FILED: NEW YORK COUNTY CLERK 06/18/2013

NYSCEF DOC. NO. 40

INDEX NO. 652388/2011 RECEIVED NYSCEF: 06/18/2013

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK U.S. BANK NATIONAL ASSOCIATION, as Trustee for HarborView Mortgage Loan Trust, Series 2005-10, Plaintiff, v. COUNTRYWIDE HOME LOANS, INC. (d/b/a BANK OF AMERICA HOME LOANS), BANK OF AMERICA CORPORATION, COUNTRYWIDE FINANCIAL CORPORATION, BANK OF AMERICA, N.A., and NB HOLDINGS CORPORATION, Defendants. Index No. 652388/2011 SECOND AMENDED COMPLAINT JURY TRIAL DEMANDED

U.S. Bank National Association (“U.S. Bank” or the “Trustee”), in its capacity as trustee, brings this action on behalf of HarborView Mortgage Loan Trust 2005-10, by its attorneys, Kasowitz, Benson, Torres & Friedman LLP, for its Complaint herein against Countrywide Home Loans, Inc., doing business as Bank of America Home Loans (“Countrywide Home Loans”), Countrywide Financial Corporation (“Countrywide Financial” and, together with Countrywide Home Loans “Countrywide”), Bank of America Corporation, Bank of America, N.A., and NB Holdings Corporation (collectively “Bank of America” and, together with Countrywide “Defendants”), alleges as follows: NATURE OF ACTION 1. This is an action for breach of contract stemming from Defendants’ willful failure

to abide by their unambiguous contractual obligations under the Pooling and Servicing Agreements (defined below) that govern the sale of more than 4,000 mortgage loans (the “Loans”) that were originated by Countrywide Home Loans and then securitized in the HarborView Mortgage Loan Trust 2005-10 (“HVMLT 2005-10” or the “Trust”), for which U.S. Bank serves as trustee. 2. In connection with its sale of the Loans to Greenwich Capital Financial Products,

Inc. (“GCFP”), the sponsor of HVMLT 2005-10, Countrywide made fifty specific representations and warranties regarding the Loans (the “Mortgage Representations”). Through the Mortgage Representations, Countrywide represented, among other things, that the Loans complied with specified underwriting guidelines, that its origination practices were in all respects legal, prudent and customary in the mortgage industry, and that it was providing complete and accurate documentation for each loan. In the event of a breach of any Mortgage Representation that materially and adversely affected the interests of GCFP in a Loan, Countrywide agreed that

it would cure such breach or repurchase the individual Loan within ninety days of receiving notice of the breach. 3. Upon sale of the Loans to the Trust, GCFP assigned certain of its rights with

respect to the Loans, including its right to enforce the Seller Representation and the Mortgage Representations, to the Trustee. 4. Soon after being sold to the Trust, Countrywide’s Loans began to become

delinquent and default at a startling rate. As a result, an underwriting consultant was retained to review the Loans for compliance with the Mortgage Representations. That review revealed a systemic failure to comply with the Mortgage Representations. Out of an initial sample of 786 Loans, an extraordinary sixty-six percent of the Loans breached one or more Mortgage Representations. The 520 defective Loans have an aggregate principal balance of over $157 million. 5. Upon learning of the results of the loan review, the Trustee promptly served

notice on Countrywide, through its successor-in-interest Bank of America, and demanded that Countrywide comply with its obligations and either cure the breaches or repurchase the Loans. Countrywide has failed, and continues to fail, to do either. To date, Countrywide has failed to repurchase any Loan put back to it by the Trustee and has offered no basis for its refusal. There is no alternative mechanism to repair the breaches that exist due to Countrywide’s improper underwriting and wholesale breach of its contractual obligations. 6. In addition, given that the securitization was a document-intensive transaction,

Countrywide prepared and furnished numerous written statements and documents in connection with the sale and securitization of the Loans. Because the Trustee was not obligated to verify that Countrywide’s numerous disclosures were true and correct, the written statements and

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documents were critical to the benefit of the bargain made by the Trust and the Certificateholders. Thus, to give rating agencies and potential investors additional comfort that its disclosures were true and accurate, Countrywide represented that none of its written statements or documents contained any untrue statements of material fact or omissions that would make the statements contained therein misleading (the “Seller Representation”). Given the importance of its numerous written disclosures, Countrywide agreed that in the event of a breach of the Seller Representation, at GCFP’s option, Countrywide would repurchase all of the Loans in the mortgage pool within 90 days of receiving notice of the breach. 7. The Seller Representation protected the Trust and the Certificateholders from

misrepresentations and omissions in, among other things: a. The offering prospectus, including a prospectus supplement, which contained, among other things, disclosures regarding the characteristics of the Loans, Countrywide’s general origination practices, and the origination practices pertaining to the Loans; b. The mortgage loan files (the “Mortgage Loan Files” or “Files”), which contained, among other things, the borrower’s loan application, documents verifying the borrower’s income, assets and employment, the borrower’s credit reports, an appraisal of the property that secured the loan, and a statement of the property’s occupancy status; c. The certification of a Countrywide officer (the “Officer’s Certificate”) that Countrywide had performed all of its duties under the Servicing Agreement and that all of its representations and warranties, including the Seller and Mortgage Representations, were true and correct; d. The mortgage loan data tape (the “Mortgage Loan Schedule”), which provided detailed information about the characteristics of each Mortgage Loan, including the loan-to-value ratio and occupancy status; and e. The diskette or electronic file (the “Information Diskette”) containing the information necessary for the Mortgage Loan Schedule and the date the last monthly payment was actually applied to a Loan’s unpaid principal balance. The consultant’s findings and ongoing discovery in this action have revealed that many of these documents are rife with materially untrue statements in violation of the Seller Representation.

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8.

The Trustee is authorized to enforce Countrywide’s Seller and Mortgage

Representations. As a result of Countrywide’s breach of the Seller Representation, the Trustee now seeks specific performance of Countrywide’s obligation to repurchase all of the Loans in the mortgage pool within the ninety-day period to which Countrywide expressly agreed. 9. Alternatively, the Trustee seeks to compel Countrywide, and Bank of America as

its successor-in-interest, to specifically perform their obligation to repurchase all of the Loans that the Trustee has submitted as breaching Loans and all Loans that Defendants know or have reason to know contain breaches that materially and adversely affect the interests of the Trust. PARTIES 10. HarborView Mortgage Loan Trust 2005-10 is a securitization trust created

pursuant to the Pooling Agreement dated as of August 1, 2005 between Greenwich Capital Acceptance, Inc., Greenwich Capital Financial Products, Inc. and U.S. Bank National Association (“Pooling Agreement”). The Trust originally held 4,484 mortgage loans with an aggregate principal value of approximately $1.75 billion for the benefit of Certificateholders. The Pooling Agreement was and is governed by New York law. 11. Plaintiff U.S. Bank National Association is a national banking association

organized and existing under the laws of the United States with its principal place of business in St. Paul, Minnesota. Pursuant to the Pooling Agreement, U.S. Bank serves as trustee of HVMLT 2005-10. U.S. Bank has offices throughout the United States; its principal office in New York State is in New York County. 12. Defendant Countrywide Home Loans, Inc. is a New York corporation with its

principal place of business in Calabasas, California. Countrywide Home Loans acted as the originator for the Loans held by the Trust. Countrywide Home Loans operated as a whollyowned subsidiary of Countrywide Financial Corporation, which merged with Bank of America 5

on July 1, 2008. Countrywide Home Loans now operates under the trade name “Bank of America Home Loans.” 13. Defendant Bank of America Corporation is a Delaware corporation with its

principal place of business in Charlotte, North Carolina and substantial offices at the Bank of America Tower at One Bryant Park, New York. Bank of America is a global financial institution serving retail, small business and large corporate consumers with financial products and services. Countrywide merged with Bank of America on July 1, 2008. 14. Defendant Countrywide Financial Corporation is a corporation organized under

the laws of the State of Delaware with its principal executive offices in Calabasas, California. It was the corporate parent of Countrywide Home Loans. Pursuant to a transaction completed on July 1, 2008, Countrywide Financial merged into a subsidiary of Bank of America Corporation. As of April 27, 2009, Countrywide Financial ceased operating under the brand name Countrywide. Now combined with Bank of America’s pre-existing mortgage and home loan business, Countrywide Financial’s main businesses, including Countrywide Home Loans, operate as Bank of America Home Loans, a division of Bank of America. 15. Defendant Bank of America, National Association is a nationally-chartered

United States bank with substantial business operations and offices at the Bank of America Tower at One Bryant Park, New York, New York 10036. It is a wholly-owned subsidiary of Bank of America Corporation. 16. Defendant NB Holdings Corporation is a Delaware corporation with principal

offices in Charlotte, North Carolina, and is a subsidiary of Bank of America Corporation. 17. Defendants Bank of America Corporation, Bank of America, N.A., and NB

Holdings Corporation participated in the acquisition of substantially all of Countrywide through

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a series of acquisitions that commenced on July 1, 2008. They are the successors-in-interest to Countrywide. JURISDICTION AND VENUE 18. This Court has jurisdiction over this proceeding pursuant to CPLR §§ 301 and

302 because Bank of America has offices in New York and Countrywide Home Loans is organized under the laws of the State of New York. Additionally, the Trust was formed under New York law pursuant to the Pooling Agreement, which contains a New York choice of law provision. 19. Venue is proper in this Court pursuant to CPLR § 503(a) and (c) because the

Trustee’s principal New York office is in New York County and, upon information and belief, Defendants are domestic or foreign corporations authorized to transact business in New York and their principal New York offices are in New York County. FACTUAL BACKGROUND I. THE HVMLT 2005-10 SECURITIZATION. 20. Asset-backed securitization is the process whereby risk is distributed by pooling

cash-producing financial assets, such as mortgage loans, and issuing securities backed by such pools of assets. The most common form of securitization of mortgage loans involves the creation of a trust to which a sponsor entity sells a portfolio of mortgage loans. The transfer of assets to a trust is typically “a two-step process: the financial assets are transferred by the sponsor first to an intermediate entity, often a limited purpose entity created by the sponsor . . . and commonly called a depositor, and then the depositor will transfer the assets to the [trust] for the particular asset-backed transactions.” Asset-Backed Securities, Securities Act Release No. 33-8518, Exchange Act Release No. 34-50905, 84 SEC Docket 1624 (Dec. 22, 2004).

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21.

After receiving the portfolio of mortgage loans, the trust will issue securities,

referred to as “certificates,” using the pool of loans as collateral. Investors (or “Certificateholders”) acquire an ownership interest in the mortgage loan pool and rights to the income flowing from the mortgages (the borrowers’ payments of principal and interest on their mortgages). 22. The HVMLT 2005-10 securitization, which closed on August 31, 2005, was

effected through this basic process. Countrywide Home Loans sold the Loans − 4,484 mortgages with an aggregate principal balance of approximately $1.75 billion − to GCFP pursuant to the Master Mortgage Loan Purchase and Servicing Agreement dated as of April 1, 2003, as amended by the amendment dated as of November 1, 2004, and as reconstituted pursuant to the Reconstituted Servicing Agreement dated as of August 1, 2005 (the “Servicing Agreement”). A true and correct copy of the Servicing Agreement is attached as Exhibit A. GCFP then sold the Loans to Greenwich Capital Acceptance, Inc. (the “Depositor”) through the Mortgage Loan Purchase Agreement (“MLPA”). A true and correct copy of the MLPA is attached as Exhibit B. Pursuant to the Pooling Agreement (the “Pooling Agreement”), the Depositor then conveyed the Loans to the Trust, which issued approximately $1.75 billion in certificates and delivered those certificates to the Depositor for sale to Certificateholders. A true and correct copy of the Pooling Agreement is attached as Exhibit C. The Certificates were marketed and sold via, among other things, a prospectus supplement, dated February 22, 2005 (“the Prospectus Supplement”). A true and correct copy of the Prospectus Supplement is attached as Exhibit E.

