initial

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R. GLENN HUBBARD - CONFIDENTIAL report but there was evidence in your rebuttal report. What did you mean? What evidence is there in your rebuttal report? A. Again, the Butler analysis in the rebuttal report doesn't depend on that benchmarking. It's Mr. Butler's own sample. Q. Right. Is there any evidence anywhere in either of your reports as to the extent to which non-Countrywide originators deviated from their own guidelines? A. I did not study that, no. Q. Okay. And so when you made your comparison of the Countrywide securitizations to the non-Countrywide securitizations, you have no evidence anywhere in your reports as to the extent to which there were deviations from guidelines by the non-Countrywide originators, correct? MR. APFEL: Objection. A. Again, I think I've answered

R. GLENN HUBBARD - CONFIDENTIAL for, for this analysis. Q. You made an assumption, correct? A. I don't -- I wouldn't call it making an assumption. It's a choice. Q. Okay, you've ignored the issue? MR. APFEL: Objection. A. I didn't ignore the issue. It's a lot of discussion in the report. Q. And the fact is that when you're testing Countrywide to the non-Countrywide deals, you don't know one way or the other whether your benchmark group reflects loans that were properly originated in accordance with the stated guidelines of the non-Countrywide originators? MR. APFEL: Objection. At the time of the original report? Q. Right? A. I think I've already testified I'm not doing any underwriting here. Q. Right. And so the answer is

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R. GLENN HUBBARD - CONFIDENTIAL that. What the benchmarking can do is tell you whether Countrywide under- or over-performs the benchmark. You've now made an allegation not supported by any facts that I'm aware of that all of these others are tainted. I'm just simply not aware of that. Q. You misunderstood, sir. I asked you a question about whether you had made an assumption. I made no assumption here. A. I don't need to make an assumption. Q. You chose to use the non-Countrywide originators as your control group? A. Yes. Q. And you chose to do so without knowing one way or the other whether such non-Countrywide originators deviated from guidelines in just the same way as Countrywide, correct? MR. APFEL: Objection. A. I don't feel I need to do that

R. GLENN HUBBARD - CONFIDENTIAL you just don't know the answer? MR. APFEL: Objection. Q. To that question, right? A. It's not relevant for my analysis, no. Q. I appreciate your statement that you think it's not relevant. Can you answer my question as to whether you know the answer? You don't know one way or the other, do you? MR. APFEL: Objection. A. I did in my penultimate answer. Read your tape. Q. So do you agree with me you don't know the answer one way or the other as to whether the originators in your non-Countrywide control group complied with their stated guidelines? MR. APFEL: Objection. A. That question is unanswerable without specific underwriting and reunderwriting. In this proceeding the only such data I had access to was the reunderwriting for Countrywide and I did

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R. GLENN HUBBARD - CONFIDENTIAL indeed study that. Q. Right, okay. Do you know whether the underwriters in your non-Countrywide, so-called control group, are subject to litigation just as Countrywide is here? A. I believe that some of them are, yes. Well, yes, depending what you mean, not the literal underwriters, but the originators, is that what you mean? Q. Okay, the loan originators? A. Yes, I believe that's the case. Q. You understand that the term underwriting is also used to underwrite loans? A. Yes, but you used the word underwriter which could have multiple meanings. Q. Understood. A. Hence my asking you to clarify. Q. Okay. And in your initial report you didn't address that question

R. GLENN HUBBARD - CONFIDENTIAL for example, credit scores and combined loan-to-value ratios of the loans underlying the securitizations had been inferior to the characteristics actually disclosed to MBIA at the time the securitizations were issued, as MBIA alleges, one would expect the performance of the securitizations would have been worse than that of comparable non-Countrywide securitizations." Do you see that? A. Yes, sir. Q. Here when you posit whether the true characteristics were inferior to the characteristics actually disclosed, what you mean is whether those characteristics were misrepresented, misrepresented in a way that overstated the quality of the loans? A. That's correct. Q. And what's your thinking, since you testified you actually don't know whether the so-called comparable non-Countrywide securitizations were

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R. GLENN HUBBARD - CONFIDENTIAL at all, right? A. I'm sorry, what question? Q. The question of the extent to which the non-Countrywide loan originators were also subject to litigation. A. I have subsequently done that. I did not feel the need to do that. You can file a lawsuit quite easily, that doesn't mean -Q. You didn't do it, right? A. I didn't feel it was worth doing. Since you raised it, I have subsequently done it and would happily tell you the answer. Q. And when you say you've subsequently done it, you mean subsequent to the date of your rebuttal report? A. Yes, since Dr. Mason and Dr. Cowan raised it I followed up on their suggestion. Q. Let's go to paragraph 11 of your report. Here in your initial report you say "If the 'true' characteristics,

R. GLENN HUBBARD - CONFIDENTIAL underwritten and originated in a way such that the characteristics were the characteristics actually disclosed, since you don't know that, what's the thinking behind your comparison here in paragraph 11? MR. APFEL: Objection. Q. What allows you in your view to make the inference that you want to make? MR. APFEL: Objection. A. Again, the question is Countrywide versus non-Countrywide. So what this exercise can tell you is whether there's something unobservable about Countrywide that differs from the control group. Q. You understand the question in the case is not Countrywide versus non-Countrywide, but Countrywide's representations versus its representations and warranties, its actual statements versus its representations and warranties?

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R. GLENN HUBBARD - CONFIDENTIAL MR. APFEL: Objection. Q. Do you understand that? A. I'm not a lawyer, so I can't dispute with you what the case is or isn't about, but I can tell you as an economist I don't think that's right. I think what the issue is is again whether there's an important unobservable effect of what Countrywide did that can be tested. Your experts didn't do it, but it is testable. Q. Let me again take you back to a hypothetical, all right, since you say you don't have any evidence on this one way or the other. Let's assume for the period of 2005 through 2007 for the HELOC and closed end second deals that you examined, both of Countrywide and of the non-Countrywide originators, there were comparable rates of deviation from reported characteristics. All right? Can you make that assumption? A. I'm not sure what that means, but I think I know where you're headed.

R. GLENN HUBBARD - CONFIDENTIAL Were that to be the case, what you would do is look at a reunderwritten set of loans and that of course is the exercise in the second report. If you believe that to be the case, you could look directly at a reunderwritten sample of loans. Q. When you say unobservable, you mean unobservable from your perspective as an economist? A. Oh, of course, the purpose looking at the data, the actual perpetrator, underwriter, whatever you'd like to call it as a legal matter of course knows what he or she did. I can't know that as someone looking at the data. Q. Whereas Mr. Butler, when he is actually reunderwriting the loans, does observe the data as to deviation from guidelines, right? MR. APFEL: Objection. Q. You can disagree or agree with his findings, but he is actually observing the underlying data that you

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R. GLENN HUBBARD - CONFIDENTIAL Q. Okay. Let's say for each of the relevant variables such as CLTV or FICO score or owner occupancy, there were deviations from the reported characteristics of the loans and the borrowers that were comparable with respect to both the Countrywide deals and the non-Countrywide deals. Assuming that to be the case, hypothetically, what inference, if any, could you draw about whether Countrywide adhered to its guidelines by looking at the relative performance of the Countrywide deals versus the non-Countrywide deals? MR. APFEL: Objection. A. Two parts to the answer. First, the hypothetical would be difficult to construct because it's about unobservables and not observables. So we can observe what guidelines are for different lenders. Their unobservable departures are by definition unobservable, so I don't even know how you would construct the hypothetical.

R. GLENN HUBBARD - CONFIDENTIAL call unobservable? MR. APFEL: Objection. A. He is an underwriter and so he is both entitled and I guess assigned to do exactly that. He simply doesn't get over even the necessary hurdle of his own definition. Q. Now you made use of the term empirical evidence multiple times in your rebuttal report. Do you recall that? A. I'm sure I did. It's an empirical report. Q. Do you know what empirical evidence means, sir? A. To me it would mean evidence based on data, models, structures, tests of hypotheses. Q. You said that Mr. Butler offered no empirical evidence in support of his conclusions. Do you recall making that statement? A. It's certainly true. He did not. Q. And you understand that Mr.

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R. GLENN HUBBARD - CONFIDENTIAL Butler, unlike you, actually did offer observable data supporting his conclusions about whether Countrywide deviated from its underwriting guidelines, right? MR. APFEL: Objection. A. I would argue that he did not. Mr. Butler did a reunderwriting. He came up with a measure of defect, but the measure of defect violates his own definition. So I don't think he came up with much of anything that I would call empirical. He did reunderwrite, but the evidence is about a test, he didn't -- he didn't do a test of anything. Q. You understand that the evidence he provided actually does allow for a review by the finder of fact of the actual extent of the deviation from Countrywide of its own guidelines? MR. APFEL: Objection. A. That would be an input to the finder of fact just as Ms. Godfrey's is, but the finder of fact might also wish to

R. GLENN HUBBARD - CONFIDENTIAL MR. APFEL: Objection. A. No, sir, I don't see it that way at all. Q. What you did was conduct an ex post comparison of the post-closing performance of the Countrywide loans against what you characterize as a benchmark of non-Countrywide loans; isn't that right? MR. APFEL: Objection. A. It's entirely consistent with looking at ex ante definitions. I would draw your attention to the huge body of statistical work that rating agencies do to look at ratings that is all about using ex post data to see whether ex ante characteristics make any sense. Mr. Butler could have done that, Dr. Mason could have done that, no one did it for you. Q. You're saying your methodology is comparable to that used by the rating agencies? MR. APFEL: Objection.

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R. GLENN HUBBARD - CONFIDENTIAL know whether the reunderwriting is consistent with the definition of the underwriting. That's testable, that's what evidence is, that's what Butler does not do, what Mason does not do. Q. You say that Mr. Butler's measure of defect violates his own definition. What do you mean by that, sir? A. He defines it to be a material increase in risk. That's a testable hypothesis. He doesn't test it. That's what evidence means. And of course, that's where he fails the test as I show in the report. Q. And according to you, the way to test that is what, sir? A. The way I did it in the report, to compare the performance of his alleged significantly defective loans with nonsignificantly defective loans. Q. What you do actually is confuse ex post and ex ante evidence, don't you, sir?

R. GLENN HUBBARD - CONFIDENTIAL A. I'm not saying that. I'm saying there are many examples where to validate an ex ante indicator one uses long periods of data of ex post information. Q. The sample you just adduced was that of the rating agencies? MR. APFEL: Objection. Q. Can you be more specific as to what work of the rating agencies you're relying upon to validate the use of ex post data for an analysis of ex ante risk? MR. APFEL: Objection. A. I don't need the rating agencies to do that. Finance 101 would give me that in just an asset pricing. Q. I'm asking for what rating agency work you're referring to? MR. APFEL: Objection. A. For rating agencies I'm referring to decades of work on corporate credit. Q. And your view is that that

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R. GLENN HUBBARD - CONFIDENTIAL rating agency work was a successful indicator of risk going into the housing crisis? MR. APFEL: Object. A. Your question confuses two things commonly confused about rating agencies. The words I used were corporate credit. You've now asked about RMBS. But either way, the statistical exercise, which is what our discussion was about, is using ex post data to get at the validity of ex ante characteristics. Q. Okay, the question made no comparison of corporate credits to RMBS. You can be contentious all day long. It will be faster, and I understand you think you have a very busy schedule, it will be faster for us both if you just answer the questions that I ask you. Do you understand that? MR. APFEL: Objection. A. You can instruct me all day

R. GLENN HUBBARD - CONFIDENTIAL certainly a fair characterization that market participants collectively thought house prices would continue to rise rapidly much longer than they did, yes. Q. Is it your testimony that back in 2005 and 2006 you, unlike most market participants, had the view that we had an imminent housing crisis in store? MR. APFEL: Objection. A. I certainly was very concerned and gave remarks to that effect. I can't, unfortunately I didn't trade, I'm not a billionaire, I screwed up, but. Q. And in any case, whatever you now say about your views back then, I take it you would agree that the market consensus in 2005 and 2006 was not that there would be an imminent housing crisis? MR. APFEL: Objection. A. I think that's certainly true and actually very important in this case that market participants thought or had high expectations for house price growth.

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R. GLENN HUBBARD - CONFIDENTIAL long, sir. I answered the question. It was confusing. I tried to help. Q. Do you understand that the relevant legal standard here is the ex ante degree of risk created by the misrepresentation as of the closing date of each securitization? MR. APFEL: Objection. A. I'm not a lawyer, but that would seem entirely appropriate as an economist, yes. Q. That's the risk measured as of the closing date of each deal, right? A. Correct, that would be the appropriate standard. Q. That's not what you measured, is it? MR. APFEL: Objection. A. Completely false. Q. Isn't it your view that the housing crisis was a highly unlikely event if we go back to 2005 or 2006? A. I don't know that that's a fair characterization of my view. It's

R. GLENN HUBBARD - CONFIDENTIAL Q. And so when you compared the performance of Countrywide securitizations to non-Countrywide securitizations, what you were doing was comparing the performance of the loan pools in just this one highly unlikely scenario, the housing crisis itself? MR. APFEL: Objection. Q. Right? A. Now you've lost me. I'm not sure what the question is. Q. You say that you're trying to look at ex ante risk, but your approach is to look at ex post performance, and your approach specifically is to look at ex post performance through the housing crisis, a highly unlikely scenario that unfortunately occurred? A. Okay, now -MR. APFEL: Objection. Q. Right? A. Now we've merged two trains of thought and maybe this is what you intended to do, but because they're so

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R. GLENN HUBBARD - CONFIDENTIAL different I want to take them apart. You were asking me about Mr. Butler and underwriting and ex ante and ex post. Now we've segued back to the benchmarking exercise which is an exercise about performance. But it's the same idea, if that's what you're asking, that you use ex post information about performance. Maybe that's what you're asking. It wasn't clear. Q. Well let's make it simple. I thought you already agreed with me that the way you tried to test ex ante risk was not by actually reunderwriting the loans as Mr. Butler did, but instead looking at the ex post performance of the loans compared to what you believe to be a control group, right? A. You -MR. APFEL: Objection. A. I'm sorry, the question is not right. It's not about risk, it's about the unobservable component, that's what I'm after. I mean there could be very

R. GLENN HUBBARD - CONFIDENTIAL Q. And you agree with me that the reality that happened was at the time of closing of these securitizations thought to be highly unlikely by the market, correct? A. I would agree with that. Q. So what you did in order to test for material misrepresentations or, equivalently in my view, the risk characteristics ex ante, was to look at the post-closing performance in just that one unlikely scenario, right? MR. APFEL: Objection. A. First of all, it's about unobservable ex ante risk and that's exactly the right thing to do because everything comes at around the same time. The question is whether departures from anything that could have been observed by borrowers, lenders, underwriters in real time have an effect. Q. Methodologically, would you agree with me that there are many different ways of looking at the risks of

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R. GLENN HUBBARD - CONFIDENTIAL risky, not very risky. As long as that's known, no harm, no foul. The question is whether it's not known and that's -that's what we're talking about. So it's the ex ante unobservable risk. Now Mr. Butler, who is an underwriter, has given me information, he's said that in his opinion he has identified what the ex ante risks are. All I'm saying is it's very unusual that his definition doesn't appear to hold water controlling for other variables. So it's not exploiting the housing crisis. Q. Let's try and make it simple for you. The way in which you test performance is only through one scenario, specifically the scenario of events that actually occurred, the housing crisis, right? MR. APFEL: Objection. A. If you're asking me is my empirical work the reality that happened, yes.

R. GLENN HUBBARD - CONFIDENTIAL the loan pools as of the closing dates? You chose an ex post comparative assessment, Mr. Butler chose an ex ante assessment of the underwriting defects? MR. APFEL: Objection. A. That's not consistent with what either of us did. Mr. Butler wasn't engaged in this exercise. He did what he was asked. He did a reunderwriting. Q. Correct. A. What I'm saying is he used a definition there. That definition has an implication. It's not borne out by the data. That's a necessary hurdle for his definition to work. There's also a sufficient one that he doesn't even try, but he doesn't get over the necessary hurdle. Q. Well what you're saying is that in order to see whether there was a material adverse effect on risk, you're saying if there were such a material adverse effect on risk we ought to have seen some disproportionate effect on the

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R. GLENN HUBBARD - CONFIDENTIAL performance of the Countrywide securitizations in fact? A. No, sir. What I'm suggesting and what Mr. Butler did is define group A over here as significantly defective and group B over here as not significantly defective and they're all at the same time. So the housing crisis doesn't help you here. If there's any meaning to a definition of significant defect, it must be that it is a greater likelihood, all other things equal, of under-performance. So it would be a necessary condition for that definition to work, and it fails. Q. Okay, you're confusing two points. I'm not now talking about Mr. Butler's separate set of not significantly defective loans compared to the significantly defective loans. I'm talking about the identification by Mr. Butler of underwriting defects as the first step. I understand you then try and make a comparative assessment of the

R. GLENN HUBBARD - CONFIDENTIAL that is a real underwriting definition that I'm using. He just can't get over that hurdle. Q. I understand you want to talk about your rebuttal report and you can jump to that for a moment? A. Mr. Butler is not in my first report. Q. I'm trying to keep the focus on your ex post analysis in your initial report. But let's go for a second to that comparison that you want to talk about. Let me give you a hypothetical. If I am a drug manufacturer and producing various quantities of drugs off a production line, and there's a QC process that determines that fully 50 percent of those drugs are defective based on the results that can be observed through the QC, the QC process by hypothesis is not a hundred percent effective, it can't observe everything.

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R. GLENN HUBBARD - CONFIDENTIAL two subsets of data that he develops. Now, Mr. Butler is looking at the actual deviations from guidelines based on the results of his reunderwriting analysis. From that one can conclude various things about the extent of misrepresentation from guidelines and the effect on ex ante risk. What you are doing is looking at the performance ex post in the one scenario of the housing crisis which you have data for and you are drawing conclusions on the basis of that. Generally speaking, is that accurate? Or do you wish to quibble with that? MR. APFEL: Objection. A. It's accurate but misrepresented. It's accurate in the sense that of course I'm using real data. But it doesn't help you for Mr. Butler. Because I'm taking Mr. Butler's own reunderwriting all done at the same time and his definition of whether something is defective. I'm actually using that,

R. GLENN HUBBARD - CONFIDENTIAL Would you then conclude that as to the 50 percent of drugs for which the QC process did not identify problems those would be okay, or would you instead say that the production pipeline was so defective that one can't rely upon any of the drugs coming out of that? MR. APFEL: Objection. Q. And let me just ask if you understand what I'm getting at here? MR. APFEL: Objection. A. I don't, so let me restate it and then you tell me whether I got it right. So basically 50 percent is a known defect rate. Q. Correct. A. And so we've deviations around the 50, because that part I got. And then there was a second part I didn't get. Q. We have an issue with are you going to take the drugs or not, okay, will you buy the loans or not, it's the analogy. And the question is what you know is that there is a high rate of

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R. GLENN HUBBARD - CONFIDENTIAL defect in the production. What you also know is that your process of QC'ing, testing the drugs or reunderwriting the loans isn't going to tell you in all instances whether the product is defective. If that's the case, how can you possibly conclude that the drugs which escape the QC process and are not identified as defective, that those are nonetheless a valid control group for comparison? MR. APFEL: Objection. Q. You don't know that those drugs are acceptable either given the rate of defect, what you do know is that the production process is so flawed that you're not going to want to take any of those drugs? MR. APFEL: Objection. A. Okay, now I really don't understand, but let me try again. The case of drugs is very different. Even with a known defect rate of 50 percent, that's just so unacceptable, no seller

R. GLENN HUBBARD - CONFIDENTIAL given the way Mr. Butler described, that there is not a difference between not significantly defective and significantly defective. Q. That's not my question. A. Indeed, he defines it that way. Q. That's not my question. Mr. Butler is not saying that the very small incidence of loans as to which he did not find a material breach were properly underwritten. Do you understand that? MR. APFEL: Objection. Q. Or did you just assume that he was saying that for purposes of your rebuttal report? MR. APFEL: Objection. A. I listed exactly his categories in my report so you know very well what I assume. But the word significantly defective has no meaning but for a difference from something else. He could have tested it, he didn't. I did.

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R. GLENN HUBBARD - CONFIDENTIAL exists, no buyer exists. Now the question is here a known defect of any size of course can be priced, and that's, that's not an issue. MBIA does its own due diligence without a zero defect assumption. The question is the unknown defects. Now what I do is say well, Mr. Butler has already taken a stab at that. He's actually told me which are significantly defective. I don't have to make any judgment. Indeed, I'm not an underwriter, I can't make that judgment. But I can test his and that's what I'm doing. Q. Mr. Butler has not told you that the loans as to which he was unable to find significant defects were properly underwritten, do you understand that, sir, or did you just assume that he was saying those loans were properly underwritten? MR. APFEL: Objection. A. It is inconceivable to me

R. GLENN HUBBARD - CONFIDENTIAL Q. There is an evident meaning between significantly defective loans as to which Mr. Butler was able some years later to demonstrate material breaches and loans as to which he was not able to identify that. But what you did, sir, was assume that the loans for which he was not able to identify significant defects were actually properly underwritten loans, correct? MR. APFEL: Objection. A. I simply said if you were going to call something significantly defective and you define it as a material increase in credit risk, then there's a clear implication of that definition. Q. I'd like an answer to my question. MR. SELENDY: I mean we can fence all day, but we're going to call this witness back a second day if that's what we do. MR. APFEL: He's answering your questions.