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II.

THE RIGHTS OF THE TRUSTEE TO PROTECT THE TRUST AND THE INTERESTS OF CERTIFICATEHOLDERS. A. 23. The Trustee Has Authority To Enforce The Seller and Mortgage Representations Pursuant to the Pooling Agreement, the Trustee has the power to exercise all of

GCFP’s rights against Countrywide under the Servicing Agreement. The MLPA assigns GCFP’s rights to the Depositor. Specifically, Section 2.01 of the MLPA provides: [GCFP] hereby assigns to [the Depositor] all of its rights and interest (but none of its obligations) under the Servicing Agreement and the Letter Agreement to the extent relating to the Loans. The [Depositor] hereby accepts such assignment, and shall be entitled to exercise all such rights of [GCFP] under the Servicing Agreement and the Letter Agreement as if [the Depositor] had been a party to the agreement. 24. The Depositor then assigned all of its rights under the MLPA to the Trustee.

Section 2.01(a) of the Pooling Agreement states: Concurrently with the execution and delivery of this Agreement, the Depositor does hereby assign to the Trustee all of its rights and interest under the Mortgage Loan Purchase Agreement, including all rights of [GCFP] under the Servicing Agreement to the extent assigned in the Mortgage Loan Purchase Agreement. The Trustee hereby accepts such assignment, and shall be entitled to exercise all rights of the Depositor under the Mortgage Loan Purchase Agreement and all rights of [GCFP] under the Servicing Agreement as if, for such purpose, it were the Depositor or [GCFP], as applicable . . . . The assigned rights under Section 2.01(a) specifically and expressly include the “right to enforce remedies for breaches of representations and warranties and delivery of Mortgage Loan documents. The “Trust Fund,” as defined in the Pooling Agreement, includes the rights to enforce Countrywide’s obligations under the Servicing Agreement and the MPLA. Under Section 2.07 of the Pooling Agreement, the Certificateholders own the Trust Fund. Thus, once the Loans were securitized in the Trust, Countrywide owed its obligations under the Servicing

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Agreement, including compliance with the Mortgage and Seller Representations, to the Trust, with the Trustee empowered to enforce such obligations on behalf of the Certificateholders. The investors at no point prior to the Securitization were afforded the opportunity to perform due diligence on the Loans. B. 25. The Seller Representation Section 7.01 of the Servicing Agreement contains the Seller Representations.

Countrywide made, among others, the following representation: No Untrue Statements or Material Omissions: No written statement, report or other document prepared and furnished or to be prepared and furnished by the Seller pursuant to this Agreement or in connection with the transactions contemplated hereby contains any untrue statement of material facts or omits to state a material fact necessary to make the statements contained therein not misleading. Servicing Agreement § 7.01(ix). 26. This Seller Representation was and is material to the Trust, the Certificateholders

and, on information and belief, GCFP when it purchased the Loans from Countrywide. Through this Seller Representation, Countrywide promised that the written information it provided in connection with the sale of the Loans − including the description and documentation of critical Loan data and the underwriting guidelines used to originate the Loans, as well as the documentation in the Mortgage Loan Files − was not false or misleading. Upon information and belief, without this assurance, the Loans would not have been purchased and securitized in the Trust. C. 27. The Mortgage Representations Section 7.02 of the Servicing Agreement contains the Mortgage Representations.

Countrywide made fifty specific representations and warranties including, but not limited to, the following: 10

Compliance with underwriting guidelines [Servicing Agreement § 7.02(xxiii)]: The Mortgage Loans were underwritten generally in accordance with Countrywide’s underwriting standards in effect at the time the mortgage loan was originated or acquired and the underwriting guidelines described in the related purchase price and terms letter. Compliance with law [Servicing Agreement § 7.02(vii)]: Any and all requirements of any federal, state or local law including, without limitation, all applicable predatory and abusive lending, usury, truth in lending, real estate settlement procedures, consumer credit protection, equal credit opportunity or disclosure laws applicable to the Mortgage Loans were complied with. Accuracy of mortgage loan schedule [Servicing Agreement § 7.02(i)]: The information set forth in the mortgage loan schedule, which included the mortgagor’s name, the mortgaged property’s address, the type of residence, the appraisal value, the type of documentation program under which the mortgage was originated, among other information, was complete, true, and correct. Loan file complete [Servicing Agreement § 7.02(xxxix)]: The mortgage note, the mortgage, the assignment of mortgage and any other documents required to be delivered with respect to each Mortgage Loan pursuant to the custodial agreement, had been delivered to the custodian all in compliance with the specific requirements of the custodial agreement. With respect to each Mortgage Loan, Countrywide was in possession of a complete mortgage file in except for such documents as had been delivered to the custodian. Legal and customary origination and servicing practices [Servicing Agreement § 7.02(xx)]: The origination and collection practices used by Countrywide with respect to each mortgage note and mortgage had been in all respects legal, proper, prudent and customary in the mortgage origination and servicing business. Qualified appraisal [Servicing Agreement § 7.02(xxv)]: The mortgage file contained an appraisal of the related mortgage property signed prior to the approval of the Mortgage Loan application by an appraiser which met the minimum Fannie Mae or Freddie Mac requisite qualifications for appraisers, appointed by the originator, who had no interest, direct or indirect, in the mortgaged property or in any loan made on the security thereof, and whose compensation was not affected by the disapproval of the Mortgage Loan. Maximum loan-to-value ratio [Servicing Agreement § 7.02(xxxi)]: No Mortgage Loan had a loan-to-value ratio at origination in excess of 95% or as otherwise set forth in the related purchase price and terms letter. No knowledge of adverse conditions [Servicing Agreement § 7.02(xxx)]: Countrywide had no knowledge of any circumstances or condition with respect to any mortgage, mortgaged property or mortgagor that could reasonably have been

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expected to cause the Mortgage Loan to become delinquent, or adversely affect the value of the Mortgage Loan.  No fraud in origination or servicing [Servicing Agreement § 7.02(xliii)]: No fraud was committed by Countrywide in connection with the origination or servicing of each Mortgage Loan and to the best of Countrywide’s knowledge, no fraud was committed with respect to each Mortgage Loan on the part of the mortgagor or any other person involved in the origination of the Mortgage Loan. 28. The Mortgage Representations were and are material to the Trust, the

Certificateholders and, on information and belief, GCFP when it purchased the Loans from Countrywide. Through the Mortgage Representations, Countrywide promised that its Loans met certain credit quality thresholds that indicated that borrowers would be able to repay their Loans on time and in full, that the Loans were originated in compliance with legal requirements, and that Countrywide had the documentation required to issue the Loans. Upon information and belief, without these assurances, the Loans would not have been purchased and securitized in the Trust, or at the very least, would not have been purchased for the price paid. D. 29. Defendants’ Liability For Breaches of the Seller and Mortgage Representations Reflecting the importance of the Seller and Mortgage Representations, and the

inability of the Trust or Certificateholders to review the Loans prior to securitization, Countrywide accepted the risk that if it failed to abide by its promises, it − not the Trust or Certificateholders − would bear the consequences. 30. In the event that Countrywide breached a Seller Representation in Section 7.01 of

the Servicing Agreement, GCFP, and thus the Trustee, had the unfettered option to demand that Countrywide repurchase “all of the Mortgage Loans . . . at the Repurchase Price.” Servicing Agreement § 7.03. This straightforward remedy reflects (a) the difficulty and burden involved in repairing the damage caused to the Trust from misrepresentations that go to the core of this transaction and involve more than defects in Loans that could be efficiently repurchased on a 12

loan-by-loan basis; and (b) the understanding that not only did the Loans have to conform to the Mortgage Representations, but the documentation provided by Countrywide in connection with the sale and securitization of the Loans had to be true and accurate. 31. In addition to the remedy provided for a breach of the Seller Representation, in

the event that a Loan breaches one of Countrywide’s Mortgage Representations, and that breach “materially and adversely affects the value of one or more of the Mortgage Loans” or “materially and adversely affects the interests of [GCFP] in one or more of the Mortgage Loans,” Section 7.03 of the Servicing Agreement states that Countrywide “shall have a period of ninety (90) days from the earlier of its discovery of a breach or the receipt by [Countrywide] of notice of such a breach within which to correct or cure such breach.” 32. Countrywide further “covenant[ed] and agree[d] that if any such breach cannot be

corrected or cured within” the ninety-day cure period, Countrywide “shall . . . repurchase such Mortgage Loan at the Repurchase Price” (the “Repurchase Obligation”). The “Repurchase Price” at which Countrywide must repurchase the Loan is defined in the Servicing Agreement as a price equal to (i) the stated principal balance of the Mortgage Loan, plus (ii) accrued interest on the stated principal balance at a specified rate, less amounts received or advanced in respect of such repurchased Mortgage Loan being held in a custodial account for distribution in the month of repurchase. 33. To the extent any of the Mortgage Representations were made only “to the best of

[Countrywide’s] knowledge, after reasonable inquiry and investigation,” the Servicing Agreement made clear that Countrywide had to repurchase Loans that breached Mortgage Representations regardless of its knowledge. Section 7.03 states that, in the event of a “best of knowledge” qualifier, “if it is discovered by either [Countrywide] or [GCFP] that the substance

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of such representation and warranty is inaccurate and such inaccuracy materially and adversely affects the value of the related Mortgage Loan, [GCFP, and hence the Trustee] shall be entitled to all the remedies to which it would be entitled for a breach of representation or warranty, including, without limitation, the repurchase requirements contained [in Section 7.03], notwithstanding [Countrywide’s] lack of knowledge with respect to the inaccuracy at the time the representation or warranty was made.” Servicing Agreement § 7.03. 34. “In addition to such repurchase . . . obligation,” Countrywide agreed to

“indemnify [GCFP] and hold it harmless against any losses, damages, penalties, fines, forfeitures, reasonable and necessary legal fees and related costs, judgments, and other costs and expenses resulting from any claim, demand, defense or assertion based on or grounded upon, or resulting from, a breach of [Countrywide’s] representations and warranties contained in this Section 7.” Servicing Agreement § 7.03. Thus, the rights the Trustee was assigned included not only the right to enforce Countrywide’s Seller and Mortgage Representations, but also the right to recover the costs of enforcing those Representations. 35. Section 2.03 of the Pooling Agreement provides that the Trustee shall enforce

Countrywide’s Repurchase Obligation for the benefit of Certificateholders: Upon its discovery or receipt of written notice of any materially defective document in, or that a document is missing from, a Mortgage File or of the breach by the Originator of any representation, warranty or covenant under the [Servicing Agreement] in respect of any Mortgage Loan which materially adversely affects the value of that Mortgage Loan or the interest therein of the Certificateholders, the Trustee shall promptly notify the Originator of such defect, missing document or breach and request that the Originator deliver such missing document or cure such defect or breach within 90 days from the date that the Seller was notified of such missing document, defect or breach, and if the Originator does not deliver such missing document or cure such defect or breach in all material respects during such period, the Trustee shall enforce the Originator’s obligation under the

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[Servicing Agreement] and cause the Originator to repurchase that Mortgage Loan from the Trust Fund at the Repurchase Price (as defined in the Purchase Agreement) on or prior to the Determination Date following the expiration of such 90 day period.1 III. COUNTRYWIDE’S BREACHES OF ITS MORTGAGE REPRESENTATIONS AND SELLER REPRESENTATION. A. 36. Countrywide Ignored Its Mortgage Representations In Its Pursuit Of Profit And Market Share. During the time period in which Countrywide originated the Loans, it completely

ignored its underwriting guidelines. Numerous investigations − including by the Securities & Exchange Commission (“SEC”), state attorneys general, the Financial Crisis Inquiry Commission, and the United States Congress − have exposed Countrywide’s abject failure to abide by the very representations and warranties it consistently made to induce the purchase of its Loans for securitizations, including the purchase of the Loans by the Trust. Internal Countrywide documents recently disclosed as a result of these investigations, as well as deposition testimony of Countrywide executives, confirm that Countrywide has known for years that it breached the Mortgage Representations on a massive scale. 37. In June 2009, the SEC initiated a civil action against Countrywide executives

Angelo Mozilo, David Sambol, and Eric Sieracki. On September 16, 2010, the District Court denied the defendants’ motions for summary judgment. The District Court found that the SEC raised genuine issues of fact as to, among other things, whether the defendants had misrepresented the quality of Countrywide’s underwriting processes: The SEC has presented evidence that these statements regarding the quality of Countrywide’s underwriting guidelines and loan production were misleading in light of Defendants’ failure to
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The repurchase obligation could also have been satisfied by Countrywide substituting a conforming mortgage loan for a defective mortgage loan, but this substitution option was only available to Countrywide until August 31, 2007 − the second anniversary of the August 31, 2005 closing of the Securitization.

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disclose, inter alia, that: (1) As a consequence of Countrywide’s “matching strategy,” Countrywide’s underwriting “guidelines” would end up as a composite of the most aggressive guidelines in the market . . . and (2) Countrywide routinely ignored its official underwriting guidelines, and in practice, Countrywide’s only criterion for approving a loan was whether the loan could be sold into the secondary market. For example, Countrywide’s Chief Risk Officer, John McMurray, explained in his deposition that Countrywide mixed and matched guidelines from various lenders in the industry, which resulted in Countrywide’s guidelines being a composite of the most aggressive guidelines in the industry . . . . SEC has also presented evidence that Countrywide routinely ignored its official underwriting guidelines to such an extent that Countrywide would underwrite any loan it could sell into the secondary mortgage market. According to the evidence presented by the SEC, Countrywide typically made four attempts to approve a loan . . . . According to the testimony of the Managing Director of Countrywide Home Loans’ Secondary Marketing Division, once the loan was referred to Countrywide’s Secondary Markets Structured Lending Desk, the sole criterion used for approving the loan was whether or not the loan could be sold in the secondary market. . . . As a result of this process, a significant portion (typically in excess of 20%) of Countrywide’s loans were issued as exceptions to its official underwriting guidelines . . . . In light of this evidence, a reasonable jury could conclude that Countrywide all but abandoned managing credit risk through its underwriting guidelines[.] S.E.C. v. Mozilo, No. CV 09-3994, 2010 WL 3656068, at *10 (C.D. Cal. Sept. 16, 2010) (emphasis in the original). The Court also found that the SEC presented evidence from which a jury could find Countrywide’s statistics regarding “prime” mortgages to be misleading, based on Countrywide’s internal definition of that term. Id. at *14-15. Mozilo, Sambol, and Sieracki, subsequently settled with the SEC on the eve of trial, agreeing to pay substantial fines. 38. The testimony and documents only recently made available by way of the SEC’s

investigation confirm that Countrywide was systematically abusing “exceptions” and lowdocumentation processes in order to circumvent its own underwriting standards and in order to 16

grow its volume by implementing a “matching” strategy that let it to lead a race to the bottom, finding borrowers who, per the underwriting guidelines, would have never (and should have never) qualified for a loan. A former finance executive at Countrywide explained that: “To the extent more than 5 percent of the [mortgage] market was originating a particular product, any new alternative mortgage product, then Countrywide would originate it . . . . [I]t’s the proverbial race to the bottom.” 39. For instance, the SEC has revealed that, in November 2007, Countrywide

prepared a “lessons learned” analysis. This included key observations from interviews of Countrywide’s employees and culminated in an internal presentation. In this analysis, Countrywide repeatedly admitted that it was singularly focused on market share and its “matching” strategy:   “We were driven by market share, and wouldn’t say ‘no’ (to guideline expansion).” “Competitiveness and aggressiveness are great, and part of our DNA. However, it can lead to arrogance and lack of friends. There are times when our strengths can turn into our weaknesses.” “The strategies that could have avoided the situation were not very appealing at the time. Do not produce risky loans in the first place: This strategy would have hurt our production franchise and reduced earnings.” “Market share, size and dominance were driving themes . . . . Created huge upside in good times, but challenges in today’s environment. Net/net it was probably worth it.” 40. Countrywide also repeatedly admitted that the “matching” strategy led to product

development far outpacing its risk-assessment procedures and misaligned the incentives of its employees:  “With riskier products, you need to be exquisite in off-loading the risk. This puts significant pressure on risk management. Our systems never caught up with the risks, or with the pace of change.” “Risk indicators and internal control systems may not have gotten enough attention in the institutional risk and Board committees.” 17

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“Not enough people had an incentive to manage risk.” “Decentralized and local decision making were another characteristic of our model . . . The downside was fewer risk controls and less focus on risk, as the local decision makers were not directly measured on risk.” “Our wide guidelines were not supported by the proper infrastructure (credit, risk management).” “[W]e did not put meaningful boundaries around the [broad product] strategy, even when our instincts might have suggested that we do so, and we allowed the model to outrun its critical support infrastructure in investment and credit risk management . . . . Our risk management systems were not able to provide enough counterbalance . . . .” “The focus of production was volume and margin, not credit risk. There was also massive emphasis on share.” “Structure and capabilities of Secondary not in-sync with production.” 41. In a recently revealed March 28, 2006 e-mail to Mr. Sambol and others, Mr.

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Mozilo admitted that the problems with loans were caused by “errors of both judgment and protocol.” And in an April 13, 2006 e-mail, Mr. Mozilo wrote to Mr. Sieracki and others that he was concerned that certain subprime loans had been originated “with serious disregard for process [and] compliance with guidelines,” resulting in the delivery of loans “with deficient documentation”: I want Sambol to take all steps necessary to assure that our origination operation “follows guidelines” for every product that we originate. I have personally observed a serious lack of compliance within our origination system as it relates to documentation and generally a deterioration in the quality of loans originated versus the pricing of those loan[s]. In my conversations with Sambol he calls the 100% sub prime seconds as the “milk” of the business. Frankly I consider that product line to be the poison of ours. Obviously as CEO I cannot continue the sanctioning of the origination of this product until such time I can get concrete assurances that we are not facing a continuous catastrophe. Therefore I want a plan of action not only from Sambol but equally from McMurray as to how we can manage this risk going forward.

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42.

In a recently-published June 2006 email chain, which included Countrywide’s

Chief Risk Officer, John McMurray, and Mr. Sambol, Countrywide circulated the results of an internal audit. Among the findings were that “approximately 40% of the Bank’s reduced documentation loans . . . could potentially have income overstated by more than 10% and a significant percent of those loans would have income overstated by 50% or more.” Mr. McMurray admitted that it is “obviously the case” that “perhaps many” of these overstatements were the result of misrepresentations. Another Countrywide Risk Officer, Clifford Rossi, agreed, testifying that “the vast majority” of the overstated income amounts were “likely” due to misrepresentations. 43. According to documents released by the SEC, Countrywide’s Frank Aguilera, a

Managing Director responsible for risk management, reported the “particularly alarming” results of an internal review on June 12, 2006. He reported to others in Countrywide that 23% of the subprime loans at the time were generated as exceptions, even taking into account “all guidelines, published and not published, approved and not yet approved.” Again, this study occurred during the same period in which the Loans were being generated and included in the Trust. 44. In April 2005, a Countrywide Managing Director admitted that the “exception”

policy was not an attempt to deal with “compensating factors” that might justify a deviation from standard underwriting guidelines, but rather was an attempt to “approve all loans submitted . . . which are later determined to be outside [guidelines],” and an attempt to “keep pace with fast changing markets.” 45. Countrywide’s Chief Risk Officer, John McMurray, would later testify to the SEC

that Countrywide’s “matching policy” was a very important part of Countrywide’s “culture of

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obtaining a larger market share”, and that it led to the routine use of “exceptions” in order to issue as many loans as possible. 46. In a February 2007 internal email, a Regional Vice President noted that borrowers

who did not qualify for a loan would be “flip[ped]” into stated-income products. Loan officers would then coach borrowers as to what income they would have to claim in order to qualify. Other former employees have similarly confirmed that Countrywide instructed borrowers regarding how to falsify their low- or no-documentation loan applications in order to circumvent the normal underwriting process. One Countrywide employee estimated that approximately 90% of all reduced-documentation loans sold out of the employee’s Chicago office had inflated incomes. 47. Throughout the period during which Countrywide originated the Loans, it knew it

was failing to follow the underwriting guidelines with which it promised to comply. Countrywide therefore had and has actual knowledge that the Mortgage Representation breaches identified in the re-underwriting review are just the tip of the iceberg. Irrespective of notice from the Trustee, Countrywide has actual knowledge of additional breaches of Mortgage Representations throughout the mortgage pool. The governing documents require the repurchase of any Loan within 90 days of discovery of a breach of a Mortgage Representation that materially and adversely affects the interests of the Trust in such Loan. Despite the knowledge of rampant breaches evident from its public statements and disclosures, Countrywide has failed to repurchase any Loans on its own accord.

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B. 48.