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R. GLENN HUBBARD - CONFIDENTIAL MR. SELENDY: No, I'd like an answer to this question. A. I just answered it. Q. I'm going to read it again. All right. What you did, sir, was assume the loans for which Mr. Butler was not able to identify significant defects were properly underwritten loans, correct? MR. APFEL: Objection. A. That is not my assumption, no. Q. Okay. A. Is that they're a different category, not significantly defective. Q. All right. So when we look at your conclusions then we can say that you make no assumption as to which, as to whether the category of not significantly defective loans are properly underwritten; is that fair? A. They are different in Mr. Butler's categorization from significant defective, that's what I explored. Q. And you make no further assumption as to whether they're properly

R. GLENN HUBBARD - CONFIDENTIAL right, you're comparing performance? A. Correct. Q. And you accept that different scenarios of actual events, different scenarios of events could lead to different performance pathways for the loans, right? A. Oh, absolutely. If you're asking if house prices were high, house prices were low. Q. Right. Did you make any attempt to look at, as of the date of closing of each transaction, different scenarios of possible performance? MR. APFEL: Objection. Q. And then run your expected results? MR. APFEL: Objection. A. That wouldn't really help you here because it's in Mr. Butler's own sample, so that exercise wouldn't help you. Q. So you did not do so? A. It would have been

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R. GLENN HUBBARD - CONFIDENTIAL underwritten? A. Well I'm not an underwriter. I'm accepting his definition. Q. All right, all right. And so your conclusions then are open to question to the extent the not significantly defective loans are also not properly underwritten, right? MR. APFEL: Objection. A. I don't think so, no. Q. Okay. And that's because you you're not making conclusions as to whether any loans were properly underwritten? A. I'm accepting Mr. Butler's representation. Q. And you're just comparing performance? A. Well -MR. APFEL: Objection. A. Well, just comparing performance is what Mr. Butler should have done. And Dr. Mason. Q. That's what you're doing,

R. GLENN HUBBARD - CONFIDENTIAL inappropriate to do so. Q. Okay. You believed it was inappropriate and you did not do so? A. Correct. Q. As of the closing date of each securitization, you understand that from the perspective of the insurer, the insurer is looking at risks across multiple pathways of possible performance, right? MR. APFEL: Objection. A. I would assume the insurer has that model in its head, scenarios, of course. Q. And what you compared was just one pathway, the performance through the unlikely event of the housing crisis, right? MR. APFEL: Objection. A. I looked at what actually happened. That's what would have been required for this proceeding in my view. Q. And you did not look at different -- you ran no simulation of

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R. GLENN HUBBARD - CONFIDENTIAL probable pathways of performance, right? MR. APFEL: Objection. A. Again, I'm not sure in what context you think that would have been relevant, but I don't think it would have been relevant, and no. Q. If you're the insurer trying to assess the ex ante risk as of the closing date before the housing crisis works, that is what's relevant, isn't it? A. Yes. MR. APFEL: Objection. A. But of course that's not the issue in this case. That's all about -Q. That's your legal opinion, sir, as to what the issue is in this case? A. No, I can only tell you as an economist. As an economist, all the observable variables I assume MBIA had opinions on those variables and scenarios, but the case is about misrepresentation, it's not about whether house prices were or weren't riskier.

R. GLENN HUBBARD - CONFIDENTIAL the closing date of the securitizations? MR. APFEL: Objection. A. My analysis here is about the validity of Mr. Butler's definition. It's not a causation point at all. Q. You're referring to your initial report or your rebuttal report? A. The rebuttal report. Q. Okay, what about your initial report? A. Now you've lost me. Context, question. Q. Okay. You said your analysis is about the validity of Mr. Butler's definition. I thought you were presenting an expert report that was broader than that? A. I am. But you just asked me a question about Mr. Butler and causation. My reply was my answer is not about causation, it's about the validity of a definition. Q. Do you understand that my question is about the validity of an ex

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R. GLENN HUBBARD - CONFIDENTIAL Q. You understand that this case is about whether there were material misrepresentations of risk as of the closing date of the securitizations, right? A. Yes, and that has nothing to do with the conversation you and I just had. Q. That has nothing to do with the actual causes of the losses post-closing, do you understand that? MR. APFEL: Objection. A. Well that I don't accept at all if I'm understanding what you're saying. Q. Did you read Judge Branston's opinion in this case on the relevance of causation to MBIA's claim for rescissory damages? A. I'm not making a causation claim. Q. Do you understand that the test of misrepresentation concerns the degree of misrepresentation of risk as of

R. GLENN HUBBARD - CONFIDENTIAL post assessment when you're looking at ex ante risk? A. I think that is entirely appropriate, yes. Is that your question? Q. All right. And so you're going to stand on your view that the way to look at the ex ante risk of the misrepresentations by Countrywide as of the closing date of each securitization is to examine just a single performance pathway ex post, namely, what actually happened through the housing crisis? MR. APFEL: Objection. A. The answer to that question is yes, because the misrepresentation claim is about unobservables, not about how risky house prices were or weren't. That's a confusion in the plaintiff's experts' reports. Q. Okay, I'll take that answer. Let's go to your identification of the so-called comparable non-Countrywide pools. And before we get there, is it fair to say that one of the premises of

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R. GLENN HUBBARD - CONFIDENTIAL your analysis is that in fact there are a truly comparable set of non-Countrywide pools and non-Countrywide loans? A. If I'm understanding the question, yes. Q. And if you are unable to validate the comparability of those pools and loans, then your regression analysis would also be unvalidated, right? A. Certainly to the extent that comparability doesn't hold. It's certainly much noisier, if I'm understanding your hypothetical. Q. When you say much noisier, what do you mean? A. In other words, think about, I don't know, another example where you're comparing companies, let's say. If you don't get the line of business exactly right, then the comparability would be less apt. Is that the tenor of your question? Q. Okay. I'm just asking your use of the term noisy. Noisy data has

R. GLENN HUBBARD - CONFIDENTIAL A. I'm not following what you mean. Q. Okay. Are the categorizations used by S&P in your view sufficiently similar to ABSNet? MR. APFEL: Objection. A. I'm sorry, categorizations as to what, a date or -Q. As to the characteristics of the pools? A. Like a credit score? I'm trying to figure out what you mean by -Q. Okay. When you went through S&P and ABSNet, were you able to use the same criteria to identify comparable pools or did you have to adjust your method in each of the different databases? A. If I'm understanding your question, they're not precisely the same. Q. You state in your report that using your method with the S&P publications and ABSNet, these sources cover 74 percent of non-Countrywide HELOC

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R. GLENN HUBBARD - CONFIDENTIAL many different usages, I want to be sure I know what you're talking about. And you said Exhibit 22 gave your criteria for selecting comparable non-Countrywide pools; is that right? A. Yes. Q. And Exhibit 27 was the list of your non-Countrywide comparable pools; is that right? A. Yes. Q. Did you use S&P publications to identify the HELOC and closed end second securitizations? A. Yes, there were some loss reports that are from S&P. Q. And you also used search functions in ABSNet; is that right? A. That's correct. Q. Are pools classified in the same way by S&P as opposed to ABSNet? A. I'm sorry, classified as to what? Q. As to the characteristics of the pools?

R. GLENN HUBBARD - CONFIDENTIAL pools and 64 percent of non-Countrywide CES pools securitized between 2004 and 2007; is that right? A. Yes, that's -- that was my conclusion. Q. Were the pools that you selected a random sample of HELOC or closed end second pools? A. No, I tried to use all the pools for which I could get the data. Q. So you selected from the 74 percent of available non-Countrywide HELOCs? A. Right. I didn't use all of them, but selected from that group, yes. Q. What was the basis of your selection from that group? A. Well, as I say in the exhibit, it's about both -- well, it's about three things: The time period, the data availability for the variables that I have, and min/max restrictions on the ranges of the key variables. Those are really the three.

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R. GLENN HUBBARD - CONFIDENTIAL Q. And that's true also with respect to the deals that you selected from the 64 percent of non-Countrywide closed end second pools; is that right? A. Yes, sir. Q. Do you know whether if you had had data related to all of the HELOC and closed end second pools whether your results would have been different? MR. APFEL: Objection. A. Well I don't have those data so I don't know that. Q. You just don't know? A. Right. Q. Are you familiar with the concept of selection bias? A. Of course. Q. What is that? A. Selection bias would be essentially a rule that would sample non-randomly from a sample. Q. And you agree that your sample was not a random sample, right? A. I didn't intend it to be a

R. GLENN HUBBARD - CONFIDENTIAL A. Many times. Q. All right. And is there any general way in which you've conducted such comparable valuations? MR. APFEL: Objection. A. Well generally when I teach it to students it depends on the purpose you're trying to do, but obviously you want to get similar maturity characteristics, industry characteristics, you know, you want to be as close as you can. There's also basis risk, if you will, in any comparables analysis, but you want to have apples to apples. Even if one has a dent here and the other has a dent here, they should both be an apple. Q. When you say maturity risk, what do you mean, maturity characteristics? A. Oh, in other words, you wouldn't want to use as a comp for a brand new technology firm in apps IBM. Q. So when you compared securitizations, did you take into

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R. GLENN HUBBARD - CONFIDENTIAL random sample. I tried to use as many of them as I could. Q. Did you -A. It's not a sample. Q. Did you adopt any technique to control for selection bias in your process? MR. APFEL: Objection. A. If I'm understanding your question, the familiar techniques for selection bias would not have been available to me here. Because I didn't have the other data so there's no way I can test. Q. So it's your view that it was just not testable? A. If I'm understanding -Q. Based on data available to you? A. If I'm understanding your question, no. Q. Have you, have you ever outside this case performed a valuation of a company using comparables?

R. GLENN HUBBARD - CONFIDENTIAL account the maturity of those securitizations? A. Well, that's a very different use of the word maturity. Q. Yes, it is. A. Than I just did. No, I tried to use all of the securitizations as long as, excuse me, they fell within the range of the key right-hand side variables. Q. So is it fair to say that if you looked at the delinquency data for a HELOC deal from, let's say, January 2006, you would compare that to another HELOC deal even if it were in, issued in November 2006 because it was within the same year; is that right? MR. APFEL: Objection. A. But I can control for that, but yes. Q. You did do that, right? MR. APFEL: Objection. Q. For the HELOCs? A. Of course I did it, yes. Q. When you say you can control

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R. GLENN HUBBARD - CONFIDENTIAL for that, did you actually control for that? A. Well, sure, in the loan level analysis I have dates from origination, so. Q. Let's stick with your pool level analysis. Did you control for that at your pool level analysis? A. I'm not sure what you mean. That's not -- that's not about maturity. What is it you're asking? That's not about maturity. It's about origination, is that what you mean? Q. When you selected your HELOC deals and you tried to ensure comparability based on vintage, you said, look, the deals -- the data is a little sparse for HELOCs so I'm going to group deals together by year. And then you assessed the percentage of defaulted loans I believe across Countrywide/ non-Countrywide loans as of different points in time, right? MR. APFEL: Objection.

R. GLENN HUBBARD - CONFIDENTIAL say November 2006, it's a HELOC, is it fair to say that you're comparing delinquency and default rates as of a set point in time with a non-Countrywide securitization, also HELOC, that was much earlier in 2006? MR. APFEL: Objection. A. Well I'm doing that across the board. I'm measuring a common point at the end. Q. At the end? A. And I'm controlling for the vintages and then all the right-hand side variables. Q. And when you say you're controlling for the vintages you're -A. Vintage effects. Q. When you say you're controlling for the vintages, you're lumping together for the HELOCs all of the HELOCs of a given year, right? A. That's correct. MR. SELENDY: Apparently we need to take a break for the tape

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R. GLENN HUBBARD - CONFIDENTIAL A. If I'm understanding your question, I think I'm with you so far. Q. Okay. What you didn't do was compare a delinquency or default rate for a Countrywide securitization five months after the closing date with the delinquency or default rate of a non-Countrywide securitization five months after the closing date? You made no control for the maturity of the RMBS transaction? MR. APFEL: Objection. A. I don't know what you mean by maturity in that. The age of the transaction? Because I'm controlling for vintages, so. Q. You're controlling by the year -A. Unless you think there's something. I see, so your theory is there's some difference spring and fall. Q. Well I'm asking. So again, just to be clear, if you have a Countrywide securitization as of let's

R. GLENN HUBBARD - CONFIDENTIAL which can be as short as you want. I'm able to just sit here if you want and let the tape come in. If you want -THE VIDEOGRAPHER: The time is 10:48 a.m., this ends tape 1 in the videotaped deposition of Professor R. Glenn Hubbard, we are off the record. (A recess was taken.) THE VIDEOGRAPHER: The time is 11:03 a.m., this begins tape 2 in the videotape deposition of Professor R. Glenn Hubbard, we are on the record. Q. Dr. Hubbard, let's talk about your comparison of the non-Countrywide pools with the Countrywide pool performance in your initial report. If you could turn to page 26 of your report, please? A. Page 26 or -Q. Page 26. A. Page 26, okay.

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R. GLENN HUBBARD - CONFIDENTIAL Q. In paragraph 48 you say "Data on the comparable pools characteristics are collected from prospectus supplements" and then you go on to describe the series of characteristics that you looked at, right? A. Yes. Q. And you say that you chose the independent variables based on academic research examining the riskiness of loans and predictors of default; is that right? A. Yes, sir, that's correct. Q. And again, those variables that you included here included the level of documentation, credit score, owner occupancy, as well as other variables, correct? A. Yes, sir. Q. And I believe you testified earlier you had neither the expertise nor the data to validate whether the disclosed characteristics in these prospectus supplements were actually true, right?

R. GLENN HUBBARD - CONFIDENTIAL Q. Is it your understanding that the information in the pro supps that you relied upon was audited? A. I don't know what you mean by audited. Q. Do you know generally what it means to audit financial data? A. Now you're asking a slightly different question. Generally financial audits are about financial statements. These aren't financial statements. Q. Right. So do you know whether there was any audit made on the data in the pro supps that you relied upon? A. My general understanding would be that auditing of data and pro supps would be certainly at a much lower level than auditing you might think of in a reported financial statement, like an income statement or balance sheet. Q. Are you aware of any auditing process with respect to the pro supp data that you relied upon? A. I'm not.

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R. GLENN HUBBARD - CONFIDENTIAL MR. APFEL: Objection. A. I certainly said that I was relying on those data if that's your question. Q. Is it correct that you had neither the expertise nor the data to validate the truthfulness of those characteristics? MR. APFEL: Objection. A. Well, one would have to have reunderwritten everything to do that. I wasn't asked to do that, so I couldn't have done that, no. Q. Why did you rely on unvalidated data for your analysis? MR. APFEL: Objection. A. In any exercise it is very common to use publicly available data, knowing of course there may be issues with data. You could also do a reunderwritten sample. I of course am not an underwriter. That's what the second report is about. But I think it's an entirely legitimate exercise.

R. GLENN HUBBARD - CONFIDENTIAL Q. Is it your assumption or understanding that the figures in the pro supps that you relied upon are reported on a consistent basis across different transactions? A. I'm sorry, I don't understand what you mean. Q. Okay. You've just stated that you're not aware of any auditing of the data that you relied upon. I guess I'm asking you are you aware of any standards that govern consistency in reporting that data across different loan originators? MR. APFEL: Objection. A. I guess I'm still not following you. I describe in the report, you know, which variable names I used to match to my economic concepts. If you're asking me does originator A report loan-to-value ratios different than originator B, is that -- I'm not understanding. Q. Do you have any knowledge of whether originator A reports the various

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R. GLENN HUBBARD - CONFIDENTIAL characteristics that you looked upon in the same way as originator B? A. I -- if I'm understanding your question, I used the data as I see them in the pro supps, the prospectus supplements. Q. Do you have any understanding of how that data is actually developed and reported by originators or by the sponsors of the securitizations? A. I do not. Q. Are you aware of whether there's any governing body that guides how such data should be reported in pro supps? Again, referring to the RMBS data that you relied upon for your analysis? A. Well, there are regulations about disclosures of information, but I'm not aware of any auditing that goes on if that's your question. Q. What regulations are you referring to? A. Well Reg. AB is a disclosure regulation, for example.

R. GLENN HUBBARD - CONFIDENTIAL audit. Q. Okay. And as you said, it didn't actually apply to the deals from 2004 and 2005? A. It didn't, although my own checking of them, most, most of those disclosures were there about originators. But you're correct as a matter of law. Q. When you say your own checking of them, what are you referring to? A. Well, Dr. Mason had made some comments about multiple loan originators and disclosure of originators, so I did some checking exercises. Q. You mean after the submission of your rebuttal report? A. Yes. Q. What checking exercises did you do? A. Well, getting at the issues of first which pools were or were not available. Questions of whether multiple loan originators, litigation or other variables might have affected my results.

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R. GLENN HUBBARD - CONFIDENTIAL Q. Do you know when that became effective? A. 2006 it -- December 31, 2005, although it wasn't really binding. Most people have been doing it for years before, but the factual answer to your question is I believe 12/31/05. Q. Are you aware of whether Reg. AB had any effect on the process of reporting the data as to borrower and loan characteristics from the various transactions you looked at from 2004 through 2007? A. I'm sorry, is your question whether Reg. AB would mandate a different disclosure than what had been originally disclosed. Q. No. Are you saying that Reg. AB ensured some consistency in the reporting of the data in the transactions that you relied upon? MR. APFEL: Objection. A. I wouldn't know that. Reg. AB is a disclosure requirement, not an

R. GLENN HUBBARD - CONFIDENTIAL I did a whole variety of checking exercises on all of those. Q. Could you describe those, please? A. Sure. Which one? Q. Well let's go through it. You said you did a whole bunch of exercises after you submitted your rebuttal report. I'd like to hear what you did. A. Well, let's just start in the order I gave them. Dr. Mason had said, well, there were 47 pools that you should have had and you didn't. The data that are available on ABSNet vary depending on when you look at them. The date that I looked at them didn't have that. Of the 47 pools Dr. Mason suggested, only 23 had data requirements that matched my filter. Including those 23 did not affect my results. The question about multiple originators does not affect the results. You can take out multiple originators. There's only a handful as I described in

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R. GLENN HUBBARD - CONFIDENTIAL a footnote. You can do the results with and without, no effect. Litigation, both Dr. Cowan and Dr. Mason allege that it's very important to control for differences in litigation, whether there's litigation surrounding deals in a pool. That is not the case in the data. First of all, Dr. Cowan actually makes a mistake in what he does. Dr. Mason just suggests that test. And when I do the test it doesn't materially affect my results. Q. Anything else? A. I'm sure others will occur to me, but that seems like a good start. Q. Okay, let's start with the last one you identified. You said Dr. Cowan made a mistake. What's the mistake that you believe you identified? A. Well, Dr. Cowan produced some bar charts by securitization where he said if you were to remove things with a litigation flag, I think that's his, his

R. GLENN HUBBARD - CONFIDENTIAL an error. Dr. Mason just asks for a test and when you do the test it doesn't matter. Q. You said it didn't materially affect your result. You're saying you came up with a different result but one that you didn't conclude was material? A. Yes, given that my conclusions were about whether or not the Countrywide sample under- or over-performed. It's in that -- I mean there's some individual securitizations where things are different, but none of it's statistically different. And so when I look at that I see no material difference in my results. I could have also included litigation dummies or dummies for any of the flags Dr. Mason identified. Those also don't change my results. Indeed, the monoline and originator effects aren't even statistically significant. Litigation is. Q. When you say that you tested for materiality, what was the threshold

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R. GLENN HUBBARD - CONFIDENTIAL word, you would get a very different result. Remember what I'm doing, as we were talking about this morning, is comparing expected and actual performance. He says well the patterns are very different if you take out the litigation. It turns out he made a what sounds like a subtle but turns out to be a very consequential error. He took the first three digits of his coefficients, is all he used, and rounded. The problem is for a couple of variables those first three digits were zero, zero and zero. And so if you correct his results, you find that my results essentially stand as presented. Q. So you're saying if you don't round the coefficients then your results in your view hold up? A. Correct, and that's quite substantive given that he effectively zeroed out whole classes of variables including the loan balances. So his is

R. GLENN HUBBARD - CONFIDENTIAL that you used for whether a difference was or was not material? A. Well, recall what I did in the original report was ask questions about statistically significant differences. I actually found that for the set of securitizations Countrywide had out-performed the non-Countrywide. What I really need to find is that Countrywide didn't under-perform. I didn't change the point estimate anywhere, in my recollection. And generally, no material change in my results for any of these. So fine suggestions, but no change. Q. You're saying that on a securitization-by-securitization basis when you reran your model adjusting for the exclusion of non-Countrywide deals that were subject to litigation, you did not find any statistically significant change in your results? A. In my final conclusion, right.