Countrywide’s Failure To Adhere To Its Represented Underwriting Guidelines Severely Damaged The Trust. As of June 20, 2011, there were 2,084 Loans remaining in the mortgage pool. Of

those remaining Loans, 958 Loans − a staggering 46% of the current mortgage pool − have either defaulted or become delinquent for at least sixty days as of June 20, 2011. 49. After observing this severe deterioration in the performance of the Trust, certain

Certificateholders requested to inspect the Mortgage Loan Files for a sample of 786 Loans. Each of the 786 Loans was non-performing − i.e., the borrower was either delinquent in his or her mortgage payments or had already defaulted on the mortgage. A mortgage underwriting consultant was retained to examine the Files for compliance with Countrywide’s Mortgage Representations. 50. The consultant used the same mortgage underwriting guidelines that Countrywide

purportedly used to issue the Loans in the first place. Each Mortgage Loan File was analyzed to confirm the accuracy of legal documents, credit documentation, appraisal analysis, and the underwriting decision as a whole. The review examined the File for any red flags that should have been caught by Countrywide, such as evidence that stated income was unreasonable or that debts were not fully disclosed. The consultant then determined whether there existed a breach of the Mortgage Representations. 51. The results of this investigation are striking, but hardly surprising given

Countrywide’s overall misconduct − Countrywide breached its Mortgage Representations on a massive scale. Of the 786 sampled Loans, 520 Loans − or fully 66% − contained breaches of one or more Mortgage Representations. 52. The Trustee received notice of the breaches of Mortgage Representations based

on the investigation of the re-underwriting consultant. The Trust then promptly notified

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Countrywide in writing of specific breaches of Mortgage Representations in 520 individual Loans. The notices included detailed descriptions of each specific breach, including misrepresentations of income, employment, and debt obligations; breaches of (and defaults under) the Loan documents; failure to comply with applicable law; inaccurate and false loanlevel information provided to the Trust, Certificateholders and the credit rating agencies; debt-toincome ratios that exceeded underwriting program guidelines; loan-to-value ratios and combined loan-to-value ratios that exceeded underwriting program guidelines; and relevant documents that are either defective or missing from the Mortgage Loan Files. Exhibit D summarizes the breaches with respect to each Loan. 53. Misrepresentation of Income: A borrower’s ability to repay a mortgage is quite

obviously driven by his or her income. A key measure of ability to repay is the “debt-to-income ratio” (the “DTI”), or the borrower’s monthly debt obligations compared to his or her monthly income. The higher the DTI (i.e., the greater the percentage of monthly income a borrower must devote to debt payments), the greater the risk of default. Countrywide’s underwriting guidelines set maximum DTIs for borrowers to qualify for particular loan products. Relatedly, a substantial and sudden increase in debt obligations, or “payment shock increase,” is a standard red flag that a borrower will not be able to keep up with mortgage payments. High payment shock increases require an underwriter to closely scrutinize the suitability of a loan for a particular borrower. Income misrepresentations conceal these fundamental considerations and make the Loans far riskier and thus less valuable to the Trust and Certificateholders. The following are a few of many examples of breaches relating to misrepresentation of income.  Loan Number 94075295: A Loan that closed June 2005 with a principal amount of $737,250 was originated under the Reduced Documentation Program. The borrower stated earnings of $16,800 per month as a senior program administrator at a communications company. Despite red flags at origination, there is no evidence in

22

the file that the loan underwriter tested the reasonableness of the borrower’s stated income, particularly given the payment shock increase of 88.27%. Subsequent reunderwriting revealed that the borrower filed Chapter 7 Bankruptcy in October 2007. The Statement of Financial Affairs, filed with the bankruptcy petition, indicated the borrower was self-employed and reported no income for 2005. The borrower’s recalculated DTI based on all evidence uncovered in the forensic review is infinite based on the total lack of any income, and is thus egregiously excessive of the guideline maximum of 38%.  Loan Number 94685093: A Loan that closed July 2005 with a principal amount of $642,000 was originated under the Stated Income/Stated Asset Program. The borrower stated earnings of $15,000 per month as a sales manager at an architectural design company. Despite red flags at origination, there is no evidence in the file that the loan underwriter tested the reasonableness of the borrower’s stated income, particularly given the payment shock increase of 191.6% and multiple consumer debt payment delinquencies. Subsequent re-underwriting verified that the borrower had annual earnings of $99,250, or $8,270.83 a month, for 2005. The borrower’s recalculated DTI based on all evidence uncovered in the forensic review is 54.57%, exceeding the guideline maximum of 38%. Loan Number 103250441: A Loan that closed July 2005 with a principal amount of $675,000 was originated under the Reduced Documentation Program. The borrower stated earnings of $20,000 per month as a fire captain at a municipal fire department. Despite red flags at origination, there is no evidence in the file that the loan underwriter tested the reasonableness of the borrower’s stated income, particularly given the payment shock increase of 246.7%. Subsequent re-underwriting verified that the borrower had annual earnings of $123,758.07, or $10,312.34 a month, for 2005. The borrower’s recalculated DTI based on all evidence uncovered in the forensic review is 71.58%, greatly exceeding the guideline maximum of 38%. Loan Number 93265626: A Loan that closed June 2005 with a principal amount of $513,000 was originated under the Reduced Documentation Program. The borrower stated earnings of $9,200 per month as a district manager at a cellular telephone retail company. Despite red flags at origination, there is no evidence in the file that the loan underwriter tested the reasonableness of the borrower’s stated income. Support that the borrower’s income was overstated included that the borrower held only $13,150.44 of cash assets, or just over one month of stated income, in reserve. Additionally, the borrower’s average deposits with Wells Fargo and Bank of America did not support the stated monthly income. Subsequent re-underwriting revealed that the borrower filed Chapter 7 Bankruptcy in February 2008. Schedule I, filed with the bankruptcy petition, indicated the borrower worked for a hotel company in housekeeping for 2005. Furthermore, the Statement of Financial Affairs, also filed with the bankruptcy petition, indicated the borrower’s actual annual income was only $23,859.41 for 2006. The borrower’s 2005 income was not disclosed, but the bankruptcy petition indicated the borrower retained the same employment in 2005 and 2006. The borrower’s recalculated DTI based on all evidence uncovered in the forensic review is 166.59%, egregiously exceeding the guideline maximum of 38%. 23

54.

Misrepresentation of Debt Obligations: Proper review of a borrower’s existing

debt obligations is similarly a key component of loan underwriting. Like income, a borrower’s existing debt impacts DTI. Misrepresentations of debt obligations have material and adverse effects on the value of a loan to the Trust and Certificateholders as well as their interest therein, exponentially increasing the credit risk inherent in the loan. The following are a few of many examples of breaches relating to misrepresentation of debt obligations.  Loan Number 91328917: A Loan that closed March 2005 with a principal amount of $650,000 was originated under the Reduced Documentation Program. The loan underwriter approved the loan with a 37.22% DTI. The borrower failed to disclose all of the properties he owned or was in the process of acquiring at the time of origination. Despite red flags at origination, there is no evidence in the file that the loan underwriting process addressed the additional properties and debt. Support that additional debt existed included a credit report in the Mortgage Loan File containing multiple recent inquiries. Credit inquiries are generally a sign that the borrower was pursuing other loans. Subsequent re-underwriting revealed that just two months prior to the subject loan’s close, the borrower financed another property with liens totaling $1,115,000. Additionally, a LexisNexis phone lookup report confirmed the borrower occupied the undisclosed property. The borrower’s recalculated DTI based on all evidence uncovered in the forensic review was 69.81%, greatly exceeding the guideline maximum of 38%. Loan Number 92016901: A Loan that closed April 2005 with a principal amount of $535,800 was originated under the Full Income Documentation Program. The loan underwriter approved the loan with a 38.19% DTI (already in excess of the guideline maximum of 38%). The borrower failed to disclose all of the properties he owned or was in the process of acquiring at the time of origination. Despite red flags at origination, there is no evidence in the file that the loan underwriting process addressed the additional properties and debt. Support that additional debt existed included a credit report in the Mortgage Loan File reflecting another address as recently as September 2004, multiple recent credit inquiries and the borrower’s 2004 tax returns reflecting the other address. All items on the credit report went unquestioned and the other address was not the same as the borrower’s listed departing address. Subsequent re-underwriting revealed that nine months prior to the subject loan’s close, the borrower purchased another property with a $300,000 mortgage. The borrower’s recalculated DTI based on the evidence uncovered in the forensic review was 47.75%, further exceeding the guideline maximum of 38%. Loan Number 109170216: A Loan that closed July 2005 with a principal amount of $520,000 was originated under the Reduced Documentation Program. The loan underwriter approved the loan with a 42.52% DTI (already in excess of the guideline maximum of 38%). The borrower failed to disclose all of the properties he owned or 24

was in the process of acquiring at the time of origination. Despite red flags at origination, there is no evidence in the file that the loan underwriting process addressed the additional properties and debt. Support that additional debt existed included a previous address listed on the loan application with no disclosure as to whether this previous address had been owned or rented. Subsequent re-underwriting revealed that thirteen months prior to the subject loan’s close, the borrower financed another property with a $2,750,000 mortgage. The borrower’s recalculated DTI based on all evidence uncovered in the forensic review was 126.83%, further exceeding the guideline maximum of 38%.  Loan Number 111581863: A Loan that closed July 2005 with a principal amount of $408,750 was originated under the Reduced Documentation Program. The loan underwriter approved the loan with a 8.78% DTI. The borrower failed to disclose all of the properties he owned or was in the process of acquiring at the time of origination. Despite red flags at origination, there is no evidence in the file that the loan underwriting process addressed the additional properties and debt. Support that additional debt existed included a credit report in the Mortgage Loan File containing multiple recent inquiries. These were not questioned. Subsequent re-underwriting revealed that the borrower refinanced two additional properties just two months prior to the subject loan’s close. In May and June 2005, the borrower refinanced, through Countrywide, one property with liens totaling $383,950. In May 2005, the borrower refinanced another property for $247,500. The borrower’s recalculated DTI based on all evidence uncovered in the forensic review was 113.65%, egregiously exceeding the guideline maximum of 38%. 55. Misrepresentation of Employment: The following are a few of many examples

of breaches relating to misrepresentation of employment.  Loan Number 109413803: A Loan that closed July 2005 with a principal amount of $288,000 was originated under the Reduced Documentation Program. The borrower claimed to be employed as a registered nurse at a municipal hospital and stated monthly earnings of $8,000. Subsequent re-underwriting verified that the borrower had misrepresented her employment title. A records search of the state department of health professionals and LexisNexis indicated the borrower did not become licensed as a registered nurse until July 2010, five years after the loan originated. At the time of the loan, the borrower was a licensed practical nurse. The borrower filed Chapter 7 Bankruptcy in October 2008. The Statement of Financial Affairs, filed with the bankruptcy petition, indicated the borrower had annual earnings of $45,000, or $3,750 a month, for 2006. The borrower’s employment title was misrepresented in violation of the applicable underwriting guidelines. In addition, the borrower’s recalculated DTI based on all evidence uncovered in the forensic review is 80.03%, greatly exceeding the guideline maximum of 38%. Loan Number 97270316: A Loan that closed April 2005 with a principal amount of $255,000 was originated under the Reduced Documentation Program. The coborrowers claimed to have been employed as managers at a manufacturer of 25

construction materials. Subsequent re-underwriting revealed that one of the borrowers was actually the owner, not a wage earner, of the company. The coborrower was thus employed by a family member. The applicable underwriting guidelines require that self-employment be verified by a valid business license or a neutral third party, such as a professional organization. Employment by a family member must be verified by the last two years signed federal income tax returns and a completed verification of employment form. None of these forms of verification were obtained. The borrowers’ employment was misrepresented in violation of the applicable underwriting guidelines.  Loan Number 92008396: A Loan that closed April 2005 with a principal amount of $1,300,000 was originated under the Reduced Documentation Program. The borrower claimed to be self-employed as the owner of a chiropractic center and stated monthly earnings of $31,500. The applicable underwriting guidelines require that self-employment be verified by a valid business license or a neutral third party, such as a professional organization. Despite red flags at origination, there is no evidence in the file that the loan underwriting process obtained these forms of verification. Support that the borrower was not the owner of the business included a letter from the borrower’s accountant that failed to verify that the borrower owned the business. In addition, it was imprudent of the underwriter to accept a stated income of $31,500, which is much greater than the $20,631.25 per month identified as the 90th percentile income level for a chiropractor in Newport Beach, CA, according to Salary.com. Subsequent re-underwriting revealed that the borrower’s husband and another individual were actually the owners of the business. The borrowers’ employment was misrepresented in violation of the applicable underwriting guidelines. 56. LTV or CLTV Ratios Exceed Program Guidelines: LTV reflects the

percentage of a property’s appraised value that a borrower owns. For example, an 80% LTV means that the mortgage equals 80% of the property’s value, and the borrower owns the remaining 20%. That 20% equity provides the borrower with an important incentive not to default (and potentially lose the equity in the property) and also acts as a cushion in the event a borrower is unable to pay. CLTV reflects similar credit risk concerns, but combines the amount of any other liens on the subject property. Countrywide’s underwriting guidelines provide for maximum LTV and CLTV ratios for particular loan products, and Countrywide made specific Mortgage Representations regarding the LTVs and CLTVs of the Loans. The following are a few of many examples of breaches relating to excessive loan-to-value (“LTV”) or combined loan-to-value (“CLTV”) ratios, which violated Countrywide’s underwriting guidelines. 26

Loan Number 94667771: A Loan that closed July 2005 with a principal amount of $636,000 was originated under the Reduced Documentation Program. The loan underwriter approved the loan with an 80 percent LTV ratio and a 90 percent CLTV ratio. Under the applicable underwriting guidelines, the CLTV ratio was to be calculated utilizing the lesser of the appraised value or purchase price plus documented home improvements, in the case of a mortgaged property purchased within one year of the origination of the related loan. The subject property was purchased in September 2004, which was within eleven months preceding the subject loan. The appraised value of $795,000 was incorrectly used to calculate the CLTV ratio. Utilizing the purchase price of $719,000, the actual LTV ratio was 88.46 percent and the actual CLTV ratio was 99.51 percent, exceeding the guideline maximums of 80 percent and 90 percent, respectively. Loan Number 100010705: A Loan that closed May 2005 with a principal amount of $1,500,000 was originated under the Reduced Documentation Program. The loan underwriter approved the loan with an 80 percent LTV ratio and a 90 percent CLTV ratio. Under the applicable underwriting guidelines, the CLTV ratio was to be calculated utilizing the lesser of the appraised value or purchase price plus documented home improvements, in the case of a mortgaged property purchased within one year of the origination of the related loan. The subject property was purchased in December 2004, which was within five months preceding the subject loan. The appraised value of $1,875,000 was incorrectly used to calculate the LTV and CLTV ratios. Utilizing the purchase price of $1,671,000, the actual LTV ratio was 89.77 percent and the actual CLTV ratio was 100.99 percent, thus violating the applicable underwriting guidelines. Loan Number 100027499: A Loan that closed April 2005 with a principal amount of $608,000 was originated under the Reduced Documentation Program. The loan underwriter approved the loan with an 80 percent LTV ratio and a 90 percent CLTV ratio. Under the applicable underwriting guidelines, the CLTV ratio was to be calculated utilizing the lesser of the appraised value or purchase price plus documented home improvements, in the case of a mortgaged property purchased within one year of the origination of the related loan. The subject property was purchased in June 2004, which was within nine months preceding the subject loan. The appraised value of $760,000 was incorrectly used to calculate the LTV and CLTV ratios. Utilizing the purchase price of $639,000, the actual LTV ratio was 95.15 percent and the actual CLTV ratio was 107.04 percent, thus violating the applicable underwriting guidelines. 57. Missing Documents: The following are a few of many breaches relating to

documents omitted from the Mortgage Loan Files.  Loan Number 94667771: A Loan that closed July 2005 with a principal amount of $636,000 was originated under the Reduced Documentation Program. In addition to lending funds to a borrower who misrepresented his income and failing to properly calculate the subject loan’s LTV under the applicable underwriting guidelines, the 27

lender also failed to include a HUD-1 form, which is required under applicable laws and regulations.  Loan Number 109465801: A Loan that closed July 2005 with a principal amount of $880,000 was originated under the Full Income Documentation Program. In addition to lending funds to a borrower with multiple undisclosed debts and failing to verify the borrower’s occupancy status, the lender also failed to include a copy of the fully executed second mortgage note, which is required to determine loan program compliance for CLTV ratio. Loan Number 100025330: A Loan that closed April 2005 with a principal amount of $372,000 was originated under the Reduced Documentation Program. In addition to making a loan that exceeded the applicable LTV and CLTV ratios without citing proper compensating factors and violating numerous other provisions of the applicable underwriting guidelines, the lender failed to include a subject property appraisal justifying the LTV/CLTV exceptions, a lien note, a HUD-1 settlement statement, the final title insurance policy, and a final Countrywide Loan Underwriting Expert System (CLUES) report. The Mortgage Loan File cannot be properly reunderwritten without these documents. 58. The aforementioned breaches of the Mortgage Representations have a material,

adverse effect on the value of the Loans and the interests therein of the Certificateholders. The breaches identified thus far, only a few of many in the Loans in the mortgage pool, are severe and widespread. They demonstrate Countrywide’s large scale failure to abide by its underwriting guidelines. C. 59. Countrywide Breached The Seller Representation. In addition to re-underwriting the Loans for conformance with the Mortgage

Representation, the mortgage underwriting consultant analyzed whether the documents in the Mortgage Loan File contained material misrepresentations. The consultant’s analysis, supplemented by additional documents provided by Countrywide during discovery, has revealed that numerous written statements and documents prepared and furnished by Countrywide in connection with the sale and securitization of the Loans – such as the Prospectus Supplement, the documents in the Mortgage Loan Files, and the Officer’s Certificate – are rife with material misrepresentations, misstatements and omissions. 28

60.

In particular, the Prospectus Supplement contained, among other things,

disclosures regarding the characteristics of the Loans, Countrywide’s general origination practices, and the origination practices pertaining to the Loans. For example, Countrywide represented in the Prospectus Supplement that:  All of the mortgage loans originated or acquired by Countrywide have been originated or acquired in accordance with its credit, appraisal and underwriting standards. (Prospectus Supplement at S-48) Countrywide’s underwriting standards are applied by or on behalf of Countrywide to evaluate the prospective borrower’s credit standing and repayment ability and the value and adequacy of the mortgaged property as collateral. Under those standards, a prospective borrower must generally demonstrate that the ratio of the borrower’s monthly housing expenses (including principal and interest on the proposed mortgage loan and, as applicable, the related monthly portion of property taxes, hazard insurance and mortgage insurance) to the borrower’s monthly gross income and the ratio of total monthly debt to the monthly gross income (the “debt-to-income” ratios) are within acceptable limits. (Id. at S-49) Exceptions to Countrywide’s underwriting guidelines may be made if compensating factors are demonstrated by a prospective borrower. (Id.) 61. The Prospectus Supplement also contained representations regarding the Loans’

occupancy status (see id., S-27; S-46 – S-47) and LTV ratios (see id., S-28). By including these and other representations in the Prospectus Supplement, which was circulated to investors and credit ratings agencies, and making the correspondent Seller Representation, Countrywide provided additional comfort about the truth and accuracy of the information it provided for the HVMLT 2005-10 securitization. 62. The consultant’s analysis, as well as ongoing discovery in this action, has

revealed that Countrywide’s disclosures in the Prospectus Supplement contained false and misleading information. Contrary to Countrywide’s representations, the Loans were not originated in accordance with the stated underwriting guidelines; their true DTI (i.e., debt-toincome) and LTV ratios were not within acceptable limits; exceptions to underwriting guidelines

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were made without explanations or compensating factors; and the underlying properties were frequently used as investment properties instead of being occupied by the borrower. 63. In addition, the consultant discovered that the residential loan applications in the

Mortgage Loan Files contained extensive misrepresentations of borrowers’ income and employment data, as well as the occupancy status of the underlying property. For example:  Loan No. 102007462: The loan application initially stated the monthly incomes of the borrower and co-borrower as $8,620 and $6,250, respectively. However, these figures were subsequently crossed out and rewritten by hand as $3,500 for the borrower and $4,000 for the co-borrower. The file included the following internal Countrywide note confirming that the application was false: “Incomes used for borrowers are unrealistic. Lower them to $3500[] for borrower and $4000[] for [coborrower]”. Loan No. 102360277: The borrower submitted two loan applications. The first application, dated in April, represented his income as $20,000 per month. The second application, dated in May, less than one month later, stated that his income at the same position as $47,830 per month. Further, a May letter from the borrower’s lawyer stated that the borrower’s monthly income for each of the four months preceding his second application was $15,168.65, $16,174.50, $11,443.15, and $11,480.40, respectively. Nevertheless, Countrywide closed the Loan using the unsubstantiated $47,830 figure. Loan No. 102172625: The application for a refinancing represented the property as owner-occupied, i.e., occupied by the borrower. However, other documents in the Mortgage Loan File, such as the borrower’s credit report, copies of bills, and proof of insurance indicated that the borrower’s home was located at a different address. Loan Nos. 110539448 & 110539472: The applications for these two unrelated Loans − which were closed separately, but on the same date, for the same borrowers, by the same underwriter, at the same Countrywide location − represented that the borrowers did not have any other outstanding debt obligations. However, each of the application omitted information regarding the existence of the other Loan. The applications also failed to disclose another three pre-existing Loans disbursed to the same borrowers by Countrywide. 64. Countrywide also made misrepresentations in the Officer’s Certificate that it

provided in connection with the Loans’ sale. The Officer’s Certificate, a form of which is attached as Exhibit 1 to the Servicing Agreement, was “signed by the Chairman of the Board or the Vice Chairman of the Board or a President or a Vice President and by the Treasurer or the 30

Secretary or one of the Assistant Treasurers or Assistant Secretaries of [Countrywide], and delivered to the Purchaser.” (Servicing Agreement § 1.01 (Officer’s Certificate); Ex. 1) Among other things, the Officer’s Certificate stated that “[a]ll of the representations and warranties of [Countrywide] contained in Subsections 7.01 and 7.02 of the [Servicing] Agreement were true and correct in all material respects as of the date of the [Servicing] Agreement and are true and correct in all material respects as of the date hereof.” (Id., Ex. 1) As discussed above, this representation was false because the Mortgage Representations in Section 7.02 of the Servicing Agreement were not true and correct in all material respects. 65. The Seller Representation was critical because the HVMLT 2005-10

securitization was based in large part on the veracity of Countrywide’s documents. Indeed, Countrywide agreed that the Trustee was not obligated to re-underwrite the Mortgage Loans or verify that the documents furnished by Countrywide were true and correct:  The fact that the Purchaser or its designee has conducted or has failed to conduct any partial or complete examination of the Mortgage Files shall not affect the Purchaser’s (or any of its successor’s) rights to demand repurchase, substitution or other relief as provided herein. (Servicing Agreement § 5) It is understood and agreed that the representations and warranties set forth in Subsections 7.01 and 7.02 shall survive the sale of the Mortgage Loans to the Purchaser and shall inure to the benefit of the Purchaser, notwithstanding . . . the examination or failure to examine any Mortgage File. (Servicing Agreement § 7.03) It is herein acknowledged that, in conducting [its] review, the Trustee and the Custodian on its behalf are under no duty or obligation to inspect, review or examine any [Mortgage Loan File] documents, instruments, certificates or other papers to determine that they are genuine, enforceable, or appropriate for the represented purpose or that they have actually been recorded or that they are other than what they purport to be on their face. (Pooling Agreement § 2.02) 66. By making the Seller Representation in Section 7.01, Countrywide provided

additional comfort that each of its statements and documents were true and correct and not misleading. Rating agencies, investors, and, on information and belief, GCFP relied on the