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R. GLENN HUBBARD - CONFIDENTIAL Dr. Cowan's bar charts which were about the uncontrolled experiment certainly don't reveal any change in the pattern that I originally predicted and no change in the average pattern, I'm pretty sure, in the Mason -- there's a lot of work here, but that's my -- that's my recollection. And I did other exercises, too. I don't what else you'd like me to talk about. I did -- I responded to all of their comments. I'd be happy to talk about any and all. Q. Let's go into anything else that you did after the submission of your expert rebuttal report in just a minute. I'd like to stick with the statement you just made about materiality. In paragraph 53 of your initial report, when you're reporting the results of the regression analysis for your sample of comparable pools, you say that the differences between actual performance and expected performance,

R. GLENN HUBBARD - CONFIDENTIAL A. Well, I can give you my recollection. I did two things on litigation. One, since Dr. Mason referred to red flags I believe was the term, he said well let's use a litigation dummy. If you do that, there's really no material effect. Meaning if something had been statistically insignificant before it was still insignificant. If it was significant it was still significant and the signs were still the same. If you group into subsamples, whether it's monolines, originators, or litigation, again, my recollection is pretty much the same thing. So you get the similar average result. There may be changes at the level of individual securitizations, but none of those are statistically significant. Q. How about the difference that you reported on average, do you recall how that difference between the Countrywide securitization performance and the non-Countrywide securitization

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R. GLENN HUBBARD - CONFIDENTIAL where the expected performance is driven by your regression analysis using the comparable pools, the differences are not statistically significant for 14 out of the 15 securitizations, right? A. On the securitization level, yes, in the initial report. Q. Yes. And you say on average, however, if you put all 15 together, the difference is statistically significant? A. That's correct. Q. And what's your test for statistical significance here? A. Basically statistically significant at the 95 percent confidence level. Q. Plus or minus 5 percent? A. Right. Q. And so when you reran your analysis dealing with the litigation variable, what -- are you able to describe your conclusions on a securitization-by-securitization basis as statistically significant or not?

R. GLENN HUBBARD - CONFIDENTIAL performance, how that changed when you reran your analysis? A. My recollection is that in virtually every case it's the same sign and statistically significant. Q. You said the same sign. Do you know if the degree of out-performance was half what you reported? Do you know anything about the effect on that particular value? A. Well I know it exactly. I just don't have the data with me today. My recollection is actually quite similar. It's not really needed by me. All I need is a sign, but. Q. Okay, you just don't recall as you sit here today what your reported degree of out-performance was once you adjusted for the change in litigation? A. I don't recall. Again, what I recall is that each of the red flags as presented just didn't have the effect as suggested in the plaintiff's reports. As I said, Dr. Cowan in addition actually

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R. GLENN HUBBARD - CONFIDENTIAL makes a mistake. Q. And the mistake that you're referring to is the rounding of the coefficients? A. It's an elementary error, but a significant one, yes. Q. Did you observe any other issue that you believe is a mistake in the way Dr. Cowan reran your regression analyses? A. Yes. Q. What other issues did you observe? A. Well, I don't know if you would qualify this as a mistake or just faulty economics, but the test he did on Granger causality I would take great issue with. Q. All right. In what respect? A. Well, he appears to find -well, first of all, let's just start with the fact that he uses different sample periods for his work on prices and his work on unemployment, with no

R. GLENN HUBBARD - CONFIDENTIAL with a large body of empirical work by housing scholars, and what I find is it's also a very special result because if I vary even in slight ways the start date and ending date I get very different results. Q. You're saying the start date at which there was a decline in housing price or -A. In his -- I'm sorry. In his sample. Q. In his sample? A. Right. Q. You said that methodologically you regard it as an incorrect analysis. What's your basis for that statement? A. Well, again, I don't think the issue, at least from an economist's perspective, is about even which direction those go in observable variables. It's probably not a exercise I would have done. But if I wanted to make the point, as I do in my report, that house prices were very important in

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R. GLENN HUBBARD - CONFIDENTIAL explanation. If you vary his start and end date in the smallest ways, not only do his patterns go away, they flip. Now the reason I checked is because his results would be at odds with a large body of empirical work that has documented the centrality of prices, so I knew something could not be right. I'm not suggesting he's data mining, I don't know, but it would almost be by chance that he seems to have found virtually the only time period for which his results would hold. Q. Can you explain what you're describing here? What do you mean? A. I'm referring to his question about whether house prices caused delinquencies or delinquencies caused house prices. This is the Granger causality test that he did. For a variety of reasons it's not even the right exercise, but let's play on that field. It was a suspicious set of results because again it's at odds

R. GLENN HUBBARD - CONFIDENTIAL this, one could have relied on a large body of work that went before. And I think when you find a result that seems at odds with a large body of work one might check. And I did. Q. You're aware that the literature on which preceded which in fact goes in both directions, right? MR. APFEL: Objection. Q. There's literature that contradicts your own conclusion, sir, you're aware of that? MR. APFEL: Objection. A. There is certainly examples of feedback loops. The only study Dr. Mason cites is an Op Ed by Martin Feldstein. The research that I have cited emphasizes centrality of house prices and indeed the Boston Fed just did a retrospective, looking at 12 key facts about the crisis and the entire retrospective was keyed on the notion of price expectations being at the center. Q. All the literature that you

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R. GLENN HUBBARD - CONFIDENTIAL rely upon in fact is from Federal Reserve publications, right? A. I don't think that's accurate. The canonical option models were published in journals. I doubt they were all Fed employees. The Demyanyk paper and the review of financial studies. I'm not sure if that's a Fed employee but they're certainly not Fed papers. Q. Those are two examples that you believe were not part of the Federal Reserve publications? A. They may have at some point, but I'm not sure why that's relevant. They're not, as I cite them they're not Federal Reserve publications. And of course my own work. Q. And you're not aware of any contrary literature other than the analysis by Martin Feldstein, is that your testimony? MR. APFEL: Objection. A. I'm certainly aware that there are people who talk about feedback loops

R. GLENN HUBBARD - CONFIDENTIAL Q. Okay. We'll come back to the literature issues that you raise. I want to stay for a moment with your determination of comparable, comparable pools. And you said before the break that you've done, or at least taught comparable modeling exercises in other contexts; is that fair? A. Yes, sir. Q. Are you familiar with the problem of barbelling? A. Yes. Q. How would you describe that? A. Well, if I'm understanding what you mean here, just very different characteristics clumping at the end and sorting on the wrong ones. Q. Now what you did with respect to your attempt to capture comparable values was to look at the minimum and maximum values that were identified for eligibility in the Countrywide securitizations and make sure those were satisfied in the non-Countrywide

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R. GLENN HUBBARD - CONFIDENTIAL between foreclosures and prices. Those are typically studies well into the crisis, which is a very different economic point. It's not that those studies are wrong, it's just not the point that the plaintiff's experts are trying to make with them. Q. What distinction are you drawing about studies well into the crisis? A. In other words, well into the crisis a lot of foreclosures in a neighborhood could affect house prices in a neighborhood. It's very different from the channel that I'm identifying which I think most economists believe is the central channel about price expectations. Indeed, the canonical models of housing going back into the eighties are option models, they're really all about the incentive to default moving with the equity in your home. That has been the received wisdom in the housing literature for almost 30 years.

R. GLENN HUBBARD - CONFIDENTIAL securitizations, right? A. That's correct. Q. And you also adjusted the averages, right? A. I'm not sure what you mean by adjust the averages. Q. Okay. You also made an attempt to compare average values between securitizations, is that right, or not? A. No, I did not filter that. Q. Okay. So you didn't look at averages, but you did look at minimum and maximum values? A. Correct. Q. All right. Let me give you a hypothetical. If you're a life insurer and you're presented with two populations of individuals on which to issue life insurance, and in each population you have individuals ranging, the eligibility characteristics are they have to be between 21 and 75 years old. Let's say the average age in each pool is actually 48. One pool though consists only of

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R. GLENN HUBBARD - CONFIDENTIAL middle aged people. The other consists one-third of young people, one-third of middle aged people, one-third of old people. If you're the life insurer and assuming the pools are other similar, you're clearly going to prefer the first pool to the second, aren't you? MR. APFEL: Objection. A. Sure, if you know the characteristics. Q. Right. And that's because you're going to focus on the higher risk elements of the population which are more likely to cause payments out on your policies, right? MR. APFEL: Objection. A. In that example, sure. Q. The difference in range, in other words, would make an enormous difference in the ex ante risk for the insurer, right? MR. APFEL: Objection. A. Insofar as if you're getting to this exercise, not really, because

R. GLENN HUBBARD - CONFIDENTIAL insurer depends on the price the insurer can charge. That's my point. So you have to hold constant, which is what I do. Insurers can take lots of risk if they're compensated for it. Q. I said all other things being similar and I include within that the pricing is similar, okay? A. Well that would be crazy, but okay. Q. It would be crazy because there is such a huge difference in risk, right? A. Correct. MR. APFEL: Objection. Q. And that would be true even if after the fact, ex post, it turns out that half the population in each pool died of a new strain of tuberculosis, right, that would still be true? MR. APFEL: Objection. A. If your question is -- life insurance is normally about idiosyncratic risk, could big common risk like a

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R. GLENN HUBBARD - CONFIDENTIAL again, I'm controlling in the regressions for all of these variables. So it doesn't -- none of this has an import. I'll keep playing along with the hypothetical, but none of the effects -right. Q. Let's stay within the hypothetical. You would agree with me that that difference in range makes an enormous difference in ex ante risk to the insurer, right? MR. APFEL: Objection. A. If the insurer can't control, right. Q. Well, the choice I gave you was that the insurer's selecting between the two and are you agreeing with me that there's a huge difference in ex ante risk for the insurer to take the population that has one-third old people by contrast to the population that's all middle aged? MR. APFEL: Objection. Q. Right? A. Whether there's risk for an

R. GLENN HUBBARD - CONFIDENTIAL nuclear bomb or disease disrupt life tables, of course it can. Q. Right, and my point is even if after the fact it turns out that exactly the same number of each population dies because of some crisis, in this case a new strain of tuberculosis, it would still be the case there is a huge difference in ex ante risk presented by those two populations in the life insurance firm, right? MR. APFEL: Objection. A. That could well be, sure. Q. Right. Or in our case, even if the same percentage of borrowers default due to the unexpected housing crisis, it could still be the case that there's a huge difference in ex ante risk presented by the differing pools of loans, right? A. No, sir. MR. APFEL: Objection. A. Not in the sense that I'm measuring it.

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R. GLENN HUBBARD - CONFIDENTIAL Q. Why do you think you can say that? A. Well, again, I'm controlling for all of those effects and my work is about the unobservables. So you can do whatever you like with the observables, we can have 20 different hypotheticals, but I'm able to control for all of those and indeed still get cross-sectional variation even with the aggregate shock. So it's really about unobservables. So I appreciate your life insurance example, but it doesn't port here. Q. That's because you're saying that you're somehow controlling for an eliminating effect caused by the housing crisis itself, that's what you believe you're doing? MR. APFEL: Objection. A. I'm controlling for, yes. Q. And can you describe how you believe you control for the effects of the housing crisis? A. Exactly as I describe in the

R. GLENN HUBBARD - CONFIDENTIAL A. It's a regressor in the model. Q. And when you controlled for differences in the values, did you make any effort to control for differences in the range of values? MR. APFEL: Objection. A. I'm not quite sure I understand your question. Q. All right. Going back to the hypothetical I gave you, the two different population pools had, although the average age was the same, a very great difference in the range of ages in those populations. Did you make any effort to control for differences in the range of values observed for the characteristics in your regression analysis when you compared the performance of Countrywide deals and non-Countrywide deals? MR. APFEL: Objection. A. If I'm understanding -- if I'm understanding your question, I think the answer is yes because I'm looking at

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R. GLENN HUBBARD - CONFIDENTIAL report. I have a series of variables relating to equity and in some cases equity and unemployment interactions which are two manifestations of the macroshocks that I think you were alluding to. Q. Anything else? A. Year effects, but those are the principal variables. Q. Now, you said that you were, I believe you said you were adjusting for differences such as differences in the average FICO score; is that right? MR. APFEL: Objection. Q. I'm sorry, you said you ignored that? A. Neither one. MR. APFEL: Objection. A. I'll fill in the blank. Q. Please do. A. I controlled for it. And so it's a variable. Q. In what respect did you control for that?

R. GLENN HUBBARD - CONFIDENTIAL weighted average FICO scores. So if there's some huge mortgage out there in the tails it's also getting a lot of weight, so the weighting necessarily does control for that if I'm understanding your question. Q. Okay. So all you did to control for this, in your word, is to use a weighted average? MR. APFEL: Objection. A. Well the first order of controls is to use the variables, so you're controlling for it. And the weighted -- and the pool level, where you have one observation for an entire pool, a weighted average would seem to get at some of the issues you raise. Q. Okay. So in my hypothetical, you would simply use the weighted average of 48 for both those pools and you'd say they're comparable, you would ignore the difference in the range of years between those two pools, right? MR. APFEL: Objection.

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R. GLENN HUBBARD - CONFIDENTIAL A. Boy that wasn't my recollection of your hypothetical at all. First of all, you made no assertion whatsoever about the value of an insurance policy per person, which is what's necessary to get to a weighted average. So I didn't think the hypothetical was apt, less apt now without the units. Q. Okay, we can try and do it without the hypothetical. When you say you took a weighted average, what you effectively did was treat as equivalent loan pools that on the one hand may have a narrow range of CLTV scores, or on the other may have a wide range of CLTV scores provided the weighted average of the two pools is the same? MR. APFEL: Objection. A. Provided the weighted average is the same, yes. Q. And in your expert opinion, why is that sufficient to deal with the differential risk presented by the wider

R. GLENN HUBBARD - CONFIDENTIAL thing to do. Q. Okay, and that's all that you did? MR. APFEL: Objection. A. I thought it was appropriate and I did it. Q. All right. Now let's go to the question about lawsuits, the issue of your inclusion in your initial report within the control group of a large number of deals where the sponsors or originators were subject to litigation. And you'll agree with me in your initial and rebuttal reports you made no attempt to address that factor, correct? A. I thought it would be inappropriate to do so. Q. You thought that it was fine to include in your control group a large number of deals that were also subject to litigation? MR. APFEL: Objection. A. Yes, in the sense that Countrywide of course has an issue here

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R. GLENN HUBBARD - CONFIDENTIAL range compared to the narrower range? A. Well, of course I do a loan level analysis. At the level of a pool you have to take a stand on what the appropriate measure is. I think a weighted average captures most of this. Q. So ignoring for a moment your loan analysis which is a separate analysis, is it fair to say that you did nothing other than assume that using a weighted average would deal with the problems presented by differences in range? MR. APFEL: Objection. A. I didn't see them as substantive problems. They're controlled for and addressed. Q. Okay, I understand you didn't see them as issues that you needed to deal with. When you say they're controlled for and addressed, you did nothing other than use weighted averages, right? A. I believed that was the right

R. GLENN HUBBARD - CONFIDENTIAL because it's this litigation, but in general it's not for me to presume whether any given piece of litigation has merit, no merit. I mean anyone can file a lawsuit. After Dr. Mason made a claim that it mattered, I went back and took a look and it turns out it doesn't matter, but it wasn't, I felt, the appropriate thing to do in the first place. Q. When you say you didn't feel that it was appropriate, did you actually consider the issue at all when you drafted your initial report? A. I didn't think it was -there's always litigation in the world and I can't judge the merits or demerits of any piece of litigation. I focused on this one because it's this case that we're looking at. Q. What I'm trying to get at, sir, is you just said a moment ago that you thought it was inappropriate to address the litigation issue and what I'm

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R. GLENN HUBBARD - CONFIDENTIAL trying to ask you is did you actually consider that question, or are you just saying today that you think it's inappropriate which is why it's okay that you didn't consider it before? A. I didn't -MR. APFEL: Objection. A. I didn't think it was worth doing. Because Dr. Mason raised the issue, seems to be crying out for tests, he didn't, but I did. Q. Did you actually consider the question at the time you presented your initial report? A. I did. I did not think it was appropriate to do so. Q. Okay, so your testimony is you thought about it and you concluded it wasn't necessary to address? A. I didn't feel I would learn from that test, no. Q. Did you look at the number of deals affected by litigation prior to the issue being raised by Dr. Mason and Dr.

R. GLENN HUBBARD - CONFIDENTIAL A. I shouldn't say because I don't remember. I think it's in the mid-sixties. Q. You're aware that at least 85 of the 147 closed end second pools on which you relied are subject to litigation over fraud and misrepresentation? MR. APFEL: Objection. A. That could be. Then it sounds like my math is about right. Q. And it's at least 16 of the 47 HELOC pools? A. That could be. Those are the -- the flags that Dr. Mason had are what I used as tests. Q. So in the aggregate, more than half of your entire population in the control group was affected by litigation? A. I think, well, yes, by number of pools, yes. Q. And in neither your initial report nor your rebuttal report did you disclose that fact for the benefit of the court?

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R. GLENN HUBBARD - CONFIDENTIAL Cowan? A. I don't recall. I don't know that I would have. I may have, but I -there's no reason I would have. Q. Do you know how many deals are affected by litigation? A. I don't remember from the work I did. I think the remaining sample maybe in the sixties. I don't really recall. Q. When you say the remaining sample, you mean eliminating loans as to which there's not sufficient data, eliminating deals as to which there's not sufficient data? MR. APFEL: Objection. A. No, eliminating the litigation in the pools, but again, I'm going from memory. I don't have the work in front of me. Q. In other words, once you exclude all the deals that are affected by litigation, you have roughly, was it 60 that you said?

R. GLENN HUBBARD - CONFIDENTIAL MR. APFEL: Objection. A. Well I've already told you I didn't think it was relevant from my -Q. I'm aware that's what you said today. But the fact is in neither your initial report nor your rebuttal report did you disclose that more than half of all the securitizations in your so-called control group were affected by litigation? A. If I don't think something is a relevant fact, why would I have disclosed that? Q. You're agreeing with me, you didn't disclose it, right? A. That's a factual question. You had innuendo attached to it. Q. Well, sir, I do think it's significant that you didn't disclose that fact, that's why it's in my question. I just wanted to confirm you did not disclose that fact, right? A. I didn't disclose the fact. MR. APFEL: Objection.

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R. GLENN HUBBARD - CONFIDENTIAL A. As I say, I've now done the work and it doesn't matter. Q. Do you have any writing or demonstration that you can hand over today reflecting your subsequent analysis? A. I didn't bring anything with me today, but I've certainly done the analysis. That's between counsel. Q. Do you expect to rely upon that in your testimony, that analysis? A. It depends what testimony I'm asked to give. If I'm asked the question about Dr. Mason's work, of course I will. Q. Have you made an effort to turn over all materials on which you intend to rely in connection with your testimony? A. I just did this work since I've gotten Dr. Mason's and Dr. Cowan's report. Q. You understand that last Friday I believe we received 50 gigabytes of materials that you apparently relied

R. GLENN HUBBARD - CONFIDENTIAL counsel, not -- not for me. Q. Did you consider, again going back to the pool-wide comparison, did you consider the presence or absence of monoline insurance as one of the variables in testing comparability? MR. APFEL: This is at the outset? MR. SELENDY: Yes. A. I did not. I didn't think it would have been appropriate for measuring performance. Ex post I have because Dr. Mason raised it, but... Q. And is this something that you thought about as of your initial report or did you first look at the issue after Dr. Mason raised it? A. I didn't see the need to do it. We're talking about performance. Q. Can I have an answer to my question? A. I think I just answered it. I did not see the need to do it. Q. Did you affirmatively consider

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R. GLENN HUBBARD - CONFIDENTIAL upon? Do you understand that? A. I understand that, but that has nothing to do with me. MR. APFEL: Objection. A. I turned my things over a long, long time ago. Q. How long ago did you turn on your reliance materials? A. Gosh, right after the reports were done. Q. You don't know why we received a late production last Friday of the reliance materials? MR. APFEL: Objection. A. My understanding was there was a hole in some files that got noticed at the last minute and then they were supplied. But none of it has to do with me. I simply produced to the attorneys. Q. And with respect to the other analysis you've done since the date of your rebuttal report, do you intend to produce that to MBIA? A. I think that's a question for

R. GLENN HUBBARD - CONFIDENTIAL whether or not to include the presence or absence of monoline insurance as a factor in assessing comparability? A. Yes, I didn't think it was appropriate. I think that's what I just said. Q. So you considered it and then disregarded it. What other factors did you consider and disregard, if you recall? A. Insofar as the discussion from these reports, I think those are the two. Q. All right. And why didn't you consider monoline coverage to be an important factor of comparability? A. Well it's hard to see how the mere fact of insurance affects performance itself. If anything, it might affect risk characteristics of the types of deals, but I didn't feel that that was likely. And when I checked, the monoline dummy's not even statistically significant and the results don't change. Q. When you say "If anything, it

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R. GLENN HUBBARD - CONFIDENTIAL might affect risk characteristics," what do you mean? A. In other words, you could tell -- you could tell either story. You could tell a story where monolines choose the safest deals or choose the riskiest deals. I didn't find either one particularly compelling or persuasive. But certainly the presence of a monoline doesn't affect performance. Q. When you say you didn't find either one particularly compelling or persuasive, is that based on the analysis you did after Dr. Mason raised the issue? A. I was speaking from theoretical grounds. I didn't see the reason to include it so I didn't. He made a big deal about -- Dr. Mason made a big deal out of it and so I checked and I found what I assume he could have found if he checked. Q. When you say speaking from theoretical grounds, you don't have any expertise in what monoline insurers

R. GLENN HUBBARD - CONFIDENTIAL MR. APFEL: Objection. Q. Isn't that fair? MR. APFEL: Objections. A. I don't think it's relevant for my analysis, which is about the actual performance, not whether it's insured or uninsured. Q. Well you were trying to make a comparison of what you described as an apples-to-apples test of securitizations, right? A. That's correct. Q. And so surely you care about whether it is in fact apples to apples, right? A. Of course I do. Q. Okay. But without knowing anything about the process of how monolines select RMBS transactions, you ignored that variable, right? MR. APFEL: Objection. A. I didn't ignore the variable. I didn't see that it affected performance which is what I was doing. It doesn't

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R. GLENN HUBBARD - CONFIDENTIAL actually do to evaluate RMBS transactions, do you? A. I'm not sure what that has to do with the question about whether a monoline wrap affects a measure of performance, and that's what I'm talking about. Q. So since you have no expertise in how monolines evaluate RMBS transactions, you have no way of knowing whether the selection by monolines would affect the risk characteristics presented by a pool of loans? MR. APFEL: Objection. Q. Do you understand that? A. I don't see that that -Q. Let me restate that question. Since you have no expertise in how monolines evaluate RMBS transactions, you don't know one way or another whether the set of transactions that monolines are willing to wrap are more or less likely to perform well than transactions which they don't wrap?