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various written statements, reports, and documents prepared and furnished by Countrywide to assess the risks and value of the Loans and the Certificates. These documents ranged from the Prospectus Supplement, the Mortgage Loan Schedule, and the Information Diskette which disclosed material information regarding the Loans, to the Officer’s Certificate which personally assured investors of the truth and accuracy of Loan information, to the Mortgage Loan Files which enabled Certificateholders to subsequently verify this information in case a problem developed. 67. Countrywide’s wholesale failure to comply with its underwriting guidelines and

its Mortgage Representations − as reflected by the results of the forensic review of the Loans and continued discovery in this action − provides clear evidence of numerous misrepresentations and material omissions throughout the written statements and documents prepared and furnished by Countrywide in connection with the sale of the Loans. In turn, the presence of these untrue statements and omissions of material fact is a breach of Countrywide’s Seller Representation and entitles the Trustee to demand that Countrywide repurchase all of the Loans in the Trust. IV. COUNTRYWIDE’S WRONGFUL REFUSAL TO COMPLY WITH ITS REPURCHASE OBLIGATIONS. 68. The Trustee promptly sought to enforce Countrywide’s Repurchase Obligation as

it received notice of the substantial breaches of Mortgage Representations. By letter dated May 2, 2011 (the “May 2 Breach Notice”), the Trustee gave notice to Countrywide of 58 Loans with an aggregate principal balance of $42,977,128 that contained breaches of the Mortgage Representations that had a material adverse effect on the value of the Loans or the interest therein of Certificateholders. The May 2 Notice attached a report detailing the numerous breaches of Mortgage Representations with respect to each of the identified Loans. Pursuant to Section 7.03 of the Servicing Agreement and Section 2.03 of the Pooling Agreement, the Trustee

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demanded that Countrywide either cure the defects or repurchase the Loans within ninety days of the Trustee’s notice. 69. The Trustee continued to make repurchase demands on Countrywide as it

discovered Mortgage Representation breaches with respect to additional Loans. In each case, the Trustee detailed specific breaches with respect to each loan. Repurchase demands were sent on the following dates:  On May 12, 2011, for 92 Loans with an aggregate principal balance of $37,032,706 (the “May 12 Breach Notice”). The ninety-day cure period with respect to these Loans expired on August 10, 2011. On May 19, 2011, for 36 Loans with an aggregate principal balance of $11,193,790 (the “May 19 Breach Notice”). The ninety-day cure period with respect to these Loans expired on August 17, 2011. On May 25, 2011, for 30 Loans with an aggregate principal balance of $8,049,314 (the “May 25 Breach Notice”). The ninety-day cure period with respect to these Loans expired on August 23, 2011. On June 2, 2011, for 32 Loans with an aggregate principal balance of $7,656,642 (the “June 2 Breach Notice”). The ninety-day cure period with respect to these Loans expired on August 31, 2011. On June 16, 2011, for 65 Loans with an aggregate principal balance of $18,306,891 (the “June 16 Breach Notice”). The ninety-day cure period with respect to these Loans expired on September 14, 2011. On August 4, 2011, for 163 Loans with an aggregate principal balance of $20,445,820 (the “August 4 Breach Notice”). The ninety-day cure period with respect to these Loans expired on November 2, 2011. On August 19, 2011, for 44 Loans with an aggregate principal balance of $11,854,697 (the “August 19 Breach Notice”). The ninety-day cure period with respect to these Loans expired on November 17, 2011.

The notices described in this Paragraph, together with the May 2 Breach Notice, are collectively referred to as the “Breach Notices.”

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70.

To date, Countrywide has refused to repurchase 495 out of the 520 Loans

identified through the Breach Notices and has failed to provide any explanation for this failure despite repeated requests from the Trustee. 71. Countrywide’s pattern and practice of refusing to abide by its unambiguous

obligation to repurchase individual defective Loans is clear evidence that it will continue to do so when the ninety-day cure period expires for further Loans with breaches that may be discovered in the future. 72. In addition, the written documentation that Countrywide prepared and furnished

in connection with the sale of the Loans to GCFP and ultimately, the Trust are replete with untrue statements and omissions of material fact that trigger a breach of Countrywide’s Seller Representation. There is no method by which Countrywide could cure these extensive misrepresentations. 73. On August 29, 2011, through its complaint, the Trustee provided notice to

Countrywide that it was exercising its right pursuant to Section 7.03 of the Servicing Agreement and Section 2.03 of the Pooling Agreement to require Countrywide, within ninety days of receipt, to repurchase all of the Loans in the mortgage pool. To date, well after the expiration of the ninety-day cure period, Countrywide has failed to repurchase all of the Loans. V. LIABILITY OF BANK OF AMERICA AS SUCCESSOR TO COUNTRYWIDE. 74. On January 11, 2008, Bank of America announced that it would purchase

Countrywide for approximately $4.1 billion. Based upon the steps taken to consummate this transaction, Bank of America and Countrywide engaged in a de facto merger and Bank of America became the successor-in-interest to Countrywide and its affiliated entities because (a) there was continuity of ownership between Bank of America and Countrywide, (b) Countrywide ceased ordinary business soon after the transaction was consummated, (c) there 34

was continuity of management, personnel, physical location, assets and general business operations between Bank of America and Countrywide, (d) Bank of America assumed the liabilities ordinarily necessary for the uninterrupted continuation of Countrywide’s business, and (e) Bank of America assumed Countrywide’s tort and mortgage repurchase liability. Bank of America also became the successor in interest to Countrywide because the transaction, which was not an arm’s length transaction and which gave inadequate consideration to Countrywide, was structured in such a way as to leave Countrywide unable to satisfy its massive contingent liabilities. A. 75. The Structure of the Transaction Bank of America Corp.’s Form 8-K, dated January 11, 2008, states that under the

terms of the merger “shareholders of Countrywide receive[d] .1822 of a share of Bank of America Corporation’s stock in exchange for each share of Countrywide.” In other words, former Countrywide shareholders became Bank of America shareholders. 76. On July 1, 2008, a subsidiary of Bank of America completed the merger with

Countrywide Financial, the parent of all of the Countrywide entities. Bank of America’s Form 10-Q for the period ending September 30, 2009, reported that “On July 1, 2008, the Corporation [i.e. Bank of America Corp.] acquired Countrywide through its merger with a subsidiary of the Corporation . . . . The acquisition of Countrywide significantly expanded the Corporation’s mortgage originating and servicing capabilities, making it a leading mortgage originator and servicer.” According to the 10-Q, “Countrywide’s results of operations were included in the Corporation’s results beginning July 1, 2008.” The Form 10-Q also acknowledged pending litigation against the Countrywide entities. 77. Following this initial transaction and over the course of the next few months,

Bank of America planned to and did enter into several additional transactions with Countrywide 35

and its various subsidiaries, which Bank of America then controlled. These transactions were designed both to integrate Countrywide’s operations with Bank of America’s and to leave Countrywide without any source of income and with insufficient assets to cover its massive contingent liabilities arising from Countrywide’s mortgage origination, securitization, and servicing practices. Moreover, these transactions were not negotiated at arm’s length since after July 1, 2008, Bank of America owned Countrywide. 78. In particular, on July 2, 2008, Countrywide Home Loans, a subsidiary of

Countrywide Financial (controlled by Bank of America as of this date), completed the sale of some or substantially all of its assets to NB Holdings Corporation, another wholly-owned subsidiary of Bank of America. Specifically, Countrywide Home Loans sold NB Holdings its membership interests in Countrywide GP, LLC and Countrywide LP, LLC, whose sole assets were equity interests in Countrywide Home Loans Servicing LP, in exchange for an approximately $19.7 billion promissory note. Countrywide Home Loans Servicing LP was the operating entity which serviced the vast majority of residential mortgage loans for Countrywide Financial and was an operating business. Countrywide Home Loans also sold a pool of residential mortgages to NB Holdings Corporation for approximately $9.4 billion. NB Holdings Corporation is Countrywide Home Loan’s successor. 79. On November 7, 2008, after obtaining the necessary consents and approvals, two

additional transactions facilitated the completion of Bank of America’s merger with Countrywide. First, in exchange for approximately $1.76 billion, Countrywide Home Loans sold Bank of America substantially all of its remaining assets. Second, in exchange for promissory notes of approximately $3.6 billion Bank of America acquired 100% of Countrywide’s equity interest in various subsidiaries, including Countrywide Bank, FSB. In connection with this

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transaction, Bank of America also assumed approximately $16.6 billion of Countrywide’s public debt and related guarantees. These two transactions completed Bank of America’s transfer of substantially all of the operating and income generating assets of Countrywide Financial out of the Countrywide entities. In February of 2009 Countrywide Bank, FSB filed an application to become a National Association, and in April of 2009, Countrywide Bank, NA was merged into Bank of America. As a result of this merger, Bank of America assumed all of the liabilities of Countrywide Bank, NA. 80. At the time of the November 2008 transactions, Countrywide Bank, FSB was the

largest Countrywide Financial subsidiary. Countrywide Financial’s 2007 10-K revealed that “as of December 31, 2007, over 90% of [Countrywide Financial’s] monthly mortgage loan production occurred in Countrywide Bank” and that as of January 1, 2008 Countrywide Financial’s “production channels ha[d] moved into the Bank, completing the migration of substantially all of [Countrywide Financial’s] loan production activities from [Countrywide Home Loans] to the Bank.” By transferring to itself Countrywide Bank, FSB, along with substantially all of the assets of Countrywide Home Loans, Bank of America left the remaining Countrywide entities with only illiquid assets, no ongoing business, no ability to generate revenue, and insufficient assets to satisfy its contingent liabilities. This conclusion is echoed by Bruce Bingham (who prepared a report on behalf of Bank of New York Mellon (“BoNY”), trustee for Countrywide-issued RMBS, attempting to value Countrywide Financial) who found that Countrywide Financial “has negative earnings”, “minimal operating revenues”, “does not originate, securitize, or service real estate loans” and “has no operations that by themselves are economically viable on a go-forward basis.” (June 6, 2011 Bingham Opinion, p. 7).2

2

This report was prepared in connection with the proposed settlement of repurchase claims between Countrywide, Bank of America and BoNY, as trustee for over 500 mortgage-backed securitization trusts sponsored by

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81.

The transactions between Countrywide and Bank of America were intentionally

structured so that Countrywide’s massive contingent liabilities relating to its mortgage origination, securitization, and servicing practices, including Countrywide Home Loans, remained with Countrywide while all of its assets and businesses that generated revenue were sold to Bank of America, thus leaving Countrywide unable to satisfy these liabilities. Not only did Bank of America control the Countrywide entities at the time these transactions were entered into, but Bank of America also did not provide adequate consideration for the assets it received from Countrywide Financial. In other words, in a self dealing transaction, and in exchange for inadequate consideration, Bank of America intentionally rendered Countrywide Financial and its affiliated entities, including Countrywide Home Loans, insolvent and unable to satisfy its creditors. Moreover, Bank of America was fully aware of Countrywide Financial’s contingent liabilities, and acknowledged responsibility for these liabilities, when it transferred these assets out of Countrywide. For example, in an interview published on February 22, 2008 in the legal publication Corporate Counsel, a Bank of America spokesperson acknowledged Countrywide’s liabilities: Handling all this litigation won’t be cheap, even for Bank of America, the soon-to-be largest mortgage lender in the country. Nevertheless, the banking giant says that Countrywide’s legal expenses were not overlooked during negotiations. ‘We bought the company and all of its assets and liabilities,’ spokesman Scott Silvestri says. ‘We are aware of the claims and potential claims against the company and have factored these into the purchase.’ 82. One significant entity that Bank of America did not acquire was Countrywide

Securities Corp., which acted as Countrywide Financial’s broker-dealer and underwriter. However, on October 29, 2008, just before the November transactions, this entity withdrew its
Countrywide-affiliated entities. An Article 77 proceeding in which BoNY is seeking court approval of the settlement is pending in this Court.

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registration as a broker dealer from FINRA. Without this registration, Countrywide Securities was unable to continue in the business it had primarily been engaged in (securities dealing and underwriting) and so as of October 29, 2008, Countrywide Securities effectively ceased doing business. This is yet more evidence that Countrywide is no longer engaged in revenue producing activities. B. 83. The Actual Consolidation of Bank of America and Countrywide On April 27, 2009, Bank of America rebranded Countrywide Home Loans as

“Bank of America Home Loans.” Many former Countrywide locations, employees, assets, and business operations now continue under the Bank of America Home Loans brand. On the Form 10-K submitted by Bank of America on February 26, 2010, both Countrywide Capital Markets, LLC and Countrywide Securities Corporation were listed as Bank of America subsidiaries. 84. Countrywide’s former website now redirects to the Bank of America website.

Bank of America has assumed Countrywide’s liabilities, having paid to resolve other litigation arising from misconduct such as predatory lending allegedly committed by Countrywide. 85. As is customary in large corporate mergers, at least some of the Countrywide

entities retained their pre-merger corporate names following their merger with Bank of America. However, Countrywide’s operations are fully consolidated into Bank of America’s and the Countrywide entities have lost any independent identity they have maintained following the merger. On April 27, 2009, Bank of America announced in a press release that “[t]he Countrywide brand has been retired.” Bank of America announced that it would operate its home loan and mortgage business through a new division named Bank of America Home Loans, which “represents the combined operations of Bank of America’s mortgage and home equity business and Countrywide Home Loans.” Bank of America Press Release, “Bank of America Responds to Consumer Desire for Increased Transparency” (April 27, 2009). 39

86.

The press release made clear that Bank of America planned to complete its

integration of Countrywide and its affiliated entities into Bank of America “later this year.” The press release explained that Bank of America was in the process of rebranding former Countrywide “locations, account statements, marketing materials and advertising” as Bank of America Home Loans, and stated that “the full systems conversion” to Bank of America Home Loans would occur later in 2009. “Bank of America Home Loans” is thus a direct continuation of Countrywide’s operations; Bank of America has represented that Bank of America Home Loans is a “trade name” rather than a separate legal entity. 87. As of September 21, 2009, former Countrywide’s bank deposit accounts were

reportedly converted to Bank of America accounts. And on November 9, 2009, online account services for Countrywide mortgages were reportedly transferred to Bank of America’s Online Banking website. According to press reports, Bank of America Home Loans will operate out of Countrywide’s offices in Calabasas, California with substantially the same employees as the former Countrywide entities. 88. The Bank of America website announced that the companies merged and the

now-discontinued Countrywide website previously redirected inquiries about the merger to the Bank of America webpage regarding the merger. Bank of America noted on its website that it was “combining the valuable resources and extensive product lines of both companies.” 89. Under the “Merger History” tab of Bank of America’s website, Countrywide was

included among the list of companies Bank of America has acquired. Under the “Time Line” tab, the website stated that Bank of America “became the largest consumer mortgage lender in the country” following its acquisition of Countrywide in 2008. Lastly, under the “Our Heritage” tab, the website stated that the acquisition of Countrywide “resulted in the launch of Bank of

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America Home Loans in 2009, making the bank the nation’s leading mortgage originator and servicer.” The Countrywide logo appeared on the page. 90. Mortgage contracts and legal documents state that BAC Home Loans Servicing,

LP is the entity “formerly known as” Countrywide Home Loans Servicing, a Countrywide Financial subsidiary, which clearly shows that BAC Home Loans Servicing, LP is the direct successor to Countrywide Home Loans Servicing, since it is a mere continuation of Countrywide’s servicing business. 91. Bank of America has described the transaction through which it acquired

Countrywide and its subsidiaries as a merger and made clear that it intended to integrate Countrywide and its subsidiaries into Bank of America fully by the end of 2009. 92. For example, in a July 2008 Bank of America press release, Barbara Desoer,

identified as the head of the “combined mortgage, home equity and insurance businesses” of Bank of America and Countrywide Financial, said: “Now we begin to combine the two companies and prepare to introduce our new name and way of operating.” The press release stated that the bank “anticipates substantial cost savings from combining the two companies. Cost reductions will come from a range of sources, including the elimination of positions announced last week, and the reduction of overlapping technology, vendor and marketing expenses. In addition, [Countrywide] is expected to benefit by leveraging its broad product set to deepen relationships with existing Countrywide customers.” 93. Desoer was also interviewed for the May 2009 issue of Housing Wire magazine.

The article reported that: While the move to shutter the Countrywide name is essentially complete, the operational effort to integrate across two completely distinct lending and service systems is just getting under way. One of the assets [Bank of America] acquired with Countrywide was a

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vast technology platform for originating and servicing loans, and Desoer says that the bank will be migrating some aspects of [Bank of America’s] mortgage operations over to Countrywide’s platforms. “Q&A with BofA Mortgage Chief Barbara Desoer,” Housing Wire Magazine (May 2009). 94. Desoer was also quoted as saying: “We’re done with defining the target, and

we’re in the middle of doing the development work to prepare us to be able to do the conversion of the part of the portfolio going to the legacy Countrywide platforms.” Desoer explained that the conversion would happen in the “late fall” of 2009, and that the integration of the Countrywide and Bank of America platforms was a critical goal. 95. After the integration had further progressed, Desoer stated in the October 2009

issue of Mortgage Banking that “the first year is a good story in terms of the two companies [coming] together and meeting all the major [goals and] milestones that we had set for ourselves for how we would work to integrate the companies.” Robert Stowe England, “A New Look at BofA,” Mortgage Banking (October 2009). For Desoer, it was “the highlight of the year . . . when we retired the Countrywide brand and launched the new Bank of America Home Loans brand.” In the same issue, Mary Kanaga, a Countrywide transition executive who helped oversee integration, likened the process of integration to the completion of a mosaic: “Everything [i.e., each business element] counts. Everything has to get there, whether it is the biggest project or the smallest project. It’s very much putting a puzzle together. If there is a missing piece, we have a broken chain and we can’t complete the mosaic.” 96. By way of another example, in its 2008 Annual Report, Bank of America

confirmed that “[o]n July 1, 2008, we acquired Countrywide,” and stated that the merger “significantly improved our mortgage originating and servicing capabilities, making us a leading mortgage originator and servicer.” In the Q&A section of the same report, the question was

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posed: “How do the recent acquisitions of Countrywide and Merrill Lynch fit into your strategy?” Bank of America responded that by acquiring Countrywide it became the “No. 1 provider of both mortgage originations and servicing” and “as a combined company,” it would be recognized as a “responsible lender who is committed to helping our customers be successful homeowners.” (Emphasis added). Similarly, in a July 1, 2008 Countrywide press release, Mozilo stated that “the combination of Countrywide and Bank of America will create one of the most powerful mortgage franchises in the world.” (Emphasis added). 97. Thus Countrywide and its subsidiaries, which include Countrywide Home Loans,

have now been merged into Bank of America. Bank of America is liable for the wrongdoing of Countrywide because it is the successor-in-interest to Countrywide. 98. Bank of America also took steps to expressly and impliedly assume Countrywide

and its affiliates’ liabilities. Substantially all of Countrywide Financial’s and Countrywide Home Loans’ assets were transferred to Bank of America on November 7, 2008 “in connection with Countrywide’s integration with Bank of America’s other businesses and operations,” along with “certain of Countrywide’s debt securities and related guarantees.” 99. Countrywide ceased filing its own financial statements in November 2008, and its

assets and liabilities have been included in Bank of America’s recent financial statements. Bank of America has paid to restructure certain of Countrywide’s home loans on its behalf, including permitting Countrywide Financial and Countrywide Home Loans to settle a predatory-lending lawsuit brought by state attorneys general and agreeing to modify up to 390,000 Countrywide loans, an agreement valued at up to $8.4 billion. 100. As stated above, in purchasing Countrywide and its subsidiaries for 27% of its

book value, Bank of America was fully aware of the pending claims and potential claims against

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Countrywide and its affiliates and factored them into the transaction. See article entitled “Countrywide in Crosshairs as Mortgage Crisis Fuels Litigation,” published on February 22, 2008 in the legal publication Corporate Counsel. 101. Moreover, on October 6, 2008, during an earnings call, Joe Price, Bank of

America’s Chief Financial Officer, stated that “As we transfer those operations [i.e., Countrywide and its subsidiaries] our company intends to assume the outstanding Countrywide [entities’] debt totaling approximately $21 billion.” Asked about the “formal guaranteeing” of the Countrywide entities’ debt, Kenneth D. Lewis, Bank of America’s former Chairman and Chief Executive Officer, responded that “The normal process we followed is what are the operational movements we’ll make to combine the operations. When we do that we’ve said the debt would fall in line and quite frankly that’s kind of what we’ve said the whole time . . . . [T]hat’s been very consistent with deals we’ve done in the past from this standpoint.” (Emphasis added). 102. Similarly, Lewis was quoted in a January 23, 2008 New York Times article

reporting on the acquisition of Countrywide and its subsidiaries, in which he acknowledged that Bank of America knew of the legal liabilities of Countrywide and its subsidiaries and impliedly accepted them as part of the cost of the acquisition: We did extensive due diligence. We had 60 people inside the company for almost a month. It was the most extensive due diligence we have ever done. So we feel comfortable with the valuation. We looked at every aspect of the deal, from their assets to potential lawsuits and we think we have a price that is a good price. (Emphasis added). 103. Bank of America has made additional statements showing that it has assumed the

liabilities of Countrywide and its affiliates. In a press release announcing the merger, Lewis

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stated that he was aware of the “issues within the housing and mortgage industries” and said that “the transaction [with Countrywide] reflects those challenges.” Despite these challenges, Lewis stated in October 2009 that “The Merrill Lynch and Countrywide integrations are on track and returning value already.” 104. Likewise, in Bank of America’s Form 10-K for 2009, Bank of America

acknowledged that “[W]e face increased litigation risk and regulatory scrutiny as a result of the Merrill Lynch and Countrywide acquisitions.” 105. Brian Moynihan, Bank of America’s CEO and President, testified before the

Financial Crisis Inquiry Commission on January 13, 2010, that “our primary window into the mortgage crisis came through the acquisition of Countrywide . . . . The Countrywide acquisition has positioned the bank in the mortgage business on a scale it had not previously achieved. There have been losses, and lawsuits, from the legacy of Countrywide operations, but we are looking forward.” 106. Addressing investor demands for refunds on faulty loans sold by Countrywide,