R. GLENN HUBBARD - CONFIDENTIAL matter statistically, but if your question is why did I ignore it in the first place, it was because I didn't think it was appropriate. Q. When you say it doesn't matter statistically, that's something you didn't know until after you heard Dr. Mason's criticism and you ran tests subsequent to the submission of your rebuttal report, right? A. Sure. I didn't think it was appropriate so there wouldn't have been any need for me to do it. Since he raised it, I'll answer it. Q. Similarly, you had no knowledge as to the statistical significance of including or excluding transactions subject to litigation until after you had the criticism from Dr. Mason and Dr. Cowan and you reran your regression analysis, right? MR. APFEL: Objection. A. I hadn't thought it appropriate to do, so it wouldn't have

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R. GLENN HUBBARD - CONFIDENTIAL been appropriate, or interesting for me. Since he raised it, I checked. Q. My question was you had no knowledge as to the statistical significance of including or excluding deals subject to litigation until after Dr. Mason and Dr. Cowan challenged your reports? A. That is correct, yes. Q. Okay. Now, in your analysis you state that your comparable pools are non-Countrywide pools, right? A. Yes. Q. The way you tried to eliminate Countrywide pools was by looking at the prospectus supplements to determine whether they contained loans originated by Countrywide? A. Correct. Q. Do you know that Reg. AB only requires disclosure in the prospectus supplement of originators that originate more than 10 percent of the loan population?

R. GLENN HUBBARD - CONFIDENTIAL responsibility that's okay, what do you mean? A. In other words, if it's -- if it's the other -- if another originator is repping. Q. Then what's okay? A. In other words, it becomes that originator. Q. I see. So you're saying you're not concerned with which entity actually originated the loans even if it's Countrywide, provided another entity is giving the reps and warranties? MR. APFEL: Objection. A. No, as you know, there was a very long footnote in the exhibit that described each and every case for which there was an issue. The footnote described and I've subsequently confirmed with other exercises, throwing out those securitizations doesn't affect the results. Q. And you indicated that your initial report included six

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R. GLENN HUBBARD - CONFIDENTIAL A. Yes, 10 percent's the threshold. Q. Okay, so your testimony was unable to screen out instances in which Countrywide originated less than 10 percent of the loan pool, right? MR. APFEL: Objection. A. I did go through and get rid of some of the -- I think it turned out to be -- there are two exercises. One in the footnote in the original report and one I've done more recently that may have been six securitizations for which that might have been true and the results are the same either way. And of course as a general matter, it's -- as long as another originator is basically assuming responsibility, that's okay. But if your question is statistical about Reg. AB, if you get rid of those securitizations you get the same results. Q. When you say as long as another originator is basically assuming

R. GLENN HUBBARD - CONFIDENTIAL securitizations which did include Countrywide loans that you subsequently took out; is that right? A. I don't remember if it's six. The initial report actually goes through them in a long footnote. Subsequently, when Dr. Mason raised his issues, I looked at the closed end seconds and HELOCs again very carefully. I think I found a total of six with issues and reran the results without those. Q. When you say you looked at the HELOCs and closed end seconds very carefully, you mean you actually read the prospectus supplements that did disclose Countrywide was one of the originators, right? MR. APFEL: Objection. A. Where there was any doubt that that may be the case, got rid of it. Q. So in other words, the prospectus supplements on which you originally relied for your conclusion that the control group consisted of

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R. GLENN HUBBARD - CONFIDENTIAL non-Countrywide loans, in fact did disclose that Countrywide had originated loans with at least, at least as to six of the securitizations in your control group, right? MR. APFEL: Objection. A. I think I did the best I could to control for that in the original report. That was the long boring footnote to that regard. Q. You missed six deals in the first time around, right? MR. APFEL: Objection. A. No, the six includes some of those. I just started from Dr. Mason's list and winnowed down to a total of six. Q. When you say you started from Dr. Mason's list and winnowed down, what do you mean? A. Well the list of multiple originators verified by Dr. Mason. He had a red flag, if you will. Q. How is it you missed that in your initial report?

R. GLENN HUBBARD - CONFIDENTIAL Countrywide loans; isn't that what you testified? MR. APFEL: Objection. A. Of course. Q. Okay. And so you fixed that after the criticism from Dr. Mason? MR. APFEL: Objection. A. I did another exercise as a complement to one that I'd already tried to do. Q. Now I believe you said you considered Dr. Mason's rebuttal report with certain deals that should have been included within your control group but were not. Did you look at that part of -MR. APFEL: Objection. A. Yes. I'm going from memory. I think Dr. Mason identified 47 pools, and the reason they weren't in mine was you look at particular days, the date I looked the data were what they were, the date Dr. Mason looked the data were different. If I take his 47 and I say how many of them met the data

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R. GLENN HUBBARD - CONFIDENTIAL MR. APFEL: Objection. A. Well, I don't think I really did. I think the footnote I did pretty much got everything. But when I actually went through his red flags I got to the same answers, so I don't think I did miss anything. Q. When you reran your analysis excluding deals, you were excluding deals you had originally included in your regression analysis, right? A. In some cases, yes. Some was an overlap, but in some cases, yes. Q. Right. And so the ones that you excluded were ones that you had erroneously included in your initial model, right? MR. APFEL: Objection. A. I think it's more of a flavor of a judgment call, but I wanted to do it to be conservative, do it Dr. Mason's way. Same answer. Q. Well you were trying to have a control group that did not include the

R. GLENN HUBBARD - CONFIDENTIAL requirements that I had imposed it would be 23 of the 47. When I include the 23 with my pools, again, I essentially get the same answer. Q. What was the data that you looked at the data for comparable pools? A. Gosh, I don't remember. I mean it's in the -Q. Feel free. A. It's in the footnotes I'm sure. Should be. I don't see it handy, it should have been -- it should be in one of these footnotes but I'm not sure where. Q. Was it on or about September 2010? A. Well that's certainly the end date, so probably. Q. Did you make any effort to refresh your analysis after that September 2010 date until you received the criticism from Dr. Mason? A. It's actually pretty hard to

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R. GLENN HUBBARD - CONFIDENTIAL -- if you mean by refresh my analysis do the whole re-benchmarking, that's a very costly and time consuming -- yes, the citation for the date is on page 21. But yes, it's September. Q. Why did you look at pools limited by September 2010? A. That's when I did it. Q. You did this in September 2010? A. Well, in the prep for the original report was the work was done on the pools in the fall and then I guess late fall, early winter on the loans. Repeating the pool analysis would have been very costly. I have subsequently checked the Countrywide September versus December, it's essentially the same results. Q. I'm sorry, you said you've checked the Countrywide September versus December and it's essentially the same results. Meaning the Countrywide data is essentially the same between September

R. GLENN HUBBARD - CONFIDENTIAL the ongoing post-closing performance of transactions you would stop a year and a half before the data of your report? A. No. Q. Okay. That's fine. Did you include first lien transactions in your comparables pool? A. Not for the second liens, no. Q. Did you make an effort to determine that? A. I tried to make an effort that the closed end seconds -- closed end second liens are closed end second liens. Q. Is the Morgan Stanley ABS Capital I Trust 2004-HE1 Group I one of the pools in your pool level analysis, do you know? A. Gosh, it would be in the table if it is. I don't know. I'd have to look. Q. Can we pull that up. Yes, we can give a proffer. A. I have a table that lists them and if -- so for closed end second,

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R. GLENN HUBBARD - CONFIDENTIAL and December? A. Yes, yes. Q. But you have not checked the data for the non-Countrywide pools after September 2010? A. At the level of pools, no. I have no reason to believe they'd be different, but no. Q. Okay. And so in the report that you submitted in February 2012 you were relying upon data about a year and a half old? MR. APFEL: Objection. A. I was relying on the data that I had when I did it, which was September 2010. Q. Okay. Just to be clear though the report you submitted was a year and a half after the data that you looked at, right? A. Yes. I don't see anything unusual about that. Q. Right. You don't find it unusual that when you're trying to assess

R. GLENN HUBBARD - CONFIDENTIAL Morgan Stanley mortgage trust 2005-8SL. Q. No. A. Sorry. Q. Morgan Stanley ABS Capital I Trust 2004-HE1 Group I. A. I don't see it, but again, I'm looking quickly. Q. Are you looking at the HELOC transactions? A. I thought you said closed end seconds. Q. HELOC. A. Oh, sorry. Yes, Morgan Stanley ABS Capital I Trust 2004-HE1 group I and II? Q. Yes. A. Okay, I found it. MR. SELENDY: I'm going to mark as Hubbard Exhibit 3 the prospectus supplement for this transaction. (Hubbard Exhibit 3 for identification, prospectus supplement for transaction

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R. GLENN HUBBARD - CONFIDENTIAL 2004-HE1.) Q. To simplify your review, if you could turn to page S-36 there's a description of the loans? A. S-36, group I mortgage loans, is that -Q. Actually, if you look up a bit on page S-35. A. S-35. Q. It's the carryover page. At the top of page 30 of the exhibit, third paragraph down states, "All of the group I mortgage loans -A. Are we on page 36, 35 or 30? Q. It's -- it's the carryover page from S-35. A. Okay. Q. And it's at the top of page 30 of the exhibit. The third paragraph down states "All of the group I mortgage loans are secured by first liens." Do you see that? A. I see that. Q. Is it your view that this

R. GLENN HUBBARD - CONFIDENTIAL they're generally first liens? A. That's my recollection. Q. Okay. So therefore, you felt it appropriate to include this transaction in your set of comparables because it's a first lien HELOC transaction, right? A. Well, I included it because it passed all the filters I had for the comparables, yes. Q. Okay. And for the HELOC transactions did you try and ensure by contrast to the closed end seconds that they were first lien deals and the closed end seconds were second lien deals in your comparables assessment? A. Well closed end seconds are compared to other closed end seconds and HELOCs to HELOCs, so I think the answer to that question is yes, the best I could. Q. So one of your filters then, if we go through your regression analysis we'll find a different filter for the HELOCs where you try and limit it to

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R. GLENN HUBBARD - CONFIDENTIAL transaction is a second lien transaction? MR. APFEL: Objection. A. I didn't say it was. You'd originally asked about the closed end second liens. Go back and read the transcript. Q. Is it your view that the HELOC transactions can be either first or second lien? A. I thought you were asking me about this HELOC transaction. Q. Okay, let's try and be really simple. Do you have the view that the HELOC transactions in the comparable pool can be either first or second liens? A. They're generally first liens. Q. Do you know whether the HELOC transactions in our case are first liens or second liens? A. I'm sorry, our case means? Q. MBIA versus Countrywide? A. I'd have to go back and check. I don't remember off the top of my head. Q. Your view though is that

R. GLENN HUBBARD - CONFIDENTIAL first lien deals for the HELOCs and the filter for the closed end seconds to limit the control group to the second liens? MR. APFEL: Objection. A. No, sir, if I'm understanding your question. Q. Well, how did you ensure comparability for HELOCs then according to the liens? A. Well, I took the HELOCs, again, I'd have to go back and look, it's a long time, but I took the HELOCs that met my filters. My recollection is most of these are first liens. Q. Your recollection is based on your review of the prospectus supplements? A. A long time ago, yes. Q. Did you review the prospectus supplements for the first lien transactions in the MBIA/Countrywide case? A. It would have been a long time ago if I did. Q. And that also demonstrated to

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R. GLENN HUBBARD - CONFIDENTIAL your view that these were first lien transactions? A. I really don't -MR. APFEL: Objection. A. As I say, I really don't recall. Q. Would you agree with me that it's important to select comparable deals based on loan type? A. I try to, yes, identify comps based on loan type, yes. Q. Now, you made a statement that generally HELOCs are first lien deals not second lien deals. What's that based on? MR. APFEL: Objection. A. That's my recollection from the data that I had here, but again, I don't really recall. Q. Is it also based on your expertise in the industry? MR. APFEL: Objection. A. No, the statement was about the data here. Q. Do you know as a general rule

R. GLENN HUBBARD - CONFIDENTIAL Dr. Mason? MR. APFEL: Objection. A. I did. I think it's toward the end of his report if memory serves me right. Q. Did you have any basis -- I'm sorry? A. If memory serves me right. Q. Did you have any basis to dispute his calculations in those respects? MR. APFEL: Objections. A. Again, I think I already told you what I found when I looked at it. If you look at the appendix to Dr. Mason's report, I believe, and I'm going from memory here, you still find out-performance of the few deals he has left. Q. Did you have any disagreement with the changes in the delinquency rates in the control group once he applies the various filters? MR. APFEL: Objection.

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R. GLENN HUBBARD - CONFIDENTIAL whether HELOC transactions are first lien or second clean transactions? MR. APFEL: Objection. A. I don't know the mix off the top of my head. MR. APFEL: Could we go off the record and take a quick break? MR. SELENDY: Well let's go until the tape is done if you don't mind, and then we can take a lunch break if we run the tape. How much longer do we have on the tape? THE VIDEOGRAPHER: 24 minutes. MR. SELENDY: Let's just keep going until the tape is done. Q. So I want to ask you about the Mason rebuttal report and in particular his calculations rerunning your model by considering whether the pool was affected by similar litigation, by considering whether the pool has a single or multiple reported originators and by considering whether the pool has monoline coverage or not. Did you look at those tests of

R. GLENN HUBBARD - CONFIDENTIAL A. I don't recall. What I recall was that -- I don't recall. Q. Okay. Do you recall that under Dr. Mason's analysis the delinquency rates for the closed end second deals dropped dramatically once you exclude the deals that are affected by similar litigation as well as the deals that have multiple reported originators and the deals that don't have monoline coverage? MR. APFEL: Objection. A. My recollection without his report in front of me is he does that for the loan level analysis, he gets down to I think essentially three deals. The sign still is the same as in my report on each of the three. I've told you what I did. Q. Okay. Okay. Did you rerun your analysis taking into consideration all of these characteristics, or did you just look at your analysis with or without litigation deals, with or without monoline insurance, with or without

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R. GLENN HUBBARD - CONFIDENTIAL multiple originators? MR. APFEL: Objection. A. What I did in the quick check on Dr. Mason was to do each one serially as you suggest. Q. Right. A. His, I didn't check his. His finding would be consistent with my original results, so that's fine. Q. Did you make any effort to rerun your analysis excluding all of the noncomparable deals according to the criteria identified by Dr. Mason? A. I don't -MR. APFEL: Objection. A. I don't recall whether I did that or not. I think my view was Dr. Mason's results were sufficiently in my favor, that's fine. Q. So you're willing to accept Dr. Mason's results in his rebuttal report? A. No. MR. APFEL: Objection.

R. GLENN HUBBARD - CONFIDENTIAL loans provided they were repped to by a different originator; is that right? A. No, that's not what I said. I said that that would be a fact in such a deal, but in fact I tried to exclude them. Q. Okay. A. That was the purpose of the footnote in the original report. Q. Okay. Regardless of whether they were repped to by a different entity than Countrywide? A. Correct. I did my best to exclude them. Q. Okay, I wanted to make sure I understood that. Let's go to your loan level analysis. I take it you detail your selection criteria for the non-Countrywide loans in Exhibit 33? A. Yes, it's either 30 or 33, wherever the loan -- yes, it's 33. Q. And according to your Exhibit 33, is it correct that the ABSNet data base covers about 39 percent of the

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R. GLENN HUBBARD - CONFIDENTIAL A. I haven't done it. Q. You haven't done it? A. I'm just saying it goes my way. MR. SELENDY: Okay, your counsel did ask for a break, I do have a new section, but it will take more than 15 minutes, so we can take a break now if you want. THE VIDEOGRAPHER: The time is 12:01 p.m., this ends tape 2 in the videotaped deposition of Professor R. Glenn Hubbard, we are off the record. (A recess was taken.) THE VIDEOGRAPHER: The time is 12:12 p.m., this begins tape 3 in the videotape deposition of Professor R. Glenn Hubbard, we are on the record. Q. Dr. Hubbard, before the break, if I understood you correctly, you said that you were comfortable including in your control group Countrywide originated

R. GLENN HUBBARD - CONFIDENTIAL non-Countrywide HELOCs during the period between 2004 and 2007? A. That's my recollection, yes, it's about 40 percent. Q. All right. And so again, it's not a random sample that you're drawing of the non-Countrywide loans, right? MR. APFEL: Objection. A. I don't know that you could say that. It's the data that are available to me. Q. You selected the data according to availability on the ABSNet database, right? A. Yes. My understanding was that some of the other data sources were not usable in litigation, so that was the data available to me. Q. All right. And that's not a random sample, is it? A. I tried to use as much of the data as I could. I'm not trying to sample from that other than through my filters.

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R. GLENN HUBBARD - CONFIDENTIAL Q. Okay. Now, is it correct that you sought to exclude loans originated by Countrywide and loans where Countrywide was included in the variable deal name? A. Yes, that's what I explain is my exclusion criteria. Q. And it's also true that ABSNet does not provide originator information for 35 percent of the closed end second loans? A. That's correct. Q. And about 43 percent of the HELOC loans? A. That's correct. Q. So to make up for that lack of information you reviewed prospectus supplements? A. Right. Hence the very long footnote 3. Q. Right. And it's fair to say you may have included Countrywide loans in your loan level sample, you just don't know how many Countrywide loans? A. I certainly tried very hard

R. GLENN HUBBARD - CONFIDENTIAL exclude deals where you couldn't find originator information? A. Well it's the last couple of sentences there in footnote 3. So where Countrywide, you know, where we have missing originator problems, I tried doing it to be conservative without those securitizations. Q. Are you distinguishing between missing originator problems and deals where there are multiple originators but you may have an originator that has less than 10 percent of the total pool? A. Well, multiple originators we talked about before. Dr. Mason raised that. I did try to throw out the multiple originator pools and I tried to use multiple originator flags. Q. And so by missing originator, what's the specific issue you're looking at? A. Just that there may not have been originators that were listed and so I, to be conservative, threw them out.

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R. GLENN HUBBARD - CONFIDENTIAL not to. Q. Right. A. Hence the explanation. That's why going to the pro supps. Q. But you can't rule out the fact that certainly for deals where the originator is less than 10 percent, you may have Countrywide loans in your non-Countrywide pool, right? A. Again, I tried as hard not to. Q. I understand that you say you tried hard not to. My question is you cannot rule out the fact that there may be Countrywide loans in your non-Countrywide sample, including in deals where Countrywide originated less than 10 percent of the securitization? MR. APFEL: Objection. Q. Right? A. Well, as the footnote notes, where I couldn't find originator information I did try excluding those deals. So I did the best I could. Q. What do you mean you tried to

R. GLENN HUBBARD - CONFIDENTIAL Q. Is it fair to say that if data was missing from ABSNet for any of the variables in your regression model you would exclude the loan as to which there was the missing data? A. Yes, sir, that's the intent of the screen. Q. And is loan status a variable in your loan level regression model? A. Yes, it is. It's described I think in the, I guess the next page of the exhibit. Q. Did you rely on ABSNet loans for loan status information for the non-Countrywide loans? A. Yes, they are from, as described there, from ABSNet loan data. Q. Do you know whether for HELOCs that data is required to be publicly disclosed? A. Certainly the data that I use are from the ABSNet that are disclosed. I really don't recall the HELOC requirements.

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R. GLENN HUBBARD - CONFIDENTIAL Q. So you don't know one way or the other whether it's required for HELOC loans? A. I don't recall, sorry. Q. Do you know that no loan performance information for the nine HELOCs in this case can be found on ABSNet? A. I don't recall that, no. Q. Did you make any effort to try and find the reported performance of the Countrywide deals on ABSNet? A. I'd have to go back and look at your question. My understanding is we used as much Countrywide data as possible. Q. Okay, but did you make an effort to see whether the nine Countrywide deals at issue in this case had reported long performance information on ABSNet? A. I wouldn't for Countrywide deals, no. I have the Countrywide information from the website. Q. Do you think there's any

R. GLENN HUBBARD - CONFIDENTIAL But I really don't recall these tests. Q. Is that anywhere in your report? A. No, not to my knowledge, that's why I don't recall. Q. So you can't rule out the possibility that there's a selection bias relating to the fact that certain loan performance is publicly disclosed for certain deals, and for other deals it's not? MR. APFEL: Objection. A. Again, I'd have to go back and see what I did. I really don't recall. Q. Okay. In paragraph 9 of your report, your initial report, you're saying that you compare the performance of the securitizations and their loans to that of the rest of the industry. It's the second to last sentence of paragraph 9. Do you see that? A. Yes, uh-huh. Q. In fact, for the loans that you looked at for the HELOC transactions,

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R. GLENN HUBBARD - CONFIDENTIAL difference between deals for which originators actually report loan performance on ABSNet and deals for which originators do not report loan performance? MR. APFEL: Objection. A. I really don't know. Q. Okay. Did you consider the possibility that there may be a bias related to reporting of performance? A. Again, I did the best I could to get the universe of data. Q. That's not my question, sir. MR. SELENDY: Would you please read back the question for the witness. (Record read as requested.) A. I'd have to go back and look at what I did. I really don't recall. Q. What would you look at to determine if you considered that? A. Well, I would go back and look at efforts to try to get the data, to try to look at differences in characteristics.

R. GLENN HUBBARD - CONFIDENTIAL between 2004 and 2007, it's only about 15 percent of all of the HELOC loans that were securitized during that relevant time period; isn't that right? MR. APFEL: Objection. A. I really don't recall the exact number. It's certainly not all loans. Q. Take a look at your Exhibit 33, page 2. Does that refresh your recollection as to whether your sample is only about 15 percent of all of the HELOC loans securitized in that period? A. You said 33, page 2. For that time period, yes, 15 percent. Q. Would you consider 15 percent in the control group as the rest of the industry, or isn't it just the piece of the rest of the industry? A. Well, I think what the sentence is simply trying to convey is that it's a comparison to what I can find in the rest of the industry versus Countrywide.

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R. GLENN HUBBARD - CONFIDENTIAL Q. As an economist, don't you think it's likely that the sponsors of deals that did well have a greater incentive to report their data than the sponsors of deals that did badly? MR. APFEL: Objection. Q. Pretty basic principle, isn't it? A. One could make that argument, yes. Q. Does it -- strike that. Doesn't that suggest to you, sir, that there is a clear bias then in looking only at the data that is self-reported for the HELOC transactions as your control group? A. I don't think so. MR. APFEL: Objection. A. Again, I did the best I could to get the data that are available. It was also the closed end second data. I control for the lien status. That's the best I can do. Q. You're saying there are data

R. GLENN HUBBARD - CONFIDENTIAL incidence of breach which is observed by Mr. Butler in the reunderwriting assessment? MR. APFEL: Objection. A. That's not true at all. As you know, I use his own reunderwriting and test. His 6,000 loans. Q. So go ahead, could you explain what exactly do you believe you're able to test for using Mr. Butler's own reunderwriting? A. I think one can test for differences in performance between significantly defective and not significantly defective. Separately there's a benchmarking exercise. But the former only relies on his loan in his definition. Q. Well let's address those in reverse order. We'll talk about the significantly defective versus not significantly defective in a minute. What about the separate benchmarking exercise that you just described, that

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R. GLENN HUBBARD - CONFIDENTIAL problems and so you made your conclusions on the data that you could get, right? A. These are the data that are publicly available, yes. Q. And you prefer to rely upon this kind of data to assess the ex ante risk of the transactions rather than the results of the actual reunderwriting of the loan files? MR. APFEL: Objection. Q. Is that right? A. No, those are two different exercises, sir. Q. Yes, they are. A. They're not trying to do the same thing. What the benchmarking says is just testing an implication of a set of unobserved risk characteristics. What Dr. -- or what Mr. Butler did was to use his judgment as an underwriter to identify what he thought the ex ante risk was. Q. Is it fair to say that your regression analysis cannot speak to the

R. GLENN HUBBARD - CONFIDENTIAL you just alluded to? A. The exercise again is whether his significantly defective loans, categorized by him, out-performed or under-performed what would have been expected given the loan characteristics. Since the report, I've also tried it using his own CLTV numbers and his inclusion of DTI, I get the same answers. Q. Okay. So with respect to the benchmarking, again, you're just referring to the comparison of performance between the significantly defective loans as identified by Mr. Butler, and the various groups that you purport to identify as control groups, right? A. Correct in that exercise. There are two exercises, but yes, in that exercise. Q. And the various biases or problems in the control groups would have an effect on the validity of your conclusions, depending upon what those

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R. GLENN HUBBARD - CONFIDENTIAL biases or problems are, right? MR. APFEL: Objection. A. I don't think so given the way you've described them, especially if only the better alternative loans were reported. It would be harder for Countrywide to outperform your biased sample. I'm not characterizing the sample as biased. But were it to be, I think it goes the other way. Q. Well your regression analysis is actually looking at the relationship between various inputs and performance, isn't it? A. Yes, the actual regression, of course. Q. Right. And so if the inputs are biased or flawed in various respects, then the relationship between your dependent and explanatory variables would be mischaracterized in the regression analysis? A. Not at all. And that wouldn't be the biased sample argument you were

R. GLENN HUBBARD - CONFIDENTIAL could be. But if it were it would just be harder for me to find the result. Q. Now you said that you made your comparison of the significantly defective to not significantly defective loans from Mr. Butler. And I just want to confirm when you've made your comparison you did not consider only the credit related breaches, correct? You made no attempt to isolate out the credit related breaches from all breaches, right? MR. APFEL: Objection. A. If I'm understanding your question, what I did was just use his summary measure of significantly defective. Given the comments that came up in subsequent reports, I also used his modified CLTV and his inclusion of debt to income, DTI ratios, but I'm taking him at significant defective and not significant defective. Q. All right. And so when you're looking at the comparative performance of

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R. GLENN HUBBARD - CONFIDENTIAL trying to make before. Q. You say not at all? A. I doubt it. I see no statistical reason that that would necessarily be the case. The issue you raised before is more what if systematically good performing loans are in and bad performing loans are out, were you to believe that bias it actually would make it harder to find what I'm finding. Q. Okay. If there's a bias in either direction that's going to change the relationship that you believe you're seeing in your regression analysis between the dependent and explanatory variables; isn't that right? MR. APFEL: Objection. A. That doesn't follow from, from the argument. But it certainly -- I think the other issue you raised is about whether the characteristics of performance are different, you did pose a biased hypothetical. I'm saying that

R. GLENN HUBBARD - CONFIDENTIAL those two subsets of pools, what you're not doing specifically is finding where Mr. Butler saw credit related breaches and where he did not see credit related breaches? MR. APFEL: Objection. Q. That's not the comparison you're doing, right? MR. APFEL: Objection. A. Well literally the comparison I'm doing is significantly defective to nonsignificantly defective. There is a set, it's one of the footnotes that describes Butler's various, Mr. Butler's various categories. He has five -- here we -- I don't remember the footnote. He has five buckets and I aggregate to get to the significant -- yes, he's doing it at the level of underwriting defects and what I do. It's footnote 7 on page 3. Q. On which page? A. Page 7. But you see he asserts that whatever he's identifying

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R. GLENN HUBBARD - CONFIDENTIAL increased the credit risk associated with the loan. That's his definition. So I can't ascertain whether it's a credit breach, but his own definition asserts that whatever that change is materially increased the credit risk. Q. Okay. So is it fair to say then that you're not differentiating between compliance and credit related problems that Mr. Butler has found? MR. APFEL: Objection. A. I think that's more a question for Mr. Butler. Because what I'm doing is take him at his word that he believes whatever he's identified is meaningfully and substantially increasing credit risk. MR. SELENDY: I'm just going to note for the record that your counsel is repeatedly shaking his head back and forth on various questions. I'd like to ask you not to do that. MR. APFEL: That's simply not true.

R. GLENN HUBBARD - CONFIDENTIAL correct. MR. SELENDY: If you're telling me you're not, if you're telling me you're not I accept that, but I'd like to make sure that's the case. I accept your statement. Q. I'd like to go to paragraph 8 (i). Sorry -A. Which report, sorry? Q. I'm sorry, one second. Okay, the initial report, paragraph 8 (b). A. Okay. Q. You say -- strike that. One second. All right, page 4 of your initial report, paragraph 8, subpoint 2 you state "Declines in house prices and worsening economic conditions caused industrywide increases in defaults and delinquencies." A. Yes. Q. Do you see that? A. Yes.

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R. GLENN HUBBARD - CONFIDENTIAL MR. SELENDY: You're not captured by the videotape, but I would appreciate if you don't shake your head. MR. APFEL: Well you're simply mischaracterizing what I'm doing. I'm writing a note and shaking my head to myself. I'm not -MR. SELENDY: All right. I would appreciate not having -MR. APFEL: To the extent you're suggesting that I'm signaling anything to the witness that's categorically false. MR. SELENDY: Well I've made my statement and we can go forward. MR. APFEL: That's fine. I can shake my head all I want for whatever reason, whether I have a headache or for any reason. MR. SELENDY: What you're not entitled to do, however, is signal answers to your witness. MR. APFEL: Absolutely

R. GLENN HUBBARD - CONFIDENTIAL Q. Is your -- in your opinion, is unemployment one of those worsening economic conditions? A. Well, certainly the recession, which is accompanied by unemployment as an indicator is such. Q. Are you saying that unemployment also caused industrywide increases in defaults and delinquencies? A. Unemployment is more variable. That increases the likelihood that any given individual defaults, but the unemployment itself comes from these macro forces. I mean the root in this argument is the changes in the expectation of house price increases. Q. So that's the primary variable in your view that caused industrywide increases in defaults and delinquencies, the decline in housing prices? A. Yes, the shift, down shift, not just the decline in house prices, but the accompanying decline in forward looking expectations of house price

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R. GLENN HUBBARD - CONFIDENTIAL changes. Q. Okay. Let's turn to paragraph 22 of your report. Here as you're elaborating upon your thesis you say, "The US economy and real estate market values deteriorated significantly from mid-2007 through 2009. Home prices fell precipitously, the unemployment rate increased, personal income fell, and mortgage delinquencies, defaults and foreclosures subsequently increased." Do you see that? A. Yes. Q. You're saying these events happened in a progression as laid out in your sentence, or no? MR. APFEL: Objection. A. Generally, the peak of house prices does come first if that's your question. Q. So are you saying home prices fell first, then the unemployment rate increased and personal income fell and then delinquencies, defaults and

R. GLENN HUBBARD - CONFIDENTIAL Did you mean Exhibit 18? A. Well 17 is unemployment, but I guess you're right. It's also on 18. Q. So if we take a look at Exhibit 18 of your report, isn't it true that the delinquency and foreclosure inventories started to go up before unemployment started rising? A. It's hard to tell. That's possible. The real point is that the third factor that moved both was the drop in house prices. Q. Well, on Exhibit 18 you've mapped unemployment, serious delinquency rate, and foreclosure inventory, right? A. Yes, sir. Q. And if we look at the period from 2007 to 2008, what we see is most sharply a rise in the serious delinquency rate and a somewhat lesser rise in foreclosure inventory, but both of which are significantly greater than the increase in the unemployment rate, right? A. Yes. If you want to get the

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R. GLENN HUBBARD - CONFIDENTIAL foreclosures increased? MR. APFEL: Objection. A. Not really. Unemployment and personal income are more contemporaneous, or unemployment even slightly lagged indicators. The real link is between home prices and mortgage delinquencies, defaults and foreclosures. Q. I was interested in your statement. You said unemployment even slightly lagged? A. Sometimes unemployment is a lagging indicator, right. Q. Right. So unemployment did not in fact precede the rise in delinquencies and foreclosures? A. About the same. We could look at the pictures. Exhibit 17 I think is unemployment. So unemployment is starting to rise around the, it looks around the third quarter of 2007 and the serious delinquency rate is about the same time. Q. You referred to Exhibit 17.

R. GLENN HUBBARD - CONFIDENTIAL timing it may be easier to compare Exhibit 14 and 17, where you can look at quarters. That's why I say it's sort of hard to tell. And this is -- anyway. Q. Okay, Exhibit 14 maps the California and national average? A. I was just going to say the national average. So the national average is starting to take off markedly second, third quarter. Unemployment's about the third quarter. Q. Right, so the serious delinquency rate begins increasing in early 2007 while the national unemployment rate starts to increase in the third quarter of 2007? A. That's about right. Q. So on page 15 of your report you say "As illustrated in Exhibit 18, the US mortgage serious delinquency rate increased contemporaneously with the unemployment rate." It's not quite right, is it, sir? A. I'm sorry, where are we now?

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R. GLENN HUBBARD - CONFIDENTIAL Q. Page 15 of your report. A. I'd say it's pretty close. Then if I look at, depends on what you mean by increase, but as I look at 14 and 17, they look pretty close to me. Q. Well as you just testified a moment ago -A. If you wanted to move it a quarter I wouldn't fight. None of this is material for me, so if you wanted to move it by a quarter that's fine. Q. Well the key thing as we see it, is that, and as you admit in your report, the delinquency rate begins increasing in early 2007, whereas the unemployment rate starts to increase in the third quarter of 2007. That's reflected in your charts and also in your report at paragraphs 8(1)(a) and 8(ii)(b), right? MR. APFEL: Objection. A. That's fine. Q. So unemployment occurs after the rise, the rise in unemployment occurs

R. GLENN HUBBARD - CONFIDENTIAL national unemployment rate started to increase in the third quarter of 2007, whereas the serious delinquency rate on a national basis began in early 2007. Do you agree with those statements? MR. APFEL: Objection. A. Those are about starting to, that's the sentence that I had was talking about a general trend and they're roughly contemporaneous. But anyway, it doesn't -- I'm certainly fine with your characterization of the figures. Q. Is that a yes, you agree? MR. APFEL: Objection. A. I don't really agree, but it's not particularly important for me one way or the other. Q. Okay, well let's take you back to page 4 and 5 of your initial report. I'll just say it in your own words, paragraph 8(i)(a), "The total US mortgage serious delinquency rate began increasing in early 2007," correct? A. I see that, yes.

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R. GLENN HUBBARD - CONFIDENTIAL after the rise in serious delinquency and foreclosure, correct? A. Well, again, I think both are markedly increasing at about the same time but it's not important for my argument either way. Q. It's two quarters later, right, that you start to see the significant rise in unemployment? A. Well now you're using the word significant. That's not how I read the picture, but it's not important for my argument either way. Q. But I would like an answer to the question. A. I don't think that's a fair characterization of the significant increase, but if you want to move it off by a quarter or two that doesn't bother me. Q. I'm really again not asking about whether it bothers you or not. But I'm trying to establish that even on your own data what it shows is that the

R. GLENN HUBBARD - CONFIDENTIAL Q. And then point 8(ii)(b), "The national unemployment rate started to increase in the third quarter of 2007," correct? A. Started to increase, yes. Both those are true. Q. All right. So the serious delinquency rate began increasing approximately two quarters before the national unemployment rate, correct? MR. APFEL: Objection. A. As the commencement of their increase that's -- that's -- sure, that's fine. Q. So in view of the fact that the delinquency rate began increasing approximately two quarters before the national unemployment rate, isn't it fair to say that unemployment is not a macroeconomic factor that caused the initial increase in delinquencies and foreclosures? MR. APFEL: Objection. A. Well I think your question has

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R. GLENN HUBBARD - CONFIDENTIAL two, two problems with it. One is the third factor, moving both of these which peaks before is the movement in house prices. Second, you're making an aggregate observation from aggregate pictures, but of course the models are about individual decisions, where unemployment is clearly a factor, as I say, this is a 30 year old literature. Q. So your testimony is that although national unemployment started to rise two quarters after the sharp rise in delinquencies and defaults, nonetheless, in your view, unemployment is one of the macroeconomic causes of the national rise in delinquencies and defaults? MR. APFEL: Objection. Q. Is that right? A. That's correct. Particularly interacted with movements in equity prices just as theory would suggest. Q. Okay. And your view is that theory compels that conclusion even

R. GLENN HUBBARD - CONFIDENTIAL presenting aggregate data? A. Well the empirical work really is about, excuse me, individual performance of loans. Q. When you discuss unemployment and delinquency and foreclosure, you're presenting national data in your reports, right? A. Sure. Q. Okay. The national data demonstrate that the rise in delinquencies and defaults precedes the rise in unemployment? A. And follows the peak in house prices. Q. Okay, well we can talk about house prices as well. Now you claim in paragraph 8(ii)(a) of your report that after peaking in April 2006, home prices nationwide declined, right? A. Correct. Q. Let's take a look at the spreadsheet. What we have here, which

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R. GLENN HUBBARD - CONFIDENTIAL though the data show that the rise in delinquencies and foreclosures preceded the national rise in the unemployment rate? MR. APFEL: Objection. A. The data are a picture of aggregates. The theory and the tests are about micro data. So it's different, different subjects. Q. Do you consider yourself a macroeconomist, microeconomist, or both? A. I would consider myself both. Q. And when you looked at the data, what you present is actually data on a national basis as well as data according to certain states, right? A. Well, as you know, the bulk of what I present are on pools and loans in this transaction. I present the aggregate data to give a flavor of what's going on in the economy. Q. You're not presenting individual narratives about why certain borrowers defaulted, right? You're

R. GLENN HUBBARD - CONFIDENTIAL might simplify it, is we've reproduced shots of your spreadsheets. MR. SELENDY: Let's mark this as Hubbard Exhibit 4. (Hubbard Exhibit 4 for identification, spreadsheet, Bates stamped CWMBIA E 000079771 and CWMBIA-E 925.) Q. So we can show both what you establish as to housing prices and what you demonstrate on declines. It's tab 7, 2009, 12/31 CWMBIA-E 000079771, paragraph 29, as well as from your other spreadsheet, CWMBIA-E 925. It's Exhibit 4. Now does this reflect, the chart on the left, does this reflect the S&P Case-Shiller Home Price Index levels? A. I'm sorry, the chart that has 6/30, 9/30, 12/31? Q. Yes. A. I don't know. That's certainly not the title, so. It's entitled "serious delinquency for four

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R. GLENN HUBBARD - CONFIDENTIAL states," so it wouldn't appear to be. MR. APFEL: Philippe, again, what are these, what is this taken from? MR. SELENDY: These are from the spreadsheets produced by Professor Hubbard. MR. LEPRI: Spreadsheets produced as reliance materials along with this report and they're Excel files identified by those Bates numbers that are at the top of each screen capture. MR. SELENDY: We can pull up the Excel spreadsheets, it would take a long time. So we tried to do a screen shot. A. Remember Case-Shiller is an index, so think numbers like a hundred or 150. Q. It's the screen shot on the right is the Case-Shiller, right, if you look at those numbers? A. They look a little bit closer,

R. GLENN HUBBARD - CONFIDENTIAL A. If these data are correct, that is the max, so. Q. April is actually higher, isn't it, 226.79? A. I'm sorry. Right, .79, I'm sorry. April, I think that's even the month I say in the report. Q. Then if we -- you selected that data as the peak but it's not the date that begins a permanent decline, is it? MR. APFEL: Objection. Q. Do you understand my question? A. I do, but I'm not quite sure what you're talking about. Q. Okay. What we see is after that date there's a relative plateau, a slight decline, but relative plateau, and in fact there are increases between October 2006 and November 2006 as well as between January 2007 and February 2007. A. Well -MR. APFEL: Objection. Q. Isn't that right?

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R. GLENN HUBBARD - CONFIDENTIAL yes. I mean I don't know. But it's certainly in the realm of the possible. Q. In your chart you have composite 10, CSXR-SA. Does CS stand for Case-Shiller? A. I would assume so. It looks like I was just looking at Exhibit 6 in the report, right, of the pictures, so I can frame my intuition. It looks like it could well be the Case-Shiller data, sure. Q. And the CSXR-SA is the Case-Shiller Composite-10 Home Price Index which you refer to in your report, right? A. Yes. MR. APFEL: Objection. Q. If we look at this report, the peak, what is the peak data that you're relying upon? A. Well it appears that the peak is, if these data are correct, it looks like March 2006. Q. Okay, that's the 226 point --

R. GLENN HUBBARD - CONFIDENTIAL A. Just so we don't play games with data. The difference between October and November is 222.82 and 222.83. Q. Correct. And then -A. The other is a difference of like one-one thousandth of the index value. Q. That's not right. A. So I don't know, I mean it's pretty much a gradual pattern. Q. That's not right. That's not right. Between January and February it's 222.57 to 222.77? A. Right, it went up by .2. Q. Yes, by .2. A. Which is about one-one thousandth of the value of the index. You can call that a rise. I mean I call it noise. Q. You're going to call that noise, okay. And if we look back, the value as of February 2007 is higher than as of December 2005, right?

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R. GLENN HUBBARD - CONFIDENTIAL A. Yes, but it's below the peak. I guess I'm not understanding the question. The observation in the text was about a peak and a decline. And nothing you've shown me would seem to obviate that. Q. What you focused on between -you focused on April 2006, which is a peak that's reached relative to even the couple of months preceding it, but if we go back to December 2005, just four months before that, that's the same level we're still at as of February 2007, right? A. But why is that relevant? When you have a peak you ascend to a peak and you descend from the peak so by definition there's always an earlier date roughly the same as the later date. I mean that's just -Q. You don't have continuous descent, do you? MR. APFEL: Objection. A. I don't believe I said you

R. GLENN HUBBARD - CONFIDENTIAL A. I would describe them as a period of decline from the peak. Q. Is it not correct that the point at which you have a continuous decline is actually from February 2007 and not April 2006? MR. APFEL: Objection. A. You make that statement only by two month-to-month comparisons one of which is sort of machine zero on top of the other and the other is one-one thousandth of the strike. I think that's highly misleading. Q. I hear your caveats. The fact is the numbers first start a continuous decline as of February 2007, right? MR. APFEL: Objection; asked and answered four times. Q. You've already given your caveats. I'd like an answer to the question. MR. APFEL: He's answered the question three times. A. The way the index is measured

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R. GLENN HUBBARD - CONFIDENTIAL did. Q. So if we're looking at the point at which you do have continuous descent on your figures, that actually begins in February of 2007; isn't that right? MR. APFEL: Objection. A. I think you're, you're splitting hairs, in some of the questions even slightly mischaracterizing the data. They peak and they decline. Q. Is it or is it not correct that looking at your own chart, the point at which you have continuous decline is actually February 2007, not April 2006? MR. APFEL: Objection. A. I would say that it's a period of decline. You have a couple that are machine zero close, but I would call it a period of decline. But the numbers are what they are, you can characterize them as you wish. Q. I would like an answer to my question.