Moynihan stated: “There’s a lot of people out there with a lot of thoughts about how we should solve this, but at the end of the day, we’ll pay for the things that Countrywide did.” And, in a New York Times article published in December 2010, Moynihan, speaking about Countrywide and its subsidiaries, again confirmed: “Our company bought it and we’ll stand up; we’ll clean it up.” 107. Similarly, Jerry Dubrowski, a spokesman for Bank of America, was quoted in an

article published by Bloomberg in December 2010 that the bank will “act responsibly” and repurchase Countrywide loans in cases where there were valid defects with the loans. Through the third quarter of 2010, Bank of America has faced $26.7 billion in repurchase requests and has

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resolved, declined or rescinded $18 billion of those claims. It has established a reserve fund against the remaining $8.7 billion in repurchase requests, which at the end of the third quarter stood at $4.4 billion. 108. During an earnings call for the second quarter of 2010, Charles Noski, Bank of

America’s Chief Financial Officer, stated that “we increased our reps and warranties expense by $722 million to $1.2 billion as a result of our continued evaluation of exposure to repurchases including our exposure to repurchase demands from certain monoline insurers.” And during the earnings call for the third quarter of 2010, Noski stated that “[t]hrough September, we’ve received $4,8 billion of reps and warranty claims related to the monoline-insured deals, of which $4,2 billion remains outstanding, and approximately $550 million were repurchased.” 109. Bank of America has reached various settlement agreements in which it has

directly taken responsibility for Countrywide Home Loan’s and Countrywide Financial’s liabilities. As part of a settlement agreement with certain state attorneys general, Bank of America agreed to forgive up to 30 percent of the outstanding mortgage balances owed by former Countrywide customers. The loans were made before Bank of America acquired Countrywide. 110. In October 2010, the New York Times reported that Bank of America is “on the

hook” for $20 million of the disgorgement that Defendant Mozilo agreed to pay in his settlement agreement with the SEC. The agreement and plan of merger between Bank of America and Countrywide provided that all indemnification provisions “shall survive the merger and shall continue in full force and effect . . . for a period of six years.” According to the article, “Because Countrywide would have had to pay Mr. Mozilo’s disgorgement, Bank of America took on the same obligation, even though it had nothing to do with the company’s operations at the time.”

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111.

On January 3, 2011 Bank of America announced that it had agreed to pay $2.8

billion to settle claims to repurchase mortgage loans that Fannie Mae and Freddie Mac had purchased from Countrywide or its subsidiaries. In its press releases and presentation concerning the settlement, Bank of America admitted that it was paying to resolve claims concerning “alleged breaches of selling representations and warranties related to loans sold by legacy Countrywide.” 112. On April 15, 2011, Assured Guaranty Ltd. (“Assured”) reached a comprehensive

$1.1 billion settlement with Bank of America regarding its liabilities with respect to 29 residential mortgage-backed securities transactions insured by Assured. The settlement agreement covered securitizations sponsored by both Bank of America and Countrywide affiliates, as well as certain other securitizations containing concentrations of Countrywideoriginated loans, that Assured had insured on a primary basis. 113. On May 26, 2011, Bank of America agreed to pay more than $22 million to settle

charges that it improperly foreclosed on the homes of active-duty members of the U.S. military between January 2006 and May 2009. In a public statement concerning the settlement, Bank of America Executive President Terry Laughlin said: “While most cases involve loans originated by Countrywide and the improper foreclosures were taken or started by Countrywide prior to our acquisition, it is our responsibility to make things right.” 114. On June 28, 2011, Bank of America announced an $8.5 billion settlement with

BoNY, as Trustee for certain Countrywide RMBS trusts. The settlement applies to claims that could be brought by BoNY in connection with 530 residential mortgage-backed securities that were underwritten by Countrywide affiliates and for which BoNY served as Trustee.

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115.

Bank of America’s public statements accepting responsibility for Countrywide’s

contingent liabilities arising from Countrywide’s and its subsidiaries’ mortgage origination, securitization and servicing practices, along with Bank of America’s actual settlement of such liabilities demonstrates that Bank of America and Countrywide intentionally structured the transfer of substantially all Countrywide’s assets in such a way as to leave minimal and inadequate assets remaining in Countrywide, and Countrywide Home Loans in particular, to cover these liabilities. 116. Bank of America has also generated substantial earnings from the absorption of

Countrywide’s mortgage business. For example, a Bank of America press release regarding the company’s 2009 first quarter earnings stated that “[n]et revenue nearly quadrupled to $5.2 billion primarily due to the acquisition of Countrywide and from higher mortgage banking income as lower interest rates drove an increase in mortgage activity.” Lewis was quoted as saying, “We are especially gratified that our new teammates at Countrywide and Merrill Lynch had outstanding performance that contributed significantly to our success.” 117. A press release regarding Bank of America’s 2009 second quarter earnings

similarly stated that Inlet revenue rose mainly due to the acquisition of Countrywide and higher mortgage banking income as lower interest rates spurred an increase in refinance activity.” The press release explained that “higher mortgage banking income, trading account profits and investment and brokerage services income reflected the addition of Merrill Lynch and Countrywide.” Bank of America reported that its average retail deposits in the quarter increased $136.3 billion, or 26 percent, from a year earlier, including $104.3 billion in balances from Merrill Lynch and Countrywide.

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118.

Bank of America’s 2009 annual report stated that “Revenue, net of interest

expense on a fully taxable-equivalent (FTE) basis, rose to $120.9 billion, representing a 63 percent increase from $74.0 billion in 2008, reflecting in part the addition of Merrill Lynch and the full-year impact of Countrywide.” Bank of America also reported that “[m]ortgage banking income increased $4.7 billion driven by higher production and servicing income . . . primarily due to increased volume as a result of the full-year impact of Countrywide . . . .” Insurance income also increased $927 million “due to the full-year impact of Countrywide’s property and casualty businesses.” C. 119. Bank of America is Countrywide’s Successor-in-Interest Based on the above, Bank of America became the successor-in-interest to

Countrywide and its affiliated entities because Bank of America, in a self dealing transaction for which it provided inadequate consideration, purchased all of the assets and ongoing businesses of Countrywide, including Countrywide Home Loans, rendering Countrywide insolvent and unable to satisfy its massive contingent liabilities. Additionally, Bank of America became the successor-in-interest to Countrywide and its affiliated entities because (a) there was continuity of ownership between Bank of America and Countrywide, (b) Countrywide ceased ordinary business soon after the transaction was consummated, (c) there was continuity of management, personnel, physical location, assets and general business operations between Bank of America and Countrywide, (d) Bank of America assumed the liabilities ordinarily necessary for the uninterrupted continuation of Countrywide’s business, and (e) Bank of America assumed Countrywide’s tort and mortgage repurchase liability. Thus, Bank of America is the successorin-interest to Countrywide, including Countrywide Home Loans, and is jointly and severally liable for the wrongful conduct alleged herein by Countrywide.

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120.

Based on the same facts, the Supreme Court of the State of New York in MBIA

Ins. Corp. v. Countrywide Home Loans, et al, Index No. 602825/08, held that MBIA sufficiently alleged a de facto merger “in which Bank of America intended to absorb and continue the operation of Countrywide.” Id., Order on Motion to Dismiss at 15 (Apr. 29, 2010). FIRST CAUSE OF ACTION Breach of Contract (Against All Defendants) 121. 122. Plaintiff repeats all the foregoing allegations as though fully set forth herein. Countrywide represented in Section 7.01 of the Servicing Agreement that no

written statement, report or other document that it prepared and furnished in connection with the Servicing Agreement or the transactions contemplated thereby contained any untrue statement of material fact or omitted to state any material fact necessary to make the statements not misleading. Through the Pooling Agreement, the Trustee was assigned the rights to enforce this representation. 123. Through Countrywide’s material misrepresentations and omissions in, among

other things, the Prospectus Supplement, the Mortgage Loan Files, and the Officer’s Certificate, Countrywide breached this Seller Representation and Countrywide is on notice of such breach. 124. Countrywide is obligated under the Servicing Agreement to cure any breach of

the Seller Representation that materially and adversely affects the value of the Loans or the interests of the Certificateholders therein, or repurchase all of the Loans within ninety days of receipt of notice of such breach from the Trustee. 125. On August 29, 2011, the Trustee requested that Countrywide repurchase all of the

Loans pursuant to pursuant to Section 7.03 of the Servicing Agreement and Section 2.03 of the Pooling Agreement. Countrywide has refused to repurchase all of the Loans as required.

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126.

The Trustee has performed all of the conditions, covenants, and promises required

to be performed by it in accordance with the Pooling Agreement and seeks specific performance of Countrywide’s obligation to repurchase all of the Loans as specified in Section 7.03 of the Servicing Agreement. SECOND CAUSE OF ACTION Breach of Contract (Against All Defendants) 127. 128. Plaintiff repeats all the foregoing allegations as though fully set forth herein. This is a claim against Countrywide and Bank of America for breach of contract

with respect to the Servicing Agreement. Through the Pooling Agreement, the Trustee was assigned the rights to enforce the Mortgage Representations in the Servicing Agreement. 129. Countrywide expressly agreed in Section 7.03 of the Servicing Agreement to

repurchase a Loan if it was provided with notice or had knowledge of breaches of a Mortgage Representation that materially and adversely affected the value of such Loan or the interests of the Certificateholders therein. 130. As the ultimate assignee of the GCFP’s rights in the Servicing Agreement, the

Trustee is entitled to enforce Countrywide’s Repurchase Obligation as if it was a party to the Servicing Agreement. 131. The Trustee provided Countrywide with notice of breaches of Mortgage

Representations that materially and adversely affect the value of the Loans and the interests of the Certificateholders therein. The Breach Notices identified the specific Loans that contained material breaches of Mortgage Representations and described in detail the nature and type of those breaches.

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132.

The ninety-day period in which Countrywide had to cure the breaches or

repurchase the Loans has expired with respect to the Loans identified in the Breach Notices. 133. Countrywide has not repurchased 495 out of the 520 Loans identified in those

Breach Notices, in direct violation of Section 7.03 of the Servicing Agreement and Section 2.03 of the Pooling Agreement. 134. The Loans identified in the Breach Notices have an aggregate principal balance of

over $100 million. If Defendants are not required to abide by their contractual obligation to repurchase these Loans, and any other Loans that Defendants know or have reason to know contain breaches of one or more Mortgage Representations, the Trust and its Certificateholders will be irreparably harmed. 135. Plaintiff has performed all of the conditions, covenants, and promises required to

be performed by it in accordance with the Pooling Agreement. PRAYER FOR RELIEF 136. 137. WHEREFORE Plaintiff prays for relief as follows: On the First Cause of Action, specific performance of Defendants’ obligations to

cure or repurchase all of the Loans; 138. On the Second Cause of Action, specific performance of Defendants’ Repurchase

Obligations and enforcement of Section 2.03 of the Pooling Agreement and Section 7.03 of the Servicing Agreement; 139. On the First and Second Causes of Action, reimbursement of costs and expenses

of maintaining this action on behalf of the Trust, including reasonable attorney and expert fees; and 140. An award of such other and further relief as may be just and proper.

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DATED:

New York, New York June 18, 2013 Respectfully submitted, KASOWITZ, BENSON, TORRES & FRIEDMAN LLP By: /s/ Michael M. Fay Marc E. Kasowitz (mkasowitz@kasowitz.com) David M. Friedman (dfriedman@kasowitz.com) Michael M. Fay (mfay@kasowitz.com) Jenny Kim (jkim@kasowitz.com) Uri A. Itkin (uitkin@kasowitz.com) 1633 Broadway New York, NY 10019 (212) 506-1700 Attorneys for Plaintiff

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