R. GLENN HUBBARD - CONFIDENTIAL I can't dispute that. I think you've mischaracterized the significance of that in your question. Q. My question is only asking about descent of the numbers. The significance is the follow-up, okay. I understand you're very anxious about the implications of the data. My question was focused on exactly what the data shows, okay? MR. APFEL: Objection. A. Nothing in -- nothing in the text of the paper is at odds with this. Q. Okay, now the chart on the left, are you able to determine what that shows? It's one of the charts drawn from your exhibits. A. I do have a plot for the troubled states. I'm trying to remember where it goes. I'm not sure what it is. I know I had a plot somewhere about delinquency in selected states, but I'm not quite sure what this is. Q. Okay, this is, this is part of

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R. GLENN HUBBARD - CONFIDENTIAL your reliance materials that shows the collection of delinquency data from the national delinquency survey, right? A. I really -Q. It's the all loans tab which is pulled up here for you. A. My -MR. APFEL: He's able to look at the -Q. It's on the screen. A. Oh, I'm sorry, this is not this? Then what do you want me to look at? Q. It is, it's on the screen, but you can also see we've reprinted it here. A. So delinquency survey data, I'm not sure. Q. This is from your own material, sir? A. Yes, but I don't think that's something I actually plotted. I used for some of the individual -- I used California, but I'm not aware of a four state, and I had a map for the country,

R. GLENN HUBBARD - CONFIDENTIAL that shows that the percentage of seriously delinquent loans is 1.82, right? A. Yes. And you've called this US. That's not what the title says, but. Q. Do you see the title on your own spreadsheet says "US seriously delinquent mortgages" for row 433? Look at the projection there. A. I'm reading the title on what you handed me. Q. Yes, what we've printed out here is the screen shot from your spreadsheet. What is on the screen is the projection of your spreadsheet itself which my colleague is pulling up so you can see it. A. Okay. Q. That is the description that you listed next to 433 saying US seriously delinquent mortgages. I understand perhaps your staff put this together and you don't recall looking at it, but that's what you produced to us as your reliance

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R. GLENN HUBBARD - CONFIDENTIAL but you'll have to help me. Q. Well this is what you produced to us and what it shows, I'll just represent to you, in row 433 is the US seriously delinquent mortgage data. This is from your own production, sir. MR. APFEL: This is one snippet from the production. A. It's a snippet. I'm not sure if the labels match, I don't -- but anyway, tell me what you want. Q. Okay. Did you actually review this data before it was produced to us as part of your reliance materials? A. I certainly asked the Analysis Group staff to produce all the backup for all the exhibits and for all of the empirical work. Q. Okay, so let's look at the cell, the row corresponding to 433, which is the US data, and if we look at the variables for that, for the seriously delinquent, and let's just start, for example, in the third quarter of 2005,

R. GLENN HUBBARD - CONFIDENTIAL materials. A. Well, I -MR. APFEL: Objection. A. I am not sure -- I'm looking at Exhibit 14 which has the national average. The numbers are different so I'm not quite sure what this is. Q. Okay. Well in your chart what it's showing is a rate of 1.82 in the third quarter of 2005, rising to 2.08 in the, as of 12/31/2005, the fourth quarter of 2005. A. I see that, yes. Q. Okay. And then in the next quarter drops to 1.93? A. Yes. Q. And then drops again to 1.89? A. Yes. Q. In the second quarter of 2006. And then after the second quarter of 2006, every quarter shows a significant rise in seriously delinquent loans. Do you see that, from 2 to 2.21, 2.23, 2.47, 2.95 and so forth, right?

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R. GLENN HUBBARD - CONFIDENTIAL MR. APFEL: Objection. A. That is what it shows for this series. Q. Right. And so what we see is an increase nationwide in serious delinquencies beginning as of the second quarter of 2006, correct? MR. APFEL: Objection. A. Again, I'd have to go back and look at this. Just looking at the picture, the material increases are coming later, they're kind of bumping along, but I -- again, I'd have to take this subject to check. Q. So what we see is actually an increase in serious delinquencies beginning as of, as of September 30th, 2006, that the rise, it starts in the second quarter and is reported in, as of -- excuse me, it's as of September 30th, 2006, correct? A. Again, I'd have to -MR. APFEL: Objection. A. -- go back and check on this.

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R. GLENN HUBBARD - CONFIDENTIAL AFTERNOON SESSION 1:55 p.m. THE VIDEOGRAPHER: The time is 1:55 p.m., this begins tape 4 in the videotaped deposition of Professor R. Glenn Hubbard, we are on the record. R. GLENN HUBBARD, resumed, having been previously duly sworn, was examined and testified further as follows: CONTINUED EXAMINATION BY MR. SELENDY: Q. Professor Hubbard, I understand from your counsel that you would like to make a couple of statements for the record. Please go ahead. A. Yes, sir, just two clarifications. As I was thinking about what I said on the originators issue, I just wanted to make sure that I was referring to two kinds of tests, I want to distinguish between those. So for the missing

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R. GLENN HUBBARD - CONFIDENTIAL It's in any event after the peak in house prices, but yes, that's the numbers on the page. Q. And that's by contrast to the beginning of the continuous descent which is February 2007 as reflected in the right-hand chart, correct? MR. APFEL: Objection. A. Well, I'm not accepting the quote continuous descent as being interesting. Q. Right, I understand it's not interesting to you. Okay. MR. SELENDY: All right, let's take a break for lunch. THE VIDEOGRAPHER: The time is 12:56 p.m., this ends tape 3 in the videotaped deposition of Professor R. Glenn Hubbard, we are off the record. (Luncheon recess: 12:57 p.m.)

R. GLENN HUBBARD - CONFIDENTIAL originators, that's the footnote where we went through the six or however many it is missing originators, we do it with and without no material difference. For multiple originators I also described an exercise where I drop the multiple originators and also find no material difference. Those are two different -- I just wanted to make sure that I was clear those are two different exercises. As I thought about what I said I wasn't a hundred percent sure I was clear. So one is about missing originators that was done in the original report. The other is in response to Dr. Mason. The second, on the HELOC issue a couple of things I want to make sure are clear. You asked me about a biased sample and I said something, I hope it's clear, that the bias would go against me if I do that. And I think I said that, but I just wanted to make sure that that's clear.

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R. GLENN HUBBARD - CONFIDENTIAL And then I just plain misspoke from my recollection, that these really are second liens not first liens. I should have stuck with my don't recall. As soon as we went away from that question I wanted to check again at the break. So that's my clarification. Q. Just on the last point, professor, the fact is you didn't know whether or not the loans, the HELOC loans in this case concern second liens or first liens; isn't that right? A. I think what I said originally was I don't recall. It came up in the context of your question about a first lien which would again of course have biased things against me and I'm sort of going down that route, but I misspoke, full stop. Q. And you didn't actually know whether or not the loans in our case were first or second liens with respect to the HELOC transactions until you had your discussion with counsel over the break,

R. GLENN HUBBARD - CONFIDENTIAL apples-to-apples comparison you need to have second lien loans in your control group, not first lien loans, right? A. To the extent that they're first lien loans, they just bias things against me. They make it harder to find. First lien loans would be less likely to default by construction. So I'm not concerned. Q. Would you please restate my question for the witness. (Record read as requested.) A. I certainly tried to have apples to apples. To the extent that there are some first lien loans you pointed to one I think in your question, it only biases it against me, makes it harder to find what I find. Q. Do you agree that it's not an apples-to-apples comparison if you're comparing second lien loans with first lien loans? MR. APFEL: Objection. A. I agree that you should try to

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R. GLENN HUBBARD - CONFIDENTIAL right? MR. APFEL: Objection. A. I said I didn't -MR. APFEL: That's not what he said. A. That's not what I said. I said I didn't recall, it was eating at me and then yes, I did go back and look over the break. Q. And you would agree with me, I take it, that if you don't even know whether the loans are first or second liens, you can hardly pick an apples-to-apples set of comparable pools, right? A. No, sir, that's -- that's not true. You were asking a question to the extent that they're first liens in there. That again biases it against me just like the other point that I was trying to clarify. So I don't think that follows. But yes, I did misspeak. Q. If you want to have an

R. GLENN HUBBARD - CONFIDENTIAL have second lien loans. To the extent that there's a first lien loan, though it makes it even harder to find what I find. Q. Now, is it fair to say that your regression models tested the effect of your set of explanatory variables on delinquencies? A. Which set? In the pool set I'm really looking at sort of a percentage in dollar values. The others is a probability measure, but yes, more or less, if I take your question. Q. Are you comfortable with the use of the term exogenous to describe certain variables in regression analyses? MR. APFEL: Objection. A. Are you asking me for a definition of exogenous? Q. Yes. A. Or am I comfortable that these variables are exogenous? Q. No, I'm asking you first for a definition. A. The definition of exogeneity

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R. GLENN HUBBARD - CONFIDENTIAL is the direction of causality would go from variable X to Y. X would be exogenous to Y if shifts in X move Y. Q. Is it fair to say that housing price is strictly an exogenous variable in your models? A. Housing prices at the level of the individual I take as exogenous. At the level of the economy, all of these variables are co-determined. Q. With respect to the regression analyses you did both in your pool level comparisons and your loan level comparisons, is it fair to say that to the extent housing price figured as a variable it was an exogenous variable in your analyses? A. Yes. Q. Okay. Is that also true with respect to unemployment? A. Yes. Q. Your models didn't test for feedback effects, did they? A. Feedback effects are a

R. GLENN HUBBARD - CONFIDENTIAL MR. APFEL: Objection. A. For the micro data I did not, that's correct. Q. You ran no macro regression analyses in these cases, right? A. I don't think the macro regressions would have been very useful given what the case is about. Q. Right, I'm just dealing with your qualification in your answer. You said for the micro data you did not. The fact is you did not for any purpose in this case? A. There would have been no reason for me to do so. Q. Also, you did not test for causation in your modeling in any respect, correct? MR. APFEL: Objection. A. The issue of Granger causality only came up frankly in the context of what Dr. Cowan has said. I already told you this morning that he didn't get that right. There would have been no reason

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R. GLENN HUBBARD - CONFIDENTIAL question about macro data. At the level of an individual there is no such feedback effect. Q. It's fair to say that your models did not test for feedback effects, correct? A. No, there is no feedback effect at the micro level. Q. Okay. And therefore, there is no test that you ran for feedback effects as between the variables in your models, right? A. No. Think about what that means. That would mean the probability that Glen Hubbard defaults on his house feeds back to affect the national unemployment rate? Q. Okay. So when you are drawing conclusions about, as a general matter, whether housing price tended to cause or drive delinquencies and defaults, to the extent you ran models in these cases you did not test for any feedback effect on housing price?

R. GLENN HUBBARD - CONFIDENTIAL for me to try to establish Granger causality given the enormous literature in this area that has already done so. Q. My question I think was relatively simple. You didn't test for causality in any of your modeling in this case, correct? MR. APFEL: Objection. A. Again, my modeling is micro modeling. Dr. Cowan's comments were about macro data. I didn't test anything in macro data other than show you some pictures. Q. You didn't test anything with respect to causation, correct? MR. APFEL: Objection. A. It wouldn't have been relevant for what I was doing, other than, as I told you today, to respond to Dr. Cowan's errors in his own portrayal of Granger causality. Q. When you talk about Dr. Cowan's errors with respect to Granger causality, let's break this down. First

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R. GLENN HUBBARD - CONFIDENTIAL of all, I take it, you don't disagree that Granger causality tests can be useful as a way of determining which variables affect others? A. They certainly can be. I mean it wouldn't be germane to the economics of this case, but there's certainly nothing wrong with Granger causality tests. Q. In your understanding, what are Granger causality tests used for? A. Typically, they're time series, well, they're always time series tests, but usually of macro data, some times on other types of aggregate data, to establish that one variable causes the movement in a second variable. Q. Is it fair to say that the Granger causality tests are widely accepted in the econometrics community? A. Very widely accepted. It's a standard textbook thing to teach. Q. Have you ever used such tests yourself?

R. GLENN HUBBARD - CONFIDENTIAL Q. When you say that the underwriting is unobservable, isn't it fair to say that it may be unobservable to you and it may have been unobservable to MBIA at the time it insured the transactions, but it was observable to Countrywide which originated the loans? MR. APFEL: Objection. A. I'm not sure what you mean by that. Certainly Countrywide did its own underwriting and knew what it did. That's different than the sense I'm using -- I'm using it in the sense of there are variables and standards that not only Countrywide but any other originator used. The question statistically is departures from those, are they predictive. And you can either do that as a benchmarking exercise or you can do what Mr. Butler did. I mean you could do either one of those. But that's the playing field, not the -- not the macro data.

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R. GLENN HUBBARD - CONFIDENTIAL A. I have many times. Q. In what context? A. In papers that I have written, including with Dr. Mason's thesis advisor using vector auto regressions and Granger causality to describe ordering. So yes, it's something I have done. Q. With respect to your statement that it's not appropriate for this case, what's the basis for that opinion of yours? A. Well, the economic -- I can't speak to the law, but the economics in this case are one, micro and two, about whether an unobservable, an allegation about underwriting being not up to standards or up to par, somehow drives performance. That's just not a problem that is a Granger causality problem. What Dr. Cowan does in Granger causality is try to get an order of variables, much as you and I were doing for lunch. I don't think the economic guts at least of the case is even about that subject.

R. GLENN HUBBARD - CONFIDENTIAL Q. And in fact, to the extent that you're dealing with unobservables or MBIA was dealing with unobservables, that's a basic difference in the information available to you or to MBIA by contrast to Countrywide, correct? MR. APFEL: Objection. A. Well, there's always asymmetric information in transactions. The question for the tests is, is there any indication that exploitation of that information mattered. But of course there's asymmetric information. Q. Did you make any effort to look at Countrywide's own internal assessments of its breach rates in connection with these transactions? A. You're asking about defect rates? Q. Yes, defect rates? A. I'm aware that Countrywide did some internal audit tracking in a series of measures, but I didn't use those measures.

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R. GLENN HUBBARD - CONFIDENTIAL Q. So you made no effort to correlate those measures with observed performance of the Countrywide loans? MR. APFEL: Objection. A. I did not, no. Q. Now you mentioned that you've done some work with Dr. Mason's advisor in vector models. Are you referring to PVAR models? A. It would include PVAR models but I was thinking more broadly than that. Q. Okay. What family of models are you referring to? A. Well I was thinking about just simple VARs, but also panel VARs. Q. What are panel VARs? A. Well the VAR is just in a simple time series dimension. Panel VARs involve both a cross-section and a time series element, hence the term panel. And they go back to work from Newey and Holtz-Eakin and Rosen on how to take a VAR framework to panel data.

R. GLENN HUBBARD - CONFIDENTIAL Q. Have you used them with respect to any modeling of the housing crisis? A. No, sir, I have not. Q. Okay. So which financial crises do you have in mind? A. The, actually, to be boring about it, 19th Century financial crises, hence my work with Dr. Mason's advisor who is a historian. Q. Was your learning in connection with the 19th Century crises relevant at all to the events of the recent housing crisis? A. Well, I would argue actually yes, but that's a longer story in terms of the economics, but Dr. Mason is nodding, he probably gets what I mean. But you can ask me whatever you like. Q. Okay. Well, is the -- are you comfortable then that PVAR models can be used effectively in connection with the current housing crisis? MR. APFEL: Objection.

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R. GLENN HUBBARD - CONFIDENTIAL Q. What are PVAR models used for? A. They could be used for a number of things where you have cross-sectional or time series variation. You may have variation across firm type or firm size or financial condition and then longitudinal variables as well. Q. Is it fair to say that PVAR models, like the Granger tests, are widely accepted in the econometrics community? A. I would say they're less universally used, but they're extremely well thought of. As I say, I've used them. I can have no other opinion. Q. Are they often used to model macroeconomic phenomenon? A. They can be. That's the context in which I've used them, certainly. Q. Can you be more specific about the context in which you've used them? A. I've used them in modeling financial crises.

R. GLENN HUBBARD - CONFIDENTIAL A. It depends on the question you're trying to ask, but there's certainly nothing wrong or suspect about using PVAR models. Q. Did you review Dr. Mason's use of PVAR models in connection with this case? A. I did with -- I reviewed what he had in his paper, yes. Q. Do you have any disagreement with Dr. Mason's use of those models? A. Well, I'm not sure that the discussion of the model necessarily tracks well what I understood the tables to be, but certainly there's nothing wrong with using the models. I don't think the PVAR he did relates to what I at least see as the economic question in the case. Q. Why is that? A. Well, not to repeat myself, but I think the economic question is about misrepresentation in underwriting and so it really is this unobservable and

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R. GLENN HUBBARD - CONFIDENTIAL then predictive component that's really the core of the economic issue. The relationship among variables is somewhat less the issue. Q. Did you use as one of your variables defects in underwriting quality? MR. APFEL: Objection. A. Yes, in the sense of the Butler analysis, where I used Dr. Butler's definition. In my own initial report, the answer to that question is no. To me as a statistician, those are unobservable. I mean a stated guideline is observable, but what an underwriter did is not known to me. Q. So when you said yes, it's only in connection with your analysis of Mr. Butler's findings with respect to significantly defective and not significantly defective loans? A. And Ms. Godfrey's rebuttal or reinterpretation or recasting of Mr. Butler.

R. GLENN HUBBARD - CONFIDENTIAL or other observation points for pools as well? A. Well but the other variables aren't, aren't varying, whereas for a loan you do have monthly observations. Q. Do you treat in your most decreased housing prices and increased delinquencies as occurring simultaneously? A. I'm not sure what you mean by that. If that's derivative of the question of lags. Q. Yes. A. I suppose the answer is yes. Q. Okay. A. At the micro level. Q. Is it fair to say that you don't try to determine in your regression models in this case what caused the housing prices to decline? MR. APFEL: Objection. A. That is partially correct. It's not house prices per se in the micro work, it's equity. Now equity is driven by changes in house prices, conditional

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R. GLENN HUBBARD - CONFIDENTIAL Q. Of the same? A. Yes. Q. Okay. Did you use any lagged variables in your model? A. I did not. Q. Why is that? A. Again, what I'm trying to explain is, if you want to start at the pool level, I have an end point and so I'm essentially just driving variation toward that end point. There wouldn't have been opportunities for lags. In the loan variables, where you do have monthly observations, there are opportunities, but I didn't see any need to use lags at the micro level. Q. Can you explain why you say there are opportunities at the loan level but not the pool level? A. Well at the loan level I mean you have monthly observations, right. The pool you have the observation going to time. So it's just, it's different. Q. Well can't you get quarterly

R. GLENN HUBBARD - CONFIDENTIAL on some starting CLTV. So I'm not quite sure how to answer your question given that it's not -- it's not house prices per se that are part of the model, it's their influence on equity and at the level of an individual, it's really, and most of these individual models are specified this way, it would be the contemporaneous equity affecting the contemporaneous delinquency. Q. Okay, let me just see if I can unpack that a bit. Are you saying housing prices do not figure independently as a variable in either your pool or loan level models? A. There's -MR. APFEL: Objection. A. It's not that there's a regressor called house price. But equity is a key driver -Q. Right. A. -- in both models, and the evolution of equity over time clearly depends on house prices.

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R. GLENN HUBBARD - CONFIDENTIAL Q. Okay. Is it fair to say that to the extent the change in equity as caused by changing in housing prices, you are not trying to assess in any respect how that, what drives that change in your modeling? A. From the perspective of a given individual I'm taking that as exogenous, going back to our earlier discussion. Q. Okay. Is there any respect in which you're not taking that as exogenous in your models? A. No, I think I said that, I said that earlier. Q. Again, whenever you cabin or limit an answer of yours I'm trying to broaden it to make sure you're not reserving something. So that's the reason for that? A. It's pretty simple. Q. Okay. So is, does it follow then that your model doesn't attempt to test whether an increase in housing

R. GLENN HUBBARD - CONFIDENTIAL modeling in this case it's micro economic modeling? A. In that paper in this case. Q. In this case? A. In this case is micro economic modeling, yes, I've said that. Q. In the paper you're positing various relationships between the effect of interest rates and the price of housing, among other things, right? A. Right. Really the user cost of housing. Interest rates are a key element of the user cost, but yes. Q. And you're aware that others, including Nobel Laureate Joe Stiglitz, disagree with you as to whether interest rates caused the housing bubble in the United States? A. I think it's -MR. APFEL: Objection. A. I think it's fair to say Nobel Laureate Joe Stiglitz and I disagree on any number of topics, so I'm not sure what to make of that. Joe's own research

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R. GLENN HUBBARD - CONFIDENTIAL supply arising from higher delinquencies is in turn causing a decline in housing prices? MR. APFEL: Objection. A. That is an aggregate phenomenon, not a micro phenomenon. But it's a phenomenon that economists have talked about well into the crisis. So years after the first dynamic has taken place, yes, in a given neighborhood or MSA those effects could be there. My own work, the work I did with Chris Mayer, is about a global house price boom. So none of these US affects could possibly have caused the worldwide house price boom. You have to have some other price model in mind. Q. Okay, now when you talk about your own work, you're talking about your 2009 article? A. Yes. Q. All right. You're essentially saying that to the extent you've done any

R. GLENN HUBBARD - CONFIDENTIAL generally finds lower user cost effects than I do. There are many economists who find very sharp user cost effects on housing. I'm happy to let the marketplace of ideas sort that out. Q. Okay. What, in your view, is the purpose of underwriting standards with respect to loan origination? A. I'm sorry, purpose -MR. APFEL: Objection. A. From whose perspective? Q. From the perspective of both the seller and the buyer of RMBS? MR. APFEL: Objection. A. I can't give you any sense of a legal answer use, but I can say from the perspective of information, it's a way of communicating what sorts of variables, standards, guidelines would govern the selection of securities for a portfolio. Much as if you were thinking of, I don't know, mutual funds, you would say here's an investment philosophy, here's the kind of securities that will

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R. GLENN HUBBARD - CONFIDENTIAL be in this portfolio. It's a way of telling investors what to expect at least broadly from securities in the portfolio. Q. And why is it that your models didn't attempt to include a variable for changes in underwriting standards? MR. APFEL: Objection. A. Well, they do because those are only varying over time and they're time effects. So insofar as you want to make any argument about a variable that changes over time, it's there. Q. You're saying that because you treat time as a variable you've implicitly captured changes in underwriting standards, is that your point? A. Yes, certainly to the extent that you're arguing for aggregate changes in underwriting standards, that they become more expansive or they become tighter, those are soaked up in time or vintage effects. Q. Is it your view that there aren't differences among originators as

R. GLENN HUBBARD - CONFIDENTIAL happened to underwriting standards or guidelines. It's about deviations from practice from guidelines. Q. Right. And you didn't include as a variable deviations from underwriting guidelines, correct? I think we've covered that? MR. APFEL: Objection. A. That's not a variable one could construct. The meaningful -Q. You regard that as unobservable? A. No, no, not at all. But what I do regard is that the best way for an economist or statistician to do it is to use the variables that are the observable variables and time effects to control for that. What we don't see is whether the practices that an underwriter uses actually conform to those. That's what you test for in the benchmark. Q. Now, as we talked about before

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R. GLENN HUBBARD - CONFIDENTIAL to underwriting standards? MR. APFEL: Objection. A. Well, again, those would be manifest in my benchmarking exercise in the right-hand side variables. To the extent that those originators or Countrywide, for that matter, is deviating, that's about the measures of performance. Q. When you talk about your benchmarking, what you did was actually just look at certain values, such as CLTV, documentation level, FICO score and the like, you didn't actually look at any measure of overall underwriting standards, did you? MR. APFEL: Objection. A. To the extent that those standards relate to those variables and to time effects, which would be hard to imagine there's a case to the contrary, those are captured. But the case at least from an economist's perspective isn't about what

R. GLENN HUBBARD - CONFIDENTIAL lunch, what you looked at was one performance pathway, which is the actual path through the housing crisis, correct? MR. APFEL: Objection. A. I certainly used the actual data if that's your question, sure. Q. And if we had a stable economy as opposed to the housing crisis, it's likely in fact that the loans that you looked at for both the Countrywide and non-Countrywide deals would have performed differently, right? MR. APFEL: Objection. A. I'm sure that's the case. In fact, I referenced studies and talks specifically about the fact that but for the house price movements, most serious studies have found that the changes in underwriting standards wouldn't have really mattered very much. Q. You're not able to estimate how the Countrywide loans would have performed in an economic environment other than the housing crisis, are you?

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R. GLENN HUBBARD - CONFIDENTIAL MR. APFEL: Objection. A. That's not true. If you had an interest in simulating some other price change I can use my estimated model to do that. I thought reality would be more interesting, but you could certainly do that. Q. The relationships in your model though are only derived from performance during the housing crisis, correct? MR. APFEL: Objection. A. More or less. Up -- some is before the housing crisis, but that time period, yes. Q. Would you please turn to Exhibit 32A of your initial report. A. Yes, sir. Q. This shows the results of your pool level analysis for the closed end second liens, correct? A. That's correct. Q. And 32B shows the results of your pool level analysis for the HELOC

R. GLENN HUBBARD - CONFIDENTIAL A. Well it's just a statement of basic statistics, yes. Q. Looking at 32A and 32B, is it fair to say that the differences between actual performance and expected performance are not statistically significant for all of the transactions save one? A. At the level of the individual securitizations that's absolutely right, that's what I say in the text. Q. Right. A. They're statistically different on average. Q. Well, when you say on average, what you did was pool all of the securitizations together, both the HELOCs and the closed end seconds, right? A. Correct. Q. Doesn't that use of an average mask any variations between the securitizations? A. No. Q. And what you're doing in an

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R. GLENN HUBBARD - CONFIDENTIAL transactions? A. Yes. Q. And both of these exhibits you're comparing the actual performance of the at-issue securitizations against their expected performance based on your regression modeling; is that right? A. That's correct. Q. If you turn back to Exhibit 31, if you turn to Exhibit 31 on pool performance analysis. A. Yes, sir. Q. In footnote 2 you say "If a coefficient is not statistically significantly different from zero, then one cannot be statistically confident that there's any relationship between the independent variable and the dependent variable." Do you see that? A. Yes, that's a statement of what it means. Q. You still agree with that statement, right?

R. GLENN HUBBARD - CONFIDENTIAL average is you're lumping different types of loans together, right? A. I am -MR. APFEL: Objection. A. I am lumping the securitizations together, yes. Q. You're mixing transactions from different vintages, right? MR. APFEL: Objection. A. Yes. Q. Do you regard that as standard econometrics to mix the different loan types and the different vintages together to arrive at the conclusion? MR. APFEL: Objection. A. It wouldn't be at all unusual to try to do that in a statistical sense. You understand of course that being statistically insignificantly different is absolutely fine because the direction of these I think save one, maybe a couple of examples, all goes against the proposition of your client. Q. Your point is that since the

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R. GLENN HUBBARD - CONFIDENTIAL sign is the same for all of the transactions, that itself gives you some measure of confidence in your conclusion? A. Well it's certainly of interest, yes. Q. How important do you think it is that there be a statistical degree of confidence in your conclusions as to each of the securitizations? MR. APFEL: Objection. A. It depends what I had found. I am finding that at least for typical securitization Countrywide actually out-performs. If it out-performs statistically insignificantly, fine. It would have been a little more problematic for me if I were finding the other, that it had under-performed. But that's not what I find. Q. Was there data that you developed but excluded from presentation in your initial report? A. No. Q. Turning to Exhibit 29A on

R. GLENN HUBBARD - CONFIDENTIAL and 29B don't show anything about the progression of macroeconomic events, right? MR. APFEL: Objection. A. If I'm understanding your question, no. Q. Now what you did for both graphs was fit a straight line to the data, right? A. Yes, it's a linear regression. Q. Did you consider any other ways to fit the data? In other words, fitting a curve as opposed to a line to the data? A. No, I'm really just trying to make a simple point about how to think about something in pictures. The actual work is what you talked about in 31 and 32. Q. If you're using a straight line to try and fit this data, aren't you implying that pools with positive equity will actually have negative defaults and serious delinquencies?

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R. GLENN HUBBARD - CONFIDENTIAL closed end second liens, here you show a graph of equity versus the percentage of defaults and serious delinquencies for the CES, correct? A. Correct. Q. 29B is a similar graph for the HELOC loans? A. Correct. Q. And when you're plotting this you don't draw any distinction between vintages, right? A. That's right. These are just purely illustrative. They're not the main event. That comes later. Q. Whereas in fact the defaults and serious delinquency rates do differ between vintages? A. Of course they do that's why, if you read the text, that's why I'm setting up doing this. This just sort of frames how you would think about it in a two variable context and then the regressions do it for multivariable. Q. Right. So these graphs, 29A

R. GLENN HUBBARD - CONFIDENTIAL A. No. MR. APFEL: Objection. A. I'm simply trying to establish a simple relationship above or below the regression line. This isn't the model in the paper, it's just a picture to try to frame your idea. Q. But the picture is misleading, isn't it? You should have drawn -- a proper curve wouldn't have been a line, it would actually be a curve that better tracks or fits the data; isn't that right? MR. APFEL: Objection. A. I don't agree with that at all. First of all, I'm not familiar with what theory you have in mind for a curvilinear relationship between these two variables. The point is just a picture to show you why you need to go to multiple regression. Q. So you're not trying to demonstrate, you're saying today you're not trying to demonstrate in Exhibit 29A

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R. GLENN HUBBARD - CONFIDENTIAL or 29B a relationship between the performance of the Countrywide at-issue pools and equity across the transactions? MR. APFEL: Objection. A. I think these pictures are suggestive, but what I say in the text is to really do that right you have to control for many variables and that's what I do, both the pool level and the loan level analysis. So these are designed really to whet your appetite for that analysis. Q. Well, even if you're trying to suggest the relationship between equity and the performance of defaults and serious delinquencies, there are far better ways of fitting the data than this straight line that you drew, aren't there? A. I wouldn't accept that looking at the pictures, no. Q. In fact, it's misleading to draw the straight line suggesting that the Countrywide deals are better than the

R. GLENN HUBBARD - CONFIDENTIAL say, you have to control for all the other variables to be interesting. Q. Let's go to Exhibit 22 of your report. Here you're talking about the selection of the sample and the collection and calculation of variables, right? A. Yes. Q. And where do you talk about the CLTV variable? A. If you look at equity, which is page 3, so the equity measure is one minus a weighted average CLTV and then I adjust that for changes in housing prices. That's the discussion you and I were having a few minutes ago, that prices are there but not directly. Q. And you say "to adjust the weighted CLTV values to reflect housing prices as of September 2010, the variable is divided by one plus the percentage change in house price indices from the time of issuance to September 2010." Is that right, that's what you did?

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R. GLENN HUBBARD - CONFIDENTIAL average, whereas in fact if you drew a curve, which better fits the data, they would appear to be just about average? MR. APFEL: Objection. A. First of all, you've perhaps alleged you have a theory of a curve. Second, you've alleged you have a curve that fits the data better. I have no evidence on that. And third, that wasn't the exercise I was trying to do, which is just to illustrate what ultimately is a multiple regression problem in some pictures. Q. So it would be misleading then to use these graphs on 29A and 29B to show the relationship between equity and the percentage of defaults and serious delinquencies, is that fair? MR. APFEL: Objection. Q. That's not what you were trying to do with these? A. It's not misleading but it would be incomplete and that's what I

R. GLENN HUBBARD - CONFIDENTIAL A. Right. So I'm just trying to, if you will, gross up the equity to whatever the value might be in September 2010. Q. So regardless of securitization or the vintage of the securitization, you adjusted the weighted CLTV by measuring the change in house price indices from the time of issuance to September 2010? MR. APFEL: Objection. A. That is indeed what I did. I control separately for the vintages, but yes, that's what I do. Q. Sir, you used the same technique for adjusting CLTV whether it's the 2004-I deal or the 2007-E deal; is that fair? A. For the pools, yes. Q. And in Exhibit 22 you also describe the way you calculate percentage of defaults and serious delinquencies, correct? A. Yes, it's on page 2 of the

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R. GLENN HUBBARD - CONFIDENTIAL exhibit. Q. It's fair to say that a major component of this is the cumulative net realized losses? MR. APFEL: Objection. A. That's certainly one of the components, sure. Q. And the equity variable is one of your explanatory variables, right? A. Yes. Q. Percentage of defaults and serious delinquencies is your dependent variable? A. That's in the pool analysis, that's absolutely correct. Q. Is it fair to say that the cumulative net realized losses is a function of the average change in house prices that occurred as of September 2010? A. It may be related, but no, that's -- I don't view that as a serious problem. Q. Okay, I didn't ask you whether

R. GLENN HUBBARD - CONFIDENTIAL A. Depending on the time period. Q. By choosing September 2010 as the point at which you compute the change in house prices, it's fair to say you ignore the variation in housing price changes from the time of issuance of the transaction until September 2010, right? MR. APFEL: Objection. A. I don't ignore it. It's just at the pool level that's what I can do. I mean at the loan level I can vary precisely by month, but I can't do that here. Q. Well why couldn't you do a monthly pool level analysis? A. Where would I get the variation and all the other variables? Q. Have you ever seen trustee reports for RMBS transactions? A. Yes. Q. Are you aware of whether trustee reports contain monthly data for those transactions? A. But they're not going to have

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R. GLENN HUBBARD - CONFIDENTIAL it was a serious problem. I just asked you whether cumulative net realized losses is a function of the average change in house prices that occurred as of September 2010? A. I would stick to what I said. They're related -- the timing of taking losses is a timing decision, so yes, they're related. But they don't pose any significant problem if I'm understanding your question. Q. Is it fair to say that the cumulative net losses were accumulating over a period of time? A. Well, that is what cumulative means, yes. Q. Right. And over those periods of time the average change in housing prices could have been positive, right? MR. APFEL: Objection. A. Could be. Q. It could also have been negative? MR. APFEL: Objection.

R. GLENN HUBBARD - CONFIDENTIAL monthly data on the other variables. Indeed, I did what I did, so I'll just stick to that. Q. Well what's in those trustee reports to the best of your knowledge? MR. APFEL: Objection. A. I really don't recall, other than some of the basic information about performance, that's the sense in which I used them. Q. What kind of information about performance? A. The sorts of variables we're talking about here, delinquency, foreclosures and so on. Q. Okay. Let's flip back to that equity variable which was on page 3 of your Exhibit 22. A. Page 3. Okay. Q. All right. Here you say that "The percentage change in house prices," this is the third paragraph on page 3. A. Yes. Q. "Is a weighted average of the

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R. GLENN HUBBARD - CONFIDENTIAL change in the Fiserv state-level price indices, where the weights are based on the principal balance at issuance for the eight states representing the largest principal balances within the pool"; is that correct? A. Yes. Q. Why did you choose to weigh the percentage change in house prices based on the eight states that are the largest principal balance as opposed to all states? A. Well you can't get all states for everybody and so if you used all states for some and not others, and there's a systematic relationship between, say, smaller states and house price issues, that would be a real problem. So you have to take a stab. I picked eight because it's about two-thirds, 65 to 70 percent is my recollection, but I also tried five, 15, and I also used a 55 percent coverage which was the lowest coverage in the pro

R. GLENN HUBBARD - CONFIDENTIAL states? A. You know, I don't. There may have been a difference in statistical significance. But I don't recall. Q. Isn't it correct that actually as you expand from eight states to 15 to all states you're going to see a decline in, the average decline in house prices will be lower the more states you include? A. Yes, sir, and that's the problem. That's why you can't do the hundred percent because you can't see a hundred percent for everybody. So you've just introduced exactly the bias you mentioned. So you have to take a stab. Eight seemed like a reasonable thing to me but I tried five and fifteen and my recollection is no material difference. Q. You say there's a bias. In fact, the loans tell you what percentage to include from every state, don't they? A. No, sir. MR. APFEL: Objection.

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R. GLENN HUBBARD - CONFIDENTIAL supps. None of it makes any difference. So eight just seemed to me reasonable given that it wasn't reasonable to use just the ones where I had a hundred percent. Q. When you said none of it makes any difference, that's not exactly right, is it, sir? There are differences that you saw when you ran with different groups of states? MR. APFEL: Objection. A. By difference I mean in the findings that I have. So if I use five states or eight states or I believe I tried 15, I know I tried two or three when I did this, I don't recall any material difference in my results. I picked eight because I wasn't going to get a hundred percent. That gave me about two-thirds. Could it have been seven or nine? Well sure, but I didn't find any difference. Q. Do you recall the difference between running eight states and 15

R. GLENN HUBBARD - CONFIDENTIAL Q. You can do a weighted average calculation based on the contribution from each state to each RMBS transaction, can't you? MR. APFEL: Objection. A. My understanding is that's not true. So there are some where I can't get a hundred percent. So in that eventuality if I used a hundred percent for some and the most I could for the others I would introduce exactly the bias that you're mentioning. So you have to pick a number. Is eight given on the tablets to Moses? No, but it was about two-thirds, that seemed reasonable and again, five or fifteen would have produced similar results. Q. So I just want to make sure I understand this. You agree that if the data were available, the better analysis would be to use the data for all states rather than just eight? A. If they were available -MR. APFEL: Objection.

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R. GLENN HUBBARD - CONFIDENTIAL A. -- for every pool, sure, of course. Q. And did you compare as to the pools for which the data was available what the difference would be if you used all states as opposed to eight? A. You know, I really don't recall if I'm understanding your question, whether I did that or not. Q. Okay. Did you take a look at Dr. Cowan's rebuttal report where he does rerun your analysis using all state data? A. Again, I don't think you can legitimately use all state data. Q. Did you examine Dr. Cowan's report where he is rerunning your analysis with all state data? A. I really don't remember. I know it's an illegitimate exercise. I know that I did it with five and fifteen and eight. My results are very similar. Q. Just to be clear, it is a legitimate exercise if the data is available, right?

R. GLENN HUBBARD - CONFIDENTIAL Q. Under-including the data when it's available introduces a deliberate bias in the results, doesn't it? MR. APFEL: Objection. A. It could well, but that isn't what I did. Q. You didn't present anywhere the results of that subset of your deals where you admit data was available for all states, correct? MR. APFEL: Objection. A. I did not, no. Q. Do you have any basis to challenge Dr. Cowan's results other than your view that data couldn't possibly be available for all states? MR. APFEL: Objection. A. I would have to go back and look at Dr. Cowan's work again. Q. As you sit here today, you don't have any other criticism in mind? A. I don't recall. I gave you some of my other criticisms of Dr. Cowan. Q. Well you're referring to the

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R. GLENN HUBBARD - CONFIDENTIAL A. But they weren't, that's the whole reason we're having this conversation. Q. I just need an answer to my question. It is legitimate if the data is available? A. If they were available, but they're not. Q. In fact, if the data is available it's certainly a better analysis, right? A. It would certainly be more complete. Q. So to the extent you have a criticism of Dr. Cowan's report, you're suggesting he couldn't possibly have the data for all the states? A. I'm suggesting he did something deliberately biased in his results because the data don't exist. Q. In fact, under-including data when it's available introduces a deliberate bias in results, doesn't it? A. If the data weren't available.

R. GLENN HUBBARD - CONFIDENTIAL Granger, the dates for the Granger tests? A. And the incorrect rounding, yes. Q. And the rounding, right. Okay, let's take a look at your rebuttal report. I'd like to turn to section 6 of that report. A. Okay, so that's page 33 then? Q. Yes. This is your review of servicing damages? A. Yes. Q. And you say that "Dr. Mason fails to recognize that servicing fees would have been paid regardless of whether defendants performed any of the wrongs alleged by plaintiffs." Do you see that, in paragraph 46? A. I do, yes. Q. You're familiar with the basic rule that performance fees are not contractually earned if performance is not made, right? MR. APFEL: Objection.

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R. GLENN HUBBARD - CONFIDENTIAL A. Yes, that's a different point which I also take up later in the -- but fees themselves are not, at least speaking as an economist, that would not be something one would use as a concept. Q. When you say you take that up later, where are you referring to? A. In paragraph 47 going on because what Dr. Mason does as I understand it is apply what Mr. Butler did which was on a flawed sample by design, that's not Mr. Butler's fault, that's what he was asked to do, but generalize it to the entire sample and so that's just unreliable to do. But the first point was more just the basic economic point that the damages themselves can't be fees. Q. I just want to be sure I understand the basis in which you're saying that. You're saying that as an economist you can't conceive of a legal rule that would award damages based on disgorgement of fees, is that your

R. GLENN HUBBARD - CONFIDENTIAL fees were not earned and therefore should be disgorged? MR. APFEL: Objection. A. Well my point is you wouldn't get that from what Dr. Mason did. Q. So you're not saying that's a, in some economic standard that you have that's somehow an illegitimate outcome, you're simply saying you don't understand why Dr. Mason arrives at that conclusion? MR. APFEL: Objection. A. I do understand what Dr. Mason did, I just don't agree with it. Q. And let me ask you this. In a scenario where a defective serviced loan shouldn't have been in the pool in the first place, isn't it correct that the reduced servicing fees would mitigate MBIA's claims? MR. APFEL: Objection. A. I don't know what else you're holding constant or what MBIA would have recovered from the alleged underwriting defect.

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R. GLENN HUBBARD - CONFIDENTIAL testimony? MR. APFEL: Objection. A. No. What I'm saying is that that's not a measure of servicing damages from the point of view of an economist. I'm not being asked to give a servicing damages expert. I'm not the damages witness. I'm saying that that would be somewhat unusual economic interpretation, and more to the point, its application to Butler was fraud because what Butler did was something very different. Q. Have you never in your experience seen an award that provides for disgorgement of fees on the basis that they were not earned because performance was not materially made? MR. APFEL: Objection. A. That can happen, yes, as a legal matter, sure. Q. Right, okay. So if in fact defendants had performed all of the wrongs alleged by plaintiffs, there could well be an award that states servicing

R. GLENN HUBBARD - CONFIDENTIAL Q. Other things being equal, right? A. Well more is more if that's your question. Q. More is more, yes. A. That's pretty simple. Q. Right. Right. So there are two ways in which you could recover for a defectively, a defective loan that is inadequately serviced, you could recover servicing fees, you could recover from rescissory damages based on the inclusion of the defective loan in the first place? MR. APFEL: Objection. A. You could, but you would first have to show there were actual defects that mattered in either case. Q. Right, and that's in the province of Mr. Butler and Ms. Godfrey, right? MR. APFEL: Objection. A. No, sir, I think what's in their province is putting forth their measure and then it's a question about

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R. GLENN HUBBARD - CONFIDENTIAL whether that measure relates to anything. Q. Okay. And that's because you're not sure whether the question of a material and adverse effect on the interests of the insurer is something that's measured based at the time of the securitization or, instead, concerns a performance based outcome? MR. APFEL: Objection. A. I indeed am thinking it's at the time of the securitization. What I'm trying to do is state that if somebody has alleged that they have a variable that measures materially higher credit risk, does it in fact have that predictive power. But no, it is exactly at the time of securitization that the decision has to be made. Q. Okay. Turning to paragraph 33 of your rebuttal report. Here you say that your analysis, which you describe as empirical, indicate that Mr. Butler's assessment of defects is unreliable, right?

R. GLENN HUBBARD - CONFIDENTIAL exercise if I do a perturbation and say let me take some nondefective loans and move the status of some loans, how much do I have to do before I could flip the sign and then measure how much statistical difference I would need. It turns out as a result of that exercise it's about 5 percentage points. So it's not impossible even with however many it is here, 197, 200, I forget, to find a difference even within 5 percentage points. And he has alleged that this is significantly defective, which he defines, not me, that that means a material increase in credit risk. So I don't accept that the small sample gets him out of it. Q. When you say you don't accept that the small sample gets him out of it, nonetheless, you're not able to say that the sample is large enough for you to give conclusions with any statistical significance as to the relative

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R. GLENN HUBBARD - CONFIDENTIAL A. Yes. Q. As we talked about, you're not here as an expert on underwriting and you didn't reunderwrite the loans in the sample, right? A. Both of those are true. Q. And isn't it the case that the results of most of your analysis as to Mr. Butler's findings are statistically insignificant? A. That's true, but disturbing for Mr. Butler. It's disturbing in two respects. One, that he's defined something that materially increases credit risk. He gets the sign wrong. And it's not statistically significant. Q. It's not statistically significant because there's so few loans which even years after the securitization can be found to be not significantly defective according to Mr. Butler? MR. APFEL: Objection. A. I thought you might ask me that. So I mean as a statistical

R. GLENN HUBBARD - CONFIDENTIAL difference in credit risk between significantly defective and not significantly defective loans by Mr. Butler? MR. APFEL: Objection. Q. Correct? A. There are two parts as to why that's a problem for Mr. Butler. Q. I just would like first an answer to that question and then you can explain why you think that's a problem for Mr. Butler. A. I'm sorry, what's your question. MR. SELENDY: Would you restate the question for the witness. (Record read as requested.) MR. APFEL: Objection. A. That's correct, but the problem is for Mr. Butler and not for me. The sign is wrong on his core argument about significant defect and I just told you, you could do a simple statistical

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R. GLENN HUBBARD - CONFIDENTIAL exercise. The window doesn't have to be that big to get to statistical significance, even with this number of loans. So I don't think this is very good news for him. Q. When you say the sign is wrong, that's not true if you look at the early deals and you go through, for example, through 2005, right? MR. APFEL: Objection. A. Well, if you -- should we turn to the -- I was looking at all of the securitizations together. If we look -did you want to look individually? Q. Well, I was saying specifically, if you look at the early transactions through 2005, well before anyone can say that the, that delinquencies and defects started to increase, for that early time period, in fact, the not significantly defective loans out-perform the significantly defective loans, right?

R. GLENN HUBBARD - CONFIDENTIAL A. No. Q. No. So you're not actually able on the exhibits that you just referred me to, to show me the relative performance of the significantly defective versus not significantly defective in the early years before 2006, are you? A. Oh, I think I just biased things against myself by choosing a farther date out. If his is truly significantly defective, he had ample time for it to show up. So that's conservative. The bias is against me. Q. I'd like an answer to my question. A. I think I just did. Q. No, you didn't. What you told me is you thought you biased yourself. But what I asked you is whether you're able to show me either on the exhibits that you just referred me to or even otherwise, the relative performance of the significantly defective loans versus

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R. GLENN HUBBARD - CONFIDENTIAL A. I don't recall that. MR. APFEL: Objection. A. Where? You need to help me here. Q. Well, I don't think you show that in your analysis, sir. But that's the case, isn't it? A. I don't think it is at all. Because I know that on average that's not true. And I know looking -- I can look at the individual not significantly defective securitization by securitization and I can look at the significantly defective securitization by securitization. I do that in Exhibits 3 and 4 and Exhibit 5-A and 5-B, so I don't know where you're getting what you say. Q. And your Exhibits 3 and 4 are looking at the rates of defaults and delinquencies through what, through 2010, right? A. December 2010, yes. Q. Right. You don't break it out year by year, do you?

R. GLENN HUBBARD - CONFIDENTIAL the not significantly defective loans prior to 2006? A. Well I didn't do that analysis. I don't see why I would have. But again, what I've done is very conservative. Q. So what you've done is perform an analysis that looks at the relative difference in performance only after the housing crisis is fully taken into account? MR. APFEL: Objection. A. And I've compared his own significant and nonsignificant. Q. And as we said earlier, you did not make any effort to break out just the noncompliance related breaches, in other words, the credit related breaches to compare significantly defective and not significantly defective? MR. APFEL: Objection. A. I think I answered you and certainly would answer again, that based on Mr. Butler's own definition I don't

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R. GLENN HUBBARD - CONFIDENTIAL have to. He's arguing that the words significantly defective is linked to a material increase in credit risk. Where he gets that is not a concern to me. That is his definition. Q. You're aware that Ms. Godfrey separates out the so-called compliance related defects that are found by Mr. Butler? MR. APFEL: Objection. Q. Or are you not aware of that? A. I don't really remember what she did in that regard, but it's not germane to the question about what Butler did. What Butler did is pretty clear. That's his definition. Q. So you're not familiar with any kind of breakdown among the population of significantly defective loans between those loans that have credit related breaches and those loans that have only compliance related breaches? MR. APFEL: Objection.

R. GLENN HUBBARD - CONFIDENTIAL and you separated out the population of loans that have credit related breaches from those loans that have only compliance related breaches. And let's suppose that that showed you that in fact the performance of the loans with credit related breaches was significantly worse than the performance of the loans with compliance related breaches. If that were your finding, what would that cause you to change with respect to your conclusion about the data from Mr. Butler's findings? MR. APFEL: Objection. A. To the extent that Mr. Butler's definition is his definition and he's not changing it, it would change not one iota of what I have found. Q. You have to answer the question that I asked you. That's what you're here for. You're an expert. If I give you a hypothetical you have to answer that. A. I think I just answered pretty

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R. GLENN HUBBARD - CONFIDENTIAL A. My understanding is that he did that, but my understanding is also that his definition links all of it, insignificantly defective to material increase in credit risk, and that's what I'm using. Q. So, sir, what you're basically telling me is that based on the strength of Mr. Butler's definition, you determined that there was no probative value in comparing the performance of those loans as to which Mr. Butler found credit related breaches and those loans as to which he found only compliance related breaches? MR. APFEL: Objection. A. I'm saying that there's no probative value in his distinction between significantly defective and not significantly defective. I didn't look at the other breaches, I didn't need to. It's his definition that I'm relying on. Q. Okay, let's suppose that you did look at it with a little more detail

R. GLENN HUBBARD - CONFIDENTIAL darn clearly. Q. No, you just restated the hypothetical and said if the definition were always the same then the answer would be the same. But my hypothetical was different. Okay. MR. SELENDY: Let's again go back, would you please restate the prior question for the witness. Let's try and have an answer. (Record read as requested.) MR. APFEL: There's an objection. A. If I'm understanding the question, nothing. Q. Okay, I understand you didn't actually do the analysis I just described. But what you're telling me is even if you had done the analysis, and even if that analysis had showed you that the loans with credit related breaches performed significantly worse than the loans with only compliance related breaches, it would be irrelevant to the

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R. GLENN HUBBARD - CONFIDENTIAL testimony that you're prepared to offer to the court? MR. APFEL: Objection. A. Yes, because that's not the comparison that's at issue. The comparison at issue is a component or the totality of significantly defective with a component or the totality of significantly nondefective. You merely parsed out one without the other. So that's why I say nothing would change. Q. I understand the comparison that you did in your report and you and your counsel are entitled to try and tell the judge that's the relevant comparison. I just wanted to make clear that you did not do the analysis I described between those loans with credit related breaches and only compliance related breaches, and further, I think I have your testimony that even if you had done it, regardless of the outcome of the analysis your testimony would be the same?

R. GLENN HUBBARD - CONFIDENTIAL of what the outcome of that is, you would give the same testimony to the court. If that's the case, we can move on. MR. APFEL: Objection. Q. If you want to qualify your answer, here's your chance. MR. APFEL: Objection. A. No, no, that's very much the case. That would be a flawed exercise for anyone to do. Q. Okay, all right, I have your testimony. Okay, your criticism of Dr. Mason's assessment of rescissory damages is largely based on his reliance on Mr. Butler's analysis of the defect rates in the loans. Is there anything else that you disagree with with respect to Dr. Mason on the rescissory damages measure? MR. APFEL: Objection. A. Well, I think that's pretty fundamental. What Dr. Mason does is just literally take Mr. Butler and translate it by arithmetic. There's no economic

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R. GLENN HUBBARD - CONFIDENTIAL MR. APFEL: Objection. A. Correct, because maybe I'm not clear as to why your hypothetical is so flawed, but you haven't in any way compared something that's significantly defective, whether you call it credit compliance or anything else, to its counterpart that's not significantly defective. So it changes what I've done not one iota. Q. Well what you have done, sir, is use a performance based measure to try and get at some inference about ex ante risk, okay, and what I've asked you to consider is if you're really trying to look at a performance based measure to determine the degree of breach, you ought to consider, perhaps, looking at the credit related breaches versus loans that either have no breaches or have only compliance related breaches. You've just told me you didn't look at that and in your view regardless

R. GLENN HUBBARD - CONFIDENTIAL analysis. So the real question is not Dr. Mason, it's Butler, and I've already explained my issues there. Q. So you have no other disagreement with Dr. Mason's analysis there? MR. APFEL: Objection. A. I don't think there was any analysis there. He just used what Butler did. Q. Okay, thank you. All right. Let me just ask you did you review the reliance materials that were produced as part of your rebuttal report? A. I can't claim to have been through all of them. I certainly ordered the production and spot checked them, but no I guess would be the honest answer to your question about all. Q. At what point did you become aware that the reliance materials produced on July 3rd were defective? MR. APFEL: Objection. A. I don't think they were ever

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R. GLENN HUBBARD - CONFIDENTIAL defective as I understand it. I was informed by Analysis Group folks that there were some files that apparently your side had not accessed and was missing and then those were provided. But I provided all the files all at once. Q. When did you become aware that the reliance materials were missing certain files? A. I don't know, a few weeks ago. MR. SELENDY: Let's mark as Exhibit Hubbard 5 the letter from our office to your counsel regarding the deficiencies in the reliance materials. (Hubbard Exhibit 5 for identification, letter dated July 11, 2012 to Goodwin Procter from Quinn Emanuel Urquhart & Sullivan LLP.) Q. I'd like to turn your attention to the list of files that's Exhibit A to this letter. My question is if you know what these files are?

R. GLENN HUBBARD - CONFIDENTIAL still confirming that. And I take your point you didn't realize that they were not produced. When you say it's probably not impossible, but it would be difficult, what's your -A. Well, because a lot of the data are from the first report which I assume you have. Some of this is publicly available data that you have, but yes, you should have it all, full stop. MR. SELENDY: We can take a short break if you like. THE VIDEOGRAPHER: The time is 3:03 p.m., this ends tape 4 in the videotaped deposition of Professor R. Glenn Hubbard, we are off the record. (A recess was taken.) THE VIDEOGRAPHER: The time is 3:23 p.m., this begins tape 5 in the videotaped deposition of Professor R. Glenn Hubbard, we are

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R. GLENN HUBBARD - CONFIDENTIAL A. I think many of these are pretty much as they're described about the Butler replication and the Godfrey replication. They pretty much follow what I did there. Bootstrap just refers to the standard error calculations. Q. Would you agree it's impossible for someone to replicate your models without the files listed here? MR. APFEL: Objection. A. I turned over the files right at the beginning of my report. How you didn't get them is not -- I mean I don't know what happened. Q. I didn't ask you that. I asked you would you agree whether it's impossible for someone to replicate your models without the files that are identified here? A. It's probably not impossible, but it would be difficult. You should have them. Q. Well I believe that they've been produced as of last Friday. We're

R. GLENN HUBBARD - CONFIDENTIAL on the record. (Hubbard Exhibit 6 for identification, letter dated July 26, 2012 from Goodwin Procter to Quinn Emanuel Urquhart & Sullivan LLP.) Q. Professor Hubbard, there's been some back and forth about a certain database that one of your files referenced, the ABSNet loan dataset. I'd like to show you Hubbard Exhibit 6 which may give you some context on that. We have made repeated requests for this database which are referenced in another file of yours because that database does not appear to be simply raw data polled from the ABSNet loan database. Do you have any information about what that dataset consists of? A. The only recollection I have is a conversation that there's some issues about the terms under which Analysis Group got the data as to whether

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R. GLENN HUBBARD - CONFIDENTIAL they can turn it over. That's really a question more for counsel than for me. Q. Well, do you know whether this file represents some processing of data that was pulled out of the ABSNet loan data? A. I doubt that. Q. Are you able to confirm that it consists solely of the raw data in the same form as it's maintained in the ABSNet loan database? A. I could at a break ask. I can't sitting right here. I don't want to mislead you. MR. APFEL: We could probably sort it out. A. You could ask the AG for it. MR. SELENDY: Okay, we do need some confirmation of that. THE WITNESS: While I'm here on the next break -MR. APFEL: We can try to sort that out off the record. MR. SELENDY: Okay.

R. GLENN HUBBARD - CONFIDENTIAL Kerry D. Vandell, Ph.D.) Q. I don't know if you've seen that report before? A. No, I have not. Q. I'd like to ask you to turn to Exhibit 2A of that report which is, in the exhibits it's shortly after page 40. MR. APFEL: I'm sorry, say again, where is it? A. I see it. It's just after page 40. Q. So this Exhibit 2A states "HELOC trust characteristics of origination," do you see that? A. Yes, I see that. Q. And if we look at the CWABS 2004-P transaction in the exhibit of Countrywide's other expert, Kerry Vandell, here there are different principal balances listed for the same securitization. Do you note that under group I Mr. Vandell lists an average principal balance of 58,373 and under group II an

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R. GLENN HUBBARD - CONFIDENTIAL Q. Would you please go back to your initial report and turn to Exhibit 5A of that report. A. Yes, sir. Q. I'd like to direct your attention to the HELOC transaction which is the 2004-P transaction. A. I'm having a tough time. Q. It's the second transaction in your chart. A. I've got it, yes. Q. 2004-P. You see that your chart lists the average principal balance for the group I loans as 52,647? A. Yes, sir. Q. And the average principal balance for the group II loans as 62,882? A. Yes. MR. SELENDY: I'd like to mark as Hubbard Exhibit 7 the report of Kerry Vandell dated February 27th, 2012. (Hubbard Exhibit 7 for identification, expert report of

R. GLENN HUBBARD - CONFIDENTIAL average principal balance of $69,960? A. I see that. Q. What's the reason for the difference between the values that you and Mr. Vandell are citing, do you know? A. I can't speak for Mr. Vandell. These are the numbers in my report and I stick with them. Q. You stick with the numbers in your report, okay. A. I don't know what else I can do. I don't know what Mr. Vandell did. This is the first time I've even seen his report. MR. SELENDY: I'm going to mark as Hubbard Exhibit 8 the prospectus supplement for the 2004-P transaction. (Hubbard Exhibit 8 for identification, prospectus supplement for the 2004-P transaction.) Q. And my question is are you able to determine from that exhibit which

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R. GLENN HUBBARD - CONFIDENTIAL of you is correct as to the average principal balance of the group I loans for the 2004-P transaction? A. I would assume I can in the fullness of time. I'm trying to find the data. Usually there's a date of presentation. MR. APFEL: Do you have a page you want to direct his attention to. A. Usually they come right after the terms, but I don't see it. Q. Dr. Hubbard, why don't you look at page A-I-1, which is the first page of the annex. A. No, I see A-2. Mine skips from -- I don't see it. I'm sorry. Q. If you start with S-65, can you find S-65. It's before the annex. It's before the A listed pages, A-65. MR. APFEL: Is this the page? Q. That's the annex page. A. I don't -- I'm sorry, maybe I got them all turned around here.

R. GLENN HUBBARD - CONFIDENTIAL wrong, but to the extent I got it wrong, no, I don't, I'd have to go back and check. Q. Well, do you know where you derived your number from? A. Well, I would have gotten it, or the staff would have gotten it from exactly pro supp documents. Q. The very document you have in front of you? A. That's where the data should come from, yes. Q. And the pro supp shows the value for the average principal balance of the group I loans as 58,373, correct? A. It would appear to, yes. Q. Now if you would turn ahead to page A-I-12, this gives the value for the group II loans, right? A. Yes. Q. And here the value is $69,960 as Mr. Vandell reported, right? A. Yes. Q. That again is inconsistent

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R. GLENN HUBBARD - CONFIDENTIAL Q. Your counsel can help you out. A. All right. Thank you. Q. So A-I-1 here in the pro supp itself do you note that under loan group I it states below the table "As of the statistical calculation date, the average principal balance of the statistical calculation mortgage loans in loan group I was approximately $58,373"? A. I see that. Q. That's the number that Mr. Vandell reports, correct? A. Yes. Q. And that's inconsistent with the number that you report, correct? A. Well it would appear to be. I'd have to go back and check. Q. Well you report 52,467? A. Correct. Q. Do you know how you got that wrong? MR. APFEL: Objection. A. I don't know that I got from this document that it's necessarily

R. GLENN HUBBARD - CONFIDENTIAL with the figure you reported of 62,882, right? A. It would appear to be, yes. Q. Do you know where you came up with the figure of 62,882? A. I would have assumed from the pro supp. So again I'll have to go back and check. Q. You don't know where in this pro supp you got that figure? A. Well, this would be the source of the data. So it could be an error, but I'm not quite sure, maybe the calculations are at a different day. But anyway, I can go back and check. Q. By the way, sir, are you aware of whether MetLife owns any Countrywide securitizations that are insured by MBIA? A. I really don't know, to be honest. Q. You don't know, okay. MR. SELENDY: Give us five minutes, we may be done. THE VIDEOGRAPHER: The time is

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R. GLENN HUBBARD - CONFIDENTIAL 3:33 p.m., we're going off the record. (A recess was taken.) THE VIDEOGRAPHER: The time is 3:35 p.m., we are on the record. MR. SELENDY: Other than the open issue as to that ABSNet database which we'll sort out with counsel, we're through with our questions for today. Thank you, sir, we are done. THE WITNESS: Thank you. MR. APFEL: We have no questions. (Continued on next page.)

NAME OF CASE: DATE OF DEPOSITION: NAME OF WITNESS: I wish to make the following changes, for the following reasons: PAGE LINE ____ ____ CHANGE: _______________________ REASON: _______________________ ____ ____ CHANGE: _______________________ REASON: _______________________ ____ ____ CHANGE: _______________________ REASON: _______________________ ____ ____ CHANGE: _______________________ REASON: _______________________ ____ ____ CHANGE: _______________________ REASON: _______________________ ____ ____ CHANGE: _______________________ REASON: _______________________ ____ ____ CHANGE: _______________________ REASON: _______________________ Subscribed and sworn to before me this ____ day of ____________, 2012. ____________________ _____________________ (Notary Public) My Commission Expires:

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R. GLENN HUBBARD - CONFIDENTIAL THE VIDEOGRAPHER: The time is 3:35 p.m., this concludes today's videotaped deposition of professor R. Glenn Hubbard consisting of five videotapes. We are off the record. (Time noted: 3:35 p.m.)

CERTIFICATE STATE OF NEW YORK ) : ss. COUNTY OF NEW YORK ) I, GAIL F. SCHORR, a Certified Shorthand Reporter, Certified Realtime Reporter and Notary Public within and for the State of New York, do hereby certify: That R. GLENN HUBBARD, the witness whose deposition is hereinbefore set forth, was duly sworn by me and that such deposition is a true record of the testimony given by the witness. I further certify that I am not related to any of the parties to this action by blood or marriage, and that I am in no way interested in the outcome of this matter. IN WITNESS WHEREOF, I have hereunto set my hand this ____ day of ___________, 2012. __________________________ GAIL F. SCHORR, C.S.R., C.R.R.

_______________________ R. GLENN HUBBARD Subscribed and sworn to before me this _____ day of _________, 2012. __________________________________

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EXHIBITS DESCRIPTION PAGE (Hubbard Exhibit 1 for 5 identification, expert report of Robert Glenn Hubbard dated February 12th, 2012.) (Hubbard Exhibit 2 for 5 identification, expert rebuttal report of Robert Glenn Hubbard dated July 3, 2012.) (Hubbard Exhibit 3 for 157 identification, prospectus supplement for transaction 2004-HE1.) (Hubbard Exhibit 4 for 201 identification, spreadsheet, Bates stamped CWMBIA E 000079771 and CWMBIA-E 925.) LINE 2

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(Hubbard Exhibit 5 for identification, letter dated July 11, 2012 to Goodwin Procter from Quinn Emanuel Urquhart & Sullivan LLP.) (Hubbard Exhibit 6 for identification, letter dated July 26, 2012 from Goodwin Procter to Quinn Emanuel Urquhart & Sullivan LLP.) (Hubbard Exhibit 7 for identification, expert report of Kerry D. Vandell, Ph.D.) (Hubbard Exhibit 8 for identification, prospectus supplement for the 2004-P transaction.)

